From being guardian investors to mentoring the brand from the scratch investors today look out for value addition in the brand.
Investment scenario in food business has become tougher over the last three years. From being guardian investors to mentoring the brand from the scratch investors today look out for value addition in the brand. It’s not just about the model but overall aspect of the business; how different is the concept, how much are customers liking the brand, what the cash flow is and how much money they can get in return. It’s not just about raising funding but how you utilise it and maximise that funding.
Breaking the myth
If you are opening a restaurant or a cloud kitchen today you need to understand that you will not be able to raise funds on power point presentation. You really need to show proof of concept which means that you will need to open the restaurant, put the equipment, get the customers in, run it for about 6-8 months and show that you are unit positive before you look for an investor. “Proof of concept has become very important and a positive unit economics. Your idea is really solid, your food concept stands apart in the city, you are able to pull the crowd, you are able to do digital marketing right, and you are able to get your catchment area, operation, sourcing right,” shares Sumit Sinha, Angel Investor, Terrals Holdings adding that there are multiple requirements in food business and each need to be right before you actually go out and see funds. One needs to make sure that they are cash positive before they look out for an outside partner.
“You need approach 30-40 investors before you raise fund. But the important thing is you need to be realistic. The money which is coming into the business should be utilised in the plan that the group has made. You buy everything in credit. You do not hold the inventory and you collect everything on cash,” adds Biju Jose Thomas, Director & COO, Vasudev Adigas Fast Food Pvt. Ltd.
Food-tech is no more exciting
The food-tech industry has been harsh. There was an uptake in 2015 but since then there is lots of pressure on food-tech companies. In food-tech one need to touch upon 200 investors before they actually get the funding. “Gone are the days when the angel investor would be your guardian investor who has signed your first check because they like you,” points Kailash Nath, Innovation Fellow, Bharat Innovation Fund. Things have changed a lot in early stage ecosystem where angel investors also ask questions. But they really want to look into the outlook that the brand brings into the business. It’s not about quantum of money but how this money would help the brand make a difference in their growth plan and what’s it that they are adding to in the ecosystem.
It’s More Than Just Food
These days the whole market has divided into two segments. One the restaurant or the one who prepares food and delivers it or serves it at a place verses the ancillary business. There is a downside if you are running a cloud kitchen. But a lot of ancillary businesses which are into analytics, servicing these businesses or into the HORECA model which supplies the raw materials to these models are really doing well. And, investment is really picking up. Both angel and VC community is looking favourable at this sector. “The whole game is about your revenue and the top line and how you are able to sustain it for a longer period and it depends on three factors- your customers, the volumes and the ticket size,” points Anadi Charan Sahu, General Manager & Regional Head, SIDBI, Bengaluru.