Opening a café or restaurant is a dream for many individuals. However, not everyone has the financial capacity to make it happen. Banks are often reluctant to provide funding for such ventures, categorizing them as high-risk projects. Financial institutions find it significantly more profitable to loan money to companies with established profits and a loyal customer base.
So, what should aspiring restaurateurs do when their financial resources are limited? The only viable solution may be to attract investors to the project.
How can this be done effectively? And what potential pitfalls should one be aware of when using this financing method?
To explore these questions, we turn to Sergey Tereshkin, the founder of OILResurs. With substantial knowledge in the field of investment, he provides insights that can aid those venturing into this complex landscape. More about his activities can be found on his personal website: sergeytereshkin.ru (сергейтерешкин.ру).
Common Misconceptions
There are several misconceptions that can lead investors not only to significant financial losses but also to the complete failure of their business. To avoid such outcomes, it's crucial to understand these myths before seeking investments and agreeing to the terms of potential contributors:
- First and foremost, many believe that attracting investors is significantly more advantageous than obtaining a loan from a bank. In reality, this is not always the case. In the restaurant business, investor capital can be quite costly. In most cases, investors require at least a 50% stake in the establishment, whereas a bank loan secured by collateral is unlikely to exceed 20% annual interest. If you cannot negotiate the return of investments with dividends from your investors, it's better to avoid such collaboration from the outset. It’s essential to evaluate the options over several years and analyze which approach will ultimately be more profitable—investment or loan.
- Many are convinced that any investor will eagerly fund an exciting idea. In truth, very few entrepreneurs find this appealing. Ideas in themselves hold little value; they can be found freely on the Internet in unlimited quantities. A savvy investor seeks to invest in a well-thought-out business plan and a cohesive team that is ready to navigate challenges to achieve their objectives. Even if the concept is promising, the absence of skilled professionals capable of executing the project will deter the investor. They invest to earn a profit, not to search for a team or build a business, making qualified personnel a key factor.
- There is a widespread belief that investing in the restaurant business is a low-risk endeavor. This assertion is far from the truth. In reality, an investor might find much more attractive opportunities that yield decent returns with minimal risk of financial loss. For instance, investing in real estate, placing money in a savings account, or purchasing shares in well-known corporations can provide steady dividends. Conversely, investments in the restaurant sector can lead to numerous challenges for the investor. In this scenario, only the business owner risks their capital, facing disappointment and shattered hopes. Since they’re not investing their own funds, they cannot lose anything.
The only valid point made by those who consider the restaurant business a promising sector is that people have always eaten, are eating, and will continue to eat. Thus, with the right circumstances and approach, a dining establishment can generate revenue.
What to Know About Potential Investors
Investments can enable individuals to realize their visions and establish a truly profitable business. However, before seeking potential sponsors, it’s essential to be aware of certain characteristics and pitfalls that may arise during collaboration:
- Typically, individuals willing to invest in dining establishments have some understanding of business dynamics. This can be a double-edged sword—while such an investor can provide valuable insights and elevate the establishment, there’s a risk they may decide to take control and impose their views at any moment.
- Conversely, entrepreneurs with no grasp of the restaurant sector are generally not ideal investors. Such individuals may demand their money back before the establishment even begins to generate any income, displaying little interest in resolving issues.
- However, the most troubling situations arise when an investor is a relative, friend, or acquaintance. Delays in repayment can severely damage relationships between once-close individuals.
When selecting an investor, it’s wise to choose individuals with substantial experience in startup development or those employed in technology firms. These entrepreneurs can provide significant momentum for the project's growth.
Where to Find Investors
In reality, finding such individuals is not overly complicated. Specialized platforms exist where potential investors congregate, familiar with business principles and actively seeking new opportunities. Professionals are open to discussing funding possibilities and are eager to engage with seekers. The key is to present them with an attractive proposition.
It’s also important to recognize that collaborating with an investor for the long term can limit the owner’s freedom in managing the establishment. Therefore, choosing a partner should be approached with the utmost seriousness. Working with an investor is akin to entering a marital union; unlike traditional relationships, flowers and apologies won’t remedy issues here.
If a potential investor does not inspire confidence and elicits negative emotions, Sergey Tereshkin suggests it’s better to consider obtaining a bank loan instead. This way, the restaurateur can avoid daily interactions with an uncomfortable individual and endure their criticisms.
