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Union Square Hospitality goes into the private-equity business

Shake Shack founder seeks to invest in other like-minded concepts — even ones that aren't food-related.

Danny Meyer’s Union Square Hospitality Group has collected a $200 million private-equity fund to invest primarily in “fast-casual restaurants and technology companies that fuel hospitality,” the company announced today.

Enlightened Hospitality Investments has secured that financing from third-party investors, as well as from USHG itself. It will consider granting funding to like-minded concepts, even if they fall outside of the restaurant and hospitality categories.

The group will fund three to four companies yearly over the fund's five-year investment horizon, says Mark Leavitt, USHG's chief investment officer, who will be running EHI. A handful of the funded concepts will be "homegrown" by USHG, Leavitt says, with possibilities including, but not limited to, fast-casual pizza concept Martina, Daily Provisions cafe and other USHG-held concepts.

The fund will invest $10 million to $20 million for minority stakes in companies USHG sees as category leaders. Prime candidates will share “USHG’s ‘Enlightened Hospitality’ strategy and mindset of prioritizing employees among all other stakeholders to drive customer satisfaction and ultimately, attractive and sustainable investor returns,” according to a press release.

In addition to money, the businesses will benefit from USHG's operational advice, covering everything from site selection and supply chain logistics to international expansion, Leavitt says.

Some of the fund's third-party investors are owners of global food concepts interested in developing new companies for worldwide expansion, he says. Others are real estate and hotel investors looking to diversify their properties with food concepts. 

One thing the fund likely won't do? Acquire a majority stake of the businesses it invests in, Leavitt says. 

"A lot of these companies could lose their entrepreneurial edge if they were totally owned by us," he says. 

Though the fund was officially announced today, USHG already has a track record of throwing its financial weight behind like-minded businesses. Earlier this year, the restaurant group invested in third-wave roaster Joe Coffee and artisanal ice-cream concept Salt & Straw. In 2016, USHG invested in reservation operating system ResyOS. In 2014, Meyer himself invested in fast-casual salad concept Sweetgreen, while USHG backed a similar salad concept, Tender Greens, in 2015.

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