I’ve worked in finance for over 10 years. I partnered a few years ago with some of my friends who started the food delivery app called Caviar. We used some of the liquidity from them selling to Square to invest in restaurants, tech and real estate. For restaurant investments, we try to make small restaurants into big restaurants by taking what we learned in finance and technology and helping food owners evolve into larger companies. It’s truly been a pleasure meeting talented food people and helping them achieve whatever their goal is at scale.
I love food. I think when people think about their best memories or where they want to celebrate or have a date, it’s always at a restaurant. That’s where you spend all these memories and emotions with your family, dates and celebrations with close friends. If you could somehow create a business where you’re creating great memories and experiences for people, that’s an awesome business with a return beyond the financial one. I’m excited to help this industry evolve and continue to deliver an experience that could brighten our memories for a while.
I think there is a fundamental financing gap for small restaurants. If you created 15 to 20 stores, you actually have no shortage of financing available to you because number one, you’re probably diversified enough geographically where you’re not hit by a certain area and have proven out scale and diversification to have a portfolio of earnings, not concentrated on a single location.
You already proved out your concept, usually the losses of a single store will be absorbed by the success of the brand. And then we noticed that at five stores and less, there’s almost no financing. The way people do is that they would just raise for the first concept, and subsequently if they did have one successful store, they would raise money for the second or the third one and the fourth one, and it would just be a slow drawn out process.
We’re in the Bay Area and I think that a few years ago that dynamic changed where everyone was thinking about, hey, even before my first restaurant, I need to scale this and figure out what my vision of the concept is going to be. And again it was a very not competitive space because of the risk model.
So we filled hat gap in the Bay Area and was able to meet some of the best operators and help them on the finance and tech side. Because restaurant operators are usually solid operators and experience creators, we were able to help them build a company from their visions.
We try to partner with operators that have a synergy where we can help each other grow that brand pretty quickly.
QSRs (quick service restaurants) generate anywhere from $1-4 million a year in revenue. A larger, full dining restaurant can generate from $6-30 million a year in revenue, with the high end of the range being a top operator, brand and right demographics and location.
I think you would maybe have one location that could potentially be a money losing store but then you kind of think about it as a marketing expense. I think anything in Times Square in New York, do those really make money? The rent that they’re probably paying, maybe with tourism, but it’s probably tough for them and certain high-traffic areas are a great marketing tool.
I mean every time someone takes a picture of Times Square, you have your brand out there. So they do that periodically, but it’s not a high margin business so they can’t afford to do too many of these stores.
There are certain investments that we’ll make as a group, and to make the investment, we need all 4 people to buy in and we need all 4 to feel very calm and comfortable with the concept. Omakase Capital is an arm where maybe some ideas are just not ready for investment yet.
Ifit’s a really good idea but needs maybe a little bit more branding or it really needs a little bit more help on the marketing side. So it’s somewhat of like a consulting arm that gets concepts ready for the big investment in the food and beverage space.
We came up with that brand because I love sushi and omakase means chef’s choice. We service whatever the needs of the business are and get it ready for an investment in some fashion.
A given is the food has to be good and 90% to 95% of the time, if someone is willing to make a career based on the food they’ve made, it’s going to taste good. So that’s step one. Step two is the owner’s goals for the restaurant, some want to go for the Michelin star, and then some want to have 200 stores. Some want to have 10 of them and maybe sell to private equity, some franchise, like whatever their goal is, does it match with the plan that they’re going to have? And then I think the last point is you know most people can operate when times are good, but it is really trying to find the operators that can operate when times are tough.
It surprises me a bit because we had the best bull market of all time for over 10 years and this virus has truly transformed so many businesses.. How is one month of shutdown going to shut down all the businesses. It fundamentally just says like you know, we aren’t caring about the balance sheet and other fundamentals and saving for the future.
So, that’s what I do, I do the diligence and meet the owner, because I met so many owners the past few years I can see who in a time of crisis would be able to keep a calm head and try to react to,whatever situation to make it successful and I think that’s kind of like a person that you need.
