Tuesday, April 12, 2011

The Restaurant Business, Angel Investment and Venture Capital Funding

I believe that the restaurant business fundamentally is NOT a Angel Fund/Venture Capital friendly business. Why?

Angels Investors and VCs seem to like businesses that can create a product/solution/offering using the initial money they invest, that can then be scaled at a rate that is positively disproportional to any additional capital investment. For a restaurant business, even if your first unit is very successful, to grow, you would need a lot of capital again and again. If "x" is the investment for the first unit, to grow revenues by 100 times, you would need an investment of 100x (probably more if you need more money towards marketing/branding). VCs like businesses where if they invest “x” initially to create a product, then to grow revenues by 100x, they would probably need to invest 10x/20x, primarily towards sales, marketing and customer support.

Having said this, there are quite a few restaurant businesses in India which have received VC funding so far. Plus with the market expected to grow significantly in the next few years, VCs may start getting more interested. As the examples below illustrate, it seems to be easier to get first round funding once you have a successful brand rather than getting angel funding.
1. Yo China (www.yo-china.com) – Matrix Partners (www.matrixpartners.in) - 25 Crores in 2006
2. Kaati Zone (www.kaatizone.com) – Erasmic Ventures (www.erasmic.com), Accel Partners (www.accel.com) and Draper Investment (www.draperco.com) – Interesting interview with Kiran Nadkarni, Founder & CEO of Kaatizone (http://bangalore.citizenmatters.in/blogs/show_entry/141-interview-kiran). Exact investment not known, but my guess would be about 10-15 Crores.
3. Mast Kalandar (www.mastkalandar.com) – Footprint (www.footprintventures.com), Salarpuria Group (www.salarpuriagroup.biz) and Helion Ventures (www.helionvc.com). They received 2 rounds of funding – about 4 Crores in 2008 and about 40 Crores by Helion in late 2010.
4. Brand Calculus - Booster Juice and Kiwi@Kiss Frozen Yogurt (www.brandcalculus.com) – 16 Crores in 2009 from Helion Partners (www.helionvc.com).
5. Cocoberry (www.cocoberry.co.in) – Ajay Relan of CX Partners (www.cxpartners.in) – 9 Crores in 2011.

I am not including large Private Equity investments that Café Coffee Day, Encore Hotels (Rajdhani) and certain other large brands may have received.


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