How to Find the Right Restaurant Investor

You need significant capital to open and manage a restaurant. In many cases, this funding can be obtained with help from credit firms or investors. If you don’t want to acquire debt, finding a restaurant investor is the better option, but can still present some challenges.

Investors will view your restaurant business with a critical eye, enabling them to spot issues in your operations or business plan that you may not have noticed before. What’s more, investors want an ownership share in your business, so they may be unwilling to invest if they don’t think the restaurant will reach break even income or start to make a profit by a certain date.

We’ll explain everything you need to know about what it takes to find and win your next restaurant investor, and in turn help you prepare your business for its next milestone.

Why Do You Need a Restaurant Investor?

Investors can provide capital and support for your restaurant startup. You can think of them as your restaurant champions. If they believe in your vision, investors will give you the resources to help bring your business idea to life.

The challenge is convincing investors that you have a feasible restaurant proposal already in place.

Depending on whom you believe, the average failure rate of restaurants in the first year is 17%; other sources claim failure rates are as high as 90%. It’s the investor’s job to thoroughly assess your proposal to determine if you have the success potential they’re looking for.

Let’s say your restaurant has been running successfully for over a year now. In that case, you may be all set for an expansion. This is a good time to find a restaurant investor, because additional capital is often needed to branch out or launch a franchise business.

With great restaurant metrics to show off, it may be easier for you to find an investor. If they decide to support your growth, your investor can give you more industry connections to help you build a second outlet or find potential franchisees.

What if you experience a slow season that lasts longer than you expected? Or what if food costs are running so high that your sales can barely keep up? In either of these scenarios, partnering with a restaurant investor can help you stay in business.

If you’ve found a solution that may save your restaurant, you can pitch it to an investor to get funding. For example, if your research shows that setting up an online ordering system can help increase sales significantly during a slow season, a restaurant investor may fully support that idea.

Types of Restaurant Investors

Before finding an investment partner, you need to know the different types of restaurant investors to determine their expectations ahead of time.

Angel Investors

If you have trouble getting restaurant funding, approaching an angel investor may help. Angel investors are high-net-worth individuals (HNWI) who support restaurants with concepts they personally find interesting. 

It’s usually best to approach an angel investor if you’re just about to open your restaurant. Angel investors are more focused on a good startup idea than with its immediate or short-term growth potential.

Angel investors are often willing to act as passive investors, or part-owners without operational control. They may expect a small percentage of return on investment (ROI), which you can provide when your restaurant begins to turn a profit.

Venture Capitalists (VCs)

Venture capitalists (or VCs) are investors from a risk capital firm or private equity firm. They help startups and small businesses they believe will be successful. Unlike angel investors, however, many want some operational control in exchange for the funding they provide. 

Because of this, VCs may expect a higher ROI than angel investors. You may choose a VC over an angel investor if your restaurant is already growing, and pitch them a business venture with a proven path to growth. 

Friends and Family

If you’re a newcomer in the F&B and hospitality industry, you can ask your friends’ or family’s help to open your restaurant. The biggest benefit of approaching friends and family for funding is the strong support you’ll likely get right from the beginning.

Other advantages of working with them often include a more intuitive understanding of your restaurant’s challenges, and implicit trust in your planning and decision-making process.

They may also be more understanding or tolerant about delays you may encounter along the way – and wait longer than other investors to cash in on their investment, so you can keep restaurant operational expenses stable.

How to Find a Restaurant Investor

Once you’ve decided that you need a restaurant investor, use these tips to succeed in the process.

1. Develop a Fresh Restaurant Concept

Your restaurant’s concept is the first thing investors will want to know about. It may be a brand new or challenging concept; but if it isn’t, it may still be original in terms of restaurant design, or choice of chef. Your restaurant concept may also have an interesting background origin story that may click with customers.

A familiar concept can become unique with a catchy restaurant name and an interesting menu. Build your brand around those factors to create a restaurant concept that will impress your investors.

2. Choose a Great Restaurant Location

Don’t settle on a mediocre restaurant location to launch your concept, especially if it’s highly original. Next to concept, location is probably the most crucial factor in starting a restaurant. A good location makes your restaurant accessible to customers; it should also be a good fit with your restaurant concept in terms of your target demographic and your understanding of their dining habits.

