Three Local Restaurateurs on the Challenge of Financing a New Spot

Thanks to the buzz surrounding Alex Burch’s upcoming Bad Idea, lots of folks are getting ready to open their wallets when the wine bar opens for business in East Nashville this spring. But even before the Russell Street spot pours its first glass, some people already are shelling out $100. 

That’s the minimum investment in Burch’s restaurant.

Like almost everything in hospitality, launching a new restaurant is not for the faint of heart. Opening a new restaurant can cost anywhere from $125,000 to $2 million, with an average of $375,000 — numbers of course vary depending on the physical space, the equipment needed and more. And there’s no guarantee of success; according to the National Restaurant Association, 30 percent of restaurants fail in their first year.

Like a number of chefs and restaurateurs looking to finance their dreams, Burch started by pounding the pavement. Burch’s Strategic Hospitality mentor Ben Goldberg, who he knew from his days at Bastion, told him to start with a list of 100 people. Burch had a mailing list from a series of wine classes he intended to launch but never did. He asked people if they’d be interested in learning more about his plans for a new wine bar. And on Goldberg’s advice, he asked every person with whom he spoke if they knew anyone else he should approach. While the process was tough — nearly two years of tweaking his pitch and getting better at rejection — it was also “super exciting,” Burch says. Almost every investment and non-investment meeting came with offers to help in other ways.

In the end, Burch turned to crowdfunding. Working with a platform called Wefunder, he set a goal of $717,000 in investments starting at the entry-level price of $100 for a Class A unit. Bad Idea has a lead investor, Edward Lanquist, who ponied up about $300,000. Lanquist was a fan of Burch’s previous work and sees his wine bar vision. Wefunder handles the communications with the smaller investors. “If you’re sitting there cutting checks to 100 different investors, that is not going to be worth it,” Burch says.

So far, Bad Idea has raised more than $488,000 on Wefunder. While the money is great, the small investments also characterize the kind of buy-in Burch wants for Bad Idea. “I want this to be a community-focused place,” he says. “I want people to feel like they are part of it.”

A small investment in a restaurant holds some cachet. Celebrities are drawn to restaurants (Gavin DeGraw, Dan Auerbach and Justin Timberlake in Nashville, to name just three of many), despite the fact that there are easier ways to make money. Restaurants don’t have high profit margins, often between 3 percent and 5 percent.

“It is like the scene from Goodfellas, that is the glamorous part,” says Ryan Poli, referencing the scene in which Ray Liotta’s Henry Hill and his date weave through the kitchen, shaking hands with staff and arriving in the dining room where a table awaits. Poli and his brother Matthew are opening iggy’s this spring. “We want investors to feel proud to be here. We want them to feel like that.”

But the Polis’ investors are silent ones — maybe they can get in through a back door, but they can’t come in and tell the brothers what to put on the menu. Ryan says the best money they spent was on a team of attorneys who guided them along the way, specifically advising them to turn down money when it came with too many strings attached.

Saying no to cold, hard cash was tough, Ryan says, particularly in the beginning. One of the challenges early on was that some prospective investors wanted to see a signed lease; but some leases needed to have a commitment of investment before the Poli brothers could sign.

The Poli brothers, who have a national reputation in part due to their time at The Catbird Seat, briefly considered working with a restaurant group that would fund the enterprise. “They could not have offered me anything that I could not do on my own,” Ryan says. “I have Matthew. He’s a numbers guy. A lot of restaurant groups have all these partners, and you end up putting in a lot of hours for a small share in the restaurant.” Instead, he says, the brothers now own the majority of iggy’s.

Michael Hanna has wanted to open his own place since he was 16. “It was in my blood,” he says. “I never wanted to do anything else.” He has four uncles who were chefs, and his grandfather owned a deli. So it wasn’t a surprise when he decided to open St. Vito Focacceria. But that doesn’t mean he knew how to find the money to turn his pop-up into a bricks-and-mortar.

While Hanna has been working in acclaimed kitchens around town for years, and his pop-ups have been beloved, he doesn’t have the name recognition of folks like Ryan Poli, and he feels that was a challenge. Still, like the Polis, he turned down some of the first money he was offered.

“I got a lot of advice, and people told me, ‘Whoever your first investor is, won’t be an investor,’ and that happened multiple times,” Hanna says. As restaurant plans change, leases become available and investors’ situations change, the calculus shifts. Like the Polis, Hanna also rejected the idea of being backed by an investor group that would have shrunk his share in the business.

“My equity dwindled down to 10 percent,” Hanna says of one prospective deal. And it wasn’t just the potential of long hours with little payoff. “These recipes are from my family. There’s nostalgia, and then there’s someone who wants to take most of it from me.”

Hanna, who is a father of two and focused on providing a legacy for his kids, did the same as the Polis and Burch: He worked through a list of friends, friends of friends and people who loved his food. Eventually, an out-of-town investor who was specifically looking for a Nashville restaurant project was given Hanna’s name multiple times over the course of several days. Hanna spoke to the prospect for more than 2.5 hours on the phone. Eventually, they came to terms with a 50-50 deal that Hanna feels accurately reflects each of their contributions.

Of course, having a say doesn’t mean a local chef gets everything they want. Hanna has been getting blowback from some locals about St. Vito’s upcoming location in the Gulch. “I don’t get to wake up and choose where we get to be,” he says. He needed to balance being in a location with enough foot traffic to pay the rent and being in a neighborhood where he and St. Vito have enough name recognition to bring in folks who loved the pop-ups. 

Even with advice from chefs who had been there and done that, examples of business plans and pitch decks, and some good books on the topic, figuring out how to fund your first restaurant is hard.

“I would get so overwhelmed by all the things I had to do, get financials to investors, find a lease,” Ryan Poli says. “I can’t focus on the whole pie, or I’ll just decide not to do it. I need to focus on the one slice of pie I am working on right then.”