Financing

Want investment for your brand? Be a good person

A private-equity investment in an emerging restaurant chain is a relationship as much as anything. That's why the best piece of advice for getting it may also be the simplest.
Walk-On's
Walk-On's private-equity sponsor knew about the chain for years before it invested. | Photo courtesy of Walk-On's Sports Bistreaux.

Walk-On’s Sports Bistreaux received an investment from 10 Point Capital in 2020. But the private-equity firm knew the company and its cofounder, Brandon Landry, long before that. 

“I knew Brandon for a couple of years before we invested,” said Morven Groves, managing partner with 10 Point Capital, said at the CREATE Investment Summit on Tuesday. The conference was put on by Restaurant Business sister publication Nation's Restaurant News.

“We dated a while,” Landry interjected. 

The story illustrates a key point as growing restaurant companies look for investment capital: That private-equity investment many growing brands are looking for is as much about relationships as anything else.

The investor will become the restaurant chain’s business partner. For that investment, the private-equity firm will get a substantial say in the company. And the partnership will last, hopefully, for years. 

All of which makes this bit of advice rather important for any company considering such a deal: Be a good person. 

“A couple of rules we have: Are they willing to listen? If they’re not willing to listen, then we don’t want to be involved with them,” said Anand Gala, founder of Gala Capital Partners. “And are they an asshole? If they are, then we don’t want to be involved with them.” 

Private-equity firms come with some baggage in terms of reputation. They aggressively use debt or other financial instruments, for instance, or they push too much growth at the expense of long-term goals. Namely, they are short-term investors who are in and out in five or so years. 

Views on such firms differed at the event, with some saying such firms are “evil” and others rushing to their defense. But there’s little question that a private-equity deal can spur major growth at an emerging chain.

At the same time, such financing hasn’t been easy to come by lately. “It’s hard for a lot of private-equity firms to invest in an emerging chain,” said Alicia Miller, cofounder and managing partner of Emergent Growth Advisors. 

“We can’t fund every deal on the planet,” said Andrew Smith, managing partner of the private-equity firm Savory Fund. 

A decade ago, private-equity firms were all over growth brands looking for “the next Chipotle,” sometimes investing in brands with as few as one location. But many of those deals failed. Companies ended up in bankruptcy. Or the investment firms walked away from restaurant chains, ceding ownership to investors who bought the debt. 

That has made a lot of private-equity firms reticent to put money into restaurant chains. Or, as Andrew Peskoe, chairman of Golenbrook, said: “FOMO, or fear of missing out, has given way to FOFU, or fear of fucking up.”

Some firms have changed the way they look at deals, given the rising cost of debt—or the lack of debt availability. “It’s a lot easier when you have debt to play with,” said Lauren Fernandez, CEO and founder of Full Course. 

Yet, she said, her firm’s parameters on unit economics have not changed. Indeed, unit economics matter. If a brand can generate a lot of sales at the unit level, they can get investment. 

When Landry was talking with 10 Point about an investment, the firm’s focus was on the revenue Walk-On’s generated per location. “We didn’t talk a whole lot about the bottom line,” he said. “We talked a lot about the top line. You can’t fake sales. And you can’t fake traffic count.” 

Years ago, he told investors, including former New Orleans Saints player Drew Brees, that he was looking for a partner. “I need some help,” he quoted himself as saying. “I want a sounding board.” The investment in and of itself “wasn’t the main motivator.”

10 Point, meanwhile, looked at whether it could build Walk-On’s into a brand. “We spent very little time talking about financials,” Groves said. “Where we focus is what are the things that drive the business, because if we don’t get that right, everything else doesn’t matter.” 

The firm doesn’t have a set timeline for its exits, unlike traditional private equity that prefers getting out within five years. “If it’s a great brand and we’ve done all the hard work of building it and it throws off cash, none of us are desperate to get out,” Groves said. 

That appealed to Landry, who was not interested in a short-term relationship.

The investment appears to have worked out for Walk-On’s and for Landry. The chain has expanded to 80 units at the end of last year, up 70% from 2020, according to Technomic. Sales have more than doubled. And Landry has secured funding and expertise for a second concept, the burger brand Small’s Sliders, which is expanding rapidly through franchising. 

For Landry and Walk-On’s, the relationship with the private-equity firm has been fruitful. 

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