Restaurant Investing

Stewey,
Very valid question.
Most commercial monies will put sneakers on and run the other way when the word food is used.
If you don't mind me asking, what side of the coin is the question comming from.
A lot of individual investors will seek out other investors who will team up together to create some weight in their investments. This also alows them to make multiple investments to strenghted the odds of developing black companies.
More and more, these groups are exposing themselves. This is a very high risk gamble. Personally I have been hired by a group of Dental associates, on a number of occasions, to give my input into the viability of some investments.
These days, investing in the food industry is no different then going to Vegas and dropping it all at a table. There is much written on the subject. Unfortunately as a lot of information out there, you will find, an agenda attached.
Remember, be yourself. Handle youself the same way as your friends.
Attention to detals is the success factor. You have to give money away to make it.
pan

Stewey,
Are you looking to invest of have someone invest in you. If you're looking for investments there is always franchise investment with a lesser risk.

Too many people think too big. IMO your money spent on the restaurant management program is better spent purchasing a small sandwich shop. Your contacts are better made in your local restaurant assocation or BBB.

...fools rush in where angels fear...

Stewey -

I've developed and/or opened two dozen restaurant concepts in the Chicago area during my career. I've worked with some of the top chefs in the city, and in some of the most successful restaurants.

As an attorney, you know that most restaurants are financed through private offerings of unregistered securities. These offerings as you know, are limited to accredited (sp?) investors and are subject to other "safe harbor" guidelines in the eyes of the SEC and the governing state securities agency.

Whew!

Most chefs, even the Beard Award winners who I've worked with, start with an angel investor who will pay for their "book" or private placement memorandum, and other expenses. That angel has the highest risk.

In the typical agreement, the chef and investor group forms an LLC - an entity like a corporation, where the parties involved have a limit on their liabilty. Everyone involved in this LLC signs an operating agreement which spells out their rights and responsibilities, in good times and in bad. The members of the LLC are bound by the operating agreement.

THIS IS THE HARDEST CONCEPT FOR MOST CHEFS TO UNDERSTAND:

In a corporation, control is related to percentage ownership. In a family (S) corporation, tax burden is passed on to the individual owner according to their percentage ownership.

In an LLC, control is based upon the terms of the LLC operating agreement. Taxation is based upon the percentage of ownership. In an extreme case, a chef who owns 2% could be in control of a restaurant with investors who have 98% ownership.

YOU SHOULD ALWAYS CONSULT YOUR TAX AND LEGAL ADVISERS BEFORE BECOMING INVOLVED IN ANY NEW VENTURE!!!!!

That said Stewey, you should call me! I can give some quick advice and make some introductions.

DJ

David,
I'm just curious if you think the most important part of an agreement,whatever it may be, is how to disolve it amicably. I've been snagged once. It will never happen again. I'm always hearing about LLC, partnerships etc. just imploding.
I am very pro investing in small business. We are going away fast. These huge monopolies and Franchises eventually have the customer sercume to a mediocre product if they are controlled by the large kick back venders, Sysco etc. scuze the spelling

Stewey, I got caught up in an overview on this one, just because the issue of raising money is the first question most chefs ask me as a consultant. As the attorney or investor you should be seeking out the talent who you think you can sell. If you're a foodie, that should be very easy. I know several groups here in Chicago who back restaurants as a routine, one as if it's an investment club.

Panini, I think you're right when you say that most partnerships don't work out. So when you're working out the issues of a partnership (operating) agreement you should always try to plan for a time when everyone is pissed and ready to sue. That includes spouses and families who may become owners of interests. Hash it all out when you're all friends, and if someone asks why, tell them your lawyer brought it up.

Also, Panini, as the "angel" investor, you can dictate the terms in a deal - especially if your money is the most or the first in....

I have a good one for you right now....

I can't resist putting in my 2 cents here. I tried! I left the page then I came back.

First I agree with most of the things people have said in response to your post. Even when one piece of advice contradicts another. They are all true. It is the beauty and art of the restaurant business! Most everyone is right, there is no foolproof formula (despite what the consultants who, 9 times out of 10 have never even worked in a restaurant, would like to tell us.), you can have smashing successes in this business and, here is where I would closely study David Jones advice, lose your shirt, your wife's shirt, well, everybody's shirt. But, what business is that not true of? This is a business like any other, you can succeed and you can really mess it up.

So the key is , like any good scout, "be prepared". But, IMO, don't over think it. So Kuan is right too. Don't waste the money on some school that is going to teach you the "Consultant-Business-School-Proven-Method" to "Open-Your-Own-Restaurant-and-Get-Your-Own-30-Minutes-On-TheFoodNetwork". This is my pet peeve in the "new" restaurant culture. And, again, IMO, if you have been through Law School and practiced . My first question is: haven't you had enough of that? And, you probably know a great deal of the ABC's of business even if your knowlede is not overly specialized.

Passion, vision, some good old-fashioned common sense and a bit of dedication, well, maybe more than a bit, will get you places in this business. My guess is that you are not looking for a fast-food franchise so really think about what you know, love and wish was available in your market. Then, do it. But, keep clear of the standard investment strategies, again, IMO. An "angel investor" , a good operating partner, vision, hard work and a little luck will get you places no 2 year Restaurant Mgmt course or Consultant Advice ever will.

Oh, and get a good chef, pay your bills and
DON'T fold your napkins in that "fan" thing, please! It makes me nuts.

Wow, ExpatC, sounds like you've been burned by a consultant!

awesome info to share with us there ExpatC. had to quote the above statement cuz it made me laugh so much (i feel the same way).