Not a bank, but fundraising

In Italy (but not only), there is a chronic problem that affects the entire franchising and retail market, and it’s access to credit. The liquidity needed to pay not only setup and supply costs but also severance packages (often very high) and rental deposits is not in the pockets of everyone who wants to see their brand expand beyond their city’s borders. In this issue, we present a case dedicated precisely to this theme and how the difficulty was overcome.

The Situation

The owner of an internationally renowned restaurant with a turnover of 1.5 million euros decides to create a high-profile restaurant brand and therefore to start a project of new openings directly in European capitals. This is to ensure the same quality standards and philosophy.

Challenge: Access to Credit

Difficulty accessing capital through ordinary credit lines, namely banks, because today banks have very rigid systems and often require personal guarantees, exposing the entrepreneur to personal risk as well as that related to their companies. Finding liquid capital necessary to achieve this goal of openings.

Solution: Capital Increase through Fundraising

Excluding the bank/institutional credit channel, the other solution we identified as suitable was fundraising.

The operation, in fact, involved the opening of two direct locations in top locations with the need for approximately 1 million euros.

Capital raising through investors would be the most direct and effective route. Here’s how the fundraising project phases unfolded.

First, it was necessary to conduct due diligence on the actual value of the restaurant and then subsequently develop a business plan to enhance the equity value of the restaurant company, increasing the potential value of the company.

This business plan was used to attract private investors who wanted to somehow support the entrepreneurial initiative.

Based on this information memorandum, we managed to convince a group of small private investors to enter the share capital of the company that owns the restaurant, injecting liquid capital in exchange for 30% of the share.

This was made possible through:

a) the establishment of an investment purpose company composed of the entire group of investors;
b) the subscription, by this company, to a reserved capital increase.

Following the injection of liquidity, it will be possible to proceed with the opening of the new restaurants, with the founder retaining full governance and control of all ordinary administrative and operational powers.

It is necessary to note that the activity had an excellent track record reassuring the involved investors.

This means that financial statements must be in order and positive, and business plans credible and appealing. What often deceives company owners is that good talk is enough to open the purse strings. Unfortunately, no, numbers are needed, good numbers, and a valid project plan.

This operation was successful, not only due to the goodness of the brand and business but also because the owner and promoter of the project put shares of his own company on the table, involving the investors in the success of his activity.

A demonstration of trust and openness in the realization of something bigger.