‘Risky’ G&A Strategy Pays off for Tava Indian Kitchen
Tava Indian Kitchen, a three-unit chain freshly funded with a $4.5 million Series A is looking to build units, but continue with a laser focus on hiring great people.
The fast-casual Indian and South Asian concept was founded by three Duke alums who went off to Bain and Company after graduating. But in 2012 they left the prestigious consulting firm to start a restaurant. One of their first major hires and now CEO Jeremy Morgan—another Duke and Bain alum—said they wanted to “learn a few things” restaurant experience before opening the first Tava unit.
“The guys quit their nice little consulting gigs and moved from Atlanta to the Bay Area,” said Morgan. “They took their resumes and their Duke degrees and their Bain jobs and brought them over to the local Chipotle and all got hourly jobs.”
The hourly gigs didn’t last long for those Duke boys. After a few months honing their own business plan, they opened their first restaurant, an 800-square foot storefront in the back of a Palo Alto shopping center selling Indian “Burrotis” bowls, salads with lamb, chicken and vegetarian options.
“They raised about a half million from family and friends before they did their first store,” said Morgan, noting that the bulk of the money went into the second two units. The leftover cash, however, went toward filling out the management team.
“I joined their board in late 2013, joined them full time last summer as CEO,” said Morgan.
Morgan, who previously served as a marketing and consumer insights executive at Smashburger said it was then that they decided to “get some real cash and start that growth curve.”
He said the money spent on the management team was a mixed message for investors. It showed that there was deep business knowledge was at the helm, but also slashed the bottom line.
“I think that it is a relatively expensive and therefor risky proposition,” said Morgan. “You are signing yourself up for a higher cash burn than you would normally have and you’ve really got to believe two things: One, that the concept you’re working on has big potential; and two, that the people you have on the management team are the group of people that can execute that concept really well.”
He said the upfront cost of a high-level management team wasn’t all that foreign to him, coming from Smashburger. Ultimately, he said it ensured that things were being done right up front.
“I think when went through that capital raise process and we were telling our story to investors, it was a little bit easier for them to get their head around the fact that we had three Bain guys and someone who had been at a chain that built 250 restaurants in three years,” said Morgan.
Tava was funded via several traditional private equity funds: Kensington Capital, Agilic Capital and HiGrowth Advisors, Smashburger CEO David Prokupek’s investment fund. But more than half of the funding came from the nascent CircleUp platform. The online platform connects crowds of accredited investors to fund consumer products and a few restaurants—just don’t call it crowdfunding.
Ben Lee, director of business development at CircleUp, said the platform has helped 119 companies get a total of $135 million in funding, including Matchbox. And with a new growth fund—operated outside of the company as SEC rules dictate—the platform is matching funding to select companies.
“Tava is one of the first businesses that the fund invested in,” said Lee.
The $2.5 million from CircleUp and the remaining $2 million from other equity investors will go toward three things: New stores, branding and bulking up the management team.
“I call it 60, 30, 10—60 on building, 30 on brand and 10 on team kind of a ratio,” said Morgan.
One of their newest hires brought large-scale operational experience to the management team. Jim Smith, a former multi-unit operator and regional manager for Jack in the Box, Mimis and Starbucks, came on board in July. Morgan said it was another brick in the foundation for major growth.
“One of the three co-founders was running the restaurants previously, did a great job, but hasn’t run 50 restaurants before,” said Morgan. “So we tried to get the guy in place that has actually done that so that doesn’t become a critical limiter to growth.”
Morgan said with most the management pieces in place, he’s ready to focus on branding and building four units in the next year as they dial in cost and design of a standardized prototype. They plan to grow in the Bay Area and expand into Denver.
“We envision ourselves getting to that dozen restaurants or so over the next two years. At that point the business should be sustainable on positive cash flow,” said Morgan. “We probably won’t have enough cash to propel growth quickly. So at that point we’ll see what the Series B, and in that round it will be 90 % growth capital at that point.”
[Read more about CircleUp in the November 2015 Restaurant Finance Monitor.]