If they decided to take that route, what should they make sure they have in order? In other terms, what does 10 Point Capital look for?
The obvious areas are having the core of the right team in place and being able to demonstrate that the unit economics work. Before taking on outside capital, it is also helpful to have strong legal and accounting counsel. We consistently see these areas underdeveloped when we start to look closely at a business.
Assuming the unit economics work, we typically look for a few major items:
- A founder-led business where the founder wants to remain active.
- Brands that are proven outside their immediate home market, where we can accelerate growth through franchising.
- Passionate customer bases.
- Brands that perform well in secondary and tertiary markets, so have potential to scale.
What are some pros to working with a capital firm?
Capital partners typically bring a different skill set to a visionary founder-led business. Key areas a capital provider will bring are a focus on data-driven decision making, an ability to creatively structure access to capital to grow faster, and experience growing multiple brands. Capital firms are also going to have deep expertise in working through brand strategy and ultimately preparing a business to be sold.
Let’s talk about COVID. There’s a lot of chatter about the real estate opportunity and simply the growth potential for brands not stumbling out of this. Is that something you’ve seen as well?
For the first time in several years, the real estate market feels as though it is shifting somewhat in favor of the brands and their franchisees. It’s early days, but landlords are proactively reaching out to strong brands, cutting deals to get the brand in their development. Landlords appreciate that the best brands give their sites the best chance of success and bring needed traffic through their developments. Drive-thru real estate is still highly competitive—everyone has seen how well [quick-service restaurant] brands have performed during COVID and now wants a drive-thru. For creative brands, conversion of other failed concepts offers a huge opportunity, and we expect this will persist over the next 24 months.
How did 10 Point Capital approach COVID? A lot of deals across the industry fell through and some partners exited investments. Did you try to take the long view? Or was it a case-by-case basis?
Philosophically, we focus on building great brands with unit economics that allow them to perform well regardless of the broader economic environment. We were fortunate that our concentration on brands offering strong consumer value and convenience meant that all of our concepts performed throughout COVID.
Additionally, we can take a very long-term outlook on how we handle an event like COVID given our flexibility in terms of investment hold.