Consider the size of your chosen location, too. A restaurant that’s too small will have limited seating, which may limit your revenues for dine-in customers, maybe even impact your chances at generating online ordering business. Investors will note issues like this, so choose a location with care.

3. Prepare a Winning Restaurant Business Plan

A winning restaurant business plan (or restaurant proposal) outlines every aspect of your business, such as operations, marketing, accounting, human resources, etc. Investors will examine it thoroughly, so take the time to do your research, assess your projections, and design your perfect proposal.

The most critical part of your business plan is the first section: the executive summary. Some investors may only look at this part before making a decision, so consider it your restaurant’s pitch.

Highlight your restaurant concept’s biggest selling points, your vision, purpose, and future plans in the executive summary to win an investor’s attention – and encourage them to read the rest of your proposal.

4. Get Help From Your Peers and Network

When your restaurant proposal is ready, find potential restaurant investors with the help of your peers and network. If you’re new in the industry, make the effort to build connections and gain insight from other restaurant owners. See if they will share tips about how they found their own investors, if they are willing to connect you with one, or if they know someone looking for an investment opportunity.

Growing your network is important when finding restaurant investors. Being well-connected can give you leverage in the future, enabling you to return the favor when the time comes, and strengthening friendships that open doors to other opportunities.

Spend time creating valuable connections by joining organizations for restaurant owners and attending F&B and hospitality events. Not only will you get regular updates on industry developments by going to these events. You also increase your chances of getting a timely introduction to angel investors or VCs actively looking for restaurants to support.

5. Consider Joining an Incubator

A food incubator is a shared commercial kitchen for beginner restaurateurs. It is sometimes mistaken for a cloud or ghost kitchen, but a food incubator is specifically created to support startup food businesses. Rather than conduct restaurant operations on your own, you can join a shared kitchen to test out your recipes and menu.

Managers of food incubators will help you develop your business idea. They can also connect you with investors or provide startup capital themselves. So join one if you can; if you feel you lack the experience or funding to launch a full-fledged restaurant, this is a great way to get you started on your restaurant business journey.

This venture may itself be a way of funding your business – or provide initial insight for a more full-blown restaurant proposal for larger, more heavily funded investors down the line.

6. Send Your Proposal to Investors

Once you’ve met potential investors and created a shortlist, send them an invitation to meet and discuss the proposal.

Practice presenting your restaurant proposal and anticipate the questions investors may ask. Some may want you to personally present your business plan so that they can also perform an interview. If in-person meetings aren’t possible, they may request a virtual call, so be ready for that as well.

Before you meet any investors, take steps to protect confidential information contained in your restaurant proposal. Protect your restaurant concept by trademarking and registering your restaurant name and logo, as well as any original processes you may be pioneering.

You may also want to prepare a non-disclosure agreement (NDA) for prospective investors to sign, and document everything that was discussed at the meeting.

The Secret Ingredient to Finding the Best Restaurant Investor

The best restaurant investor will wholeheartedly support your business and provide resources for your growth. They will be your champion, giving you the guidance needed to hit your targets and overcome challenges. But to attract such an investor, you need to form the foundation that will set your restaurant up for success.

Restaurant technology plays an important role in creating a solid foundation for this success. Investors focus on restaurants with highly adaptable solutions like contactless ordering and partnerships with food delivery companies. These digital services help you keep up with consumer trends in the restaurant scene.

You can also score higher points from the best investors if your backend operations are digitized. Consider swapping old-fashioned order tickets for a Kitchen Display System (KDS), for example. If you still perform manual inventory, optimizing it with an automated inventory management module could be an immediate game changer.

Finding a restaurant investor is no easy task, but if you know exactly how to streamline restaurant operations and attract customers, you’ll boost your chances of success. If you don’t meet any luck, getting a restaurant loan is always an option, though it may entail a different set of requirements.

Regardless of choice, let your passion show when pitching your restaurant idea. Don’t let your hard work go to waste; show investors your full commitment and dedication to your restaurant’s growth and future longevity.