Like everyone in a good time, it’s easy but when you have your own company, you are going to have pluses and minuses, how are you going to deal with the minuses?
I won’t go into full detail but we have invested in Rooster and Rice (Thai chicken and rice concept), Bamboo Asia where it’s a commissary model where it’s more of an economics type of play, pretty interesting concept and also invested in Dumpling Time at the Chase Center. We’re really excited about that one and the operators there. Those are probably our three primaries right now and we had a bunch of stuff in the pipeline but those are going to be on hold.
I think a lot on the private side, it’s really based on the level of profitability and a dividend, think also the structure has to be pretty good, restaurants have traditionally been a high risk investment. So when it’s profitable, the investor should really get back their capital. There’s usually a profit share type of arrangement where it’s heavily skewed towards the investor until they get their money or money plus 10% back and then it goes back to the management and then the investor kind of goes along for the ride. That’s typically the structure.
I’ve been spending a lot of time thinking about restaurants and what going out is going to be like post COVID. It’s just not going to be the same. It might be the same 5 years down the line where we go to a restaurant and we can be shoulder to shoulder with a stranger and not be irked out but that consumer confidence is going to be forever changed.
I think one thing that is pretty cool right now is all these Michelin Restaurants that are primarily used to only a dine in tasting menu experience, they’re doing some pretty cool stuff with delivery. You know one of my business partners, Jason Wang, he invested into Avery and Avery has done one of the coolest takeout options, like freshly made pasta. He knows that like if you make the pasta here early it’s going to taste pretty bad so he makes it so that all you have to do is like boil water and put the pasta in. Anyone could really do that. You see the Dominique Crenn kits, I think those are pretty cool and then the Corey Lee kit, the San Ho Won one is a new Korean restaurant that he was going to open. I mean it’s awesome, you get to try you know like the same caliber of food, maybe a little bit less because it’s take home and delivery but for a fraction of the cost and I really think that’s the model that is going to be more prevalent after this.
I started Omakase Capital because there were so many projects that might not have been ready for investment, but with a little help in branding, finances, etc. could become potentially big projects. So we started this interim investing company to help restaurants get to the point where they were prepared to take on a large investment and be more aligned on their visions and goals.
There are two sides of restaurant investing: (i) business returns and (ii) emotional. The first set of investors really focus on the merits of the business and how capital will be returned while the second set cares more about being part of the project itself and not so much on the financial side. Many fine dining restaurants are of the latter. It’s important to decide what side you are on prior to investing to avoid frustrations.
I would say, because it’s so capex heavy, a lot of the construction and design is pretty expensive and you need a starting working capital. I think anywhere from $10,000 to $50,000 is considered an average investment and anything above that is pretty large. That is at an individual participant level, but most concepts require hundreds of thousands of dollars.
The most interesting story at this point is how we were tackling our investment thesis on the Asian chicken and rice space. At the time, we were starting out Chick’n Rice, we were a Thai chicken and rice chain partnering with a Thai businessman, there were several other concepts, such as Rooster & Rice starting at the same time.
We were operating as tech entrepreneurs and finance professionals and we really were lacking some of the restaurant expertise at a day to day level. We were considering restructuring our operations, but at the same time, I diligenced the top 10-20 of the restaurants that were making a similar version of the dish to see if we could partner as well.
I had all these dishes across the entire state of California for months and eventually met with the owners of Rooster & RIce, and the rest is history.
It was very difficult. We were the top two brands in the Bay Area and competitors. Much of the hurdle of the merger was getting the two sides comfortable enough to combine our brands and the owners to trust one another. We were eventually able to accomplish this and propel the brand and execute on the merger strategy going forward.
I believe the next big food items will all be QSR. There are certain cultural QSRs that have not yet materialized, like Korean food or yakitori, and are waiting for someone to come in and be the market leader in that space.
My advice for people wanting to open a restaurant is developing a model that has proper margins. It really has to become the focus for operators again, as thin margins and good service are not enough to survive. We have to think about models that can be executed on that add to the profitability, because that is what pays for the business (the staff, experiences, etc.)