Funding has long been a primary barrier for growth-minded restaurants looking to build new locations and increase their unit count. The options traditionally have been limited to debt financing or venture capital, neither of which is tailor-made to help them grow their real estate footprint.
Debt financing demands cumbersome guarantees and lengthy operating histories. Venture capital often requires owners to give up a piece of equity each time they want to build a new location. It also comes with high expectations for hockey stick growth that are unrealistic for brick-and-mortar concepts. These brands tend to follow a step function as their growth curve due to capacity restraints.
The same dynamic is true for most service-based retail businesses. It’s what Neha Govindraj encountered while scaling Glowbar, a 30-minute facial concept she launched in 2018 after leaving her post as a management consultant at Bain & Company. As she was charting the future of her skincare treatments business, she realized the options for brick-and-mortar expansion financing fell short.
“When you take out venture capital and you take out debt financing, everything that’s left feels a little bit predatory,” she says. “I thought to myself, ‘What if you could actually design an asset class for the entrepreneur?’”
That’s the idea behind Bonside, a financing platform for restaurants and other brick-and-mortar businesses that encourages sustainable growth by recognizing and rewarding unit economics. Govindraj structured the platform via Repeatable Revenue Agreements (rras), with businesses gaining quick and seamless access to non-equity capital in exchange for a small percentage of sales.
Bonside doesn’t collect sales in perpetuity and sets a fixed cash-on-cash return for each business. Typically, businesses are looking at three to five years of repayment at an average rate of 1-3 percent of monthly revenue. Govindraj says RRAs represent a middle ground between merchant cash advances that require full repayment in under a year and term loans that offer up to a decade for repayment, providing enough time to deploy the capital and see the returns on a build-out while keeping repayment in a window of predictability. And since the payments adjust with the seasonality of the business, RRAs are a form of capital that matches a restaurant’s business operations.
Bonside focuses on emerging concepts that have at least two locations and $2 million in revenue, plugging into their point-of-sale and accounting system to gain a comprehensive view of how existing locations are performing. The company has raised over $4 million in equity funding to further enhance its data-driven underwriting capabilities. Specifically, Govindraj sees an opportunity to create more technology around how cost data is structured.
“We’re focused on building our engineering team and building technology around our underwriting processes so that over time, we can take all of that cost data and re-bucket it into a standardized view,” she says. “If the cost data is structured really well, you become even more underwritable, and we can give you even more access to cash.”
Investments come in two forms for qualifying businesses. There’s a fund for larger investors that Bonside allocates across deals, plus a growing marketplace of individual accredited investors who participate on a deal-by-deal basis.
The company launched out of beta in June with more than 200 members already onboarded and over 500 applications from investors looking to join the marketplace. It had also deployed $3 million in capital across 10 deals and added more than 100 concepts to the pipeline.
“Generally, our deals will be a hybrid between fund allocation and our private network,” Govindraj says. “That side is really scaling and we’re growing our capital base. It’s the same thing on the business side. We’re deploying more capital.”
One early success story is JoJo’s ShakeBAR, an emerging concept founded by hospitality veterans