One of the most exciting aspects of my job is working with entrepreneurs who are starting new businesses. With the recent economic recession, these motivated business owners are finding it much more difficult to access traditional sources of capital. As a result, angel investors, private equity funds and venture capital funds have increasingly come to the fore as the new, best source of capital for new businesses. However, on occasion, innovative entrepreneurs are finding new, interesting and effective methods of raising the capital they need.
Recently I began working with some new clients who are opening a restaurant here in Santa Barbara. This is a refreshing occurrence for me, since the vast majority of clients I work with are from outside the local market, many from as far away as Connecticut, New York and Canada. Recently I visited the site of their future restaurant, where preparations are already well under way. This was quite a treat for me! In fact, out of probably more than 400 business plan packages that I have written over the years, this is the first time I have ever actually set foot on the physical location of the business I have prepared the documents for, to assist the entrepreneur with funding.
Ron True, the executive chef, and Diego Barbieri, the marketing director, were kind enough to take me on a tour of what will soon be R&D Restaurant. The restaurant will offer about 2,650 square feet of space, plus additional outdoor space on the patio.
The menu will feature fresh produce purchased daily from local farms, with a focused selection of fish, chicken and beef for entrées, and traditional starters and sides, prepared with unique herbs and spices, all presented with a polished finish. R&D will also have a full bar area and a private room for special events, parties, etc.
It is amazing to see the restaurant already taking shape, and the excitement, motivation and focus of two young, experienced entrepreneurs ready to build a successful business.
Like most entrepreneurs, Ron and Diego are actively seeking funding. They have some funding already in place, which has allowed them to fast-track their preparations and move ahead with the project. They are still in need of additional capital, which is a very typical scenario that most entrepreneurs find themselves facing when developing a new project.
Although Ron and Diego are pursuing traditional avenues for raising the additional capital they need, they have also devised a very interesting method for raising capital that I have personally never seen before, and one I think is novel, innovative and cost-effective. They are offering “chairs” for $5,000. Those who choose to invest will lend R&D Restaurant $5,000 and, in return, the investor will receive a 50 percent discount on anything and everything ordered, any time the investor visits the restaurant, for the life of the loan. After R&D pays back the loan, the investor will still receive a 20 percent discount on anything and everything he or she orders at the restaurant, for life.
Couples could get two “chairs” so they can go in together and enjoy everything that R&D Restaurant has to offer and receive these fantastic discounts. Other investors may want to consider getting a table of four, so they can bring a spouse or date and two guests, and enjoy the sizable discount.
One of the ways in which Ron and Diego are able to offer such an attractive arrangement is that they have secured a strategic alliance with another entrepreneur here in town who owns several restaurants, and who has agreed to allow R&D to purchase their food at his cost. With lower food costs, R&D’s profit margins will be higher, and thus they can afford to offer these very attractive discounts for investors and still do well, even on these discounted orders.
More important, having investors motivated to come in to enjoy the discount will likely drive additional sales, since diners tend to bring friends with them when they come to the restaurant. Also, having a more active, lively scene always attracts more patrons.
I have been incredibly impressed with Ron’s skills, training and background as a chef. He has worked and trained in New York, San Francisco and all over Europe. The menu for R&D looks delicious and I can’t wait to experience the atmosphere once R&D opens! For those interested in more information, Ron can be reached at email@example.com or contact Diego at firstname.lastname@example.org.
— Craig Allen, CFA, CFP, CIMA, is president of Montecito Private Asset Management LLC and founder of Dump Your Debt. He has been managing assets for foundations, corporations and high-net worth individuals for more than 20 years and is a Chartered Financial Analyst (CFA charter holder), a Certified Financial Planner (CFP) and holds the Certified Investment Management Analyst (CIMA) certification. He blogs at Finance With Craig Allen and can be contacted at email@example.com or 805.898.1400. Click here for previous Craig Allen columns. Follow Craig on Twitter: @MPAMCraig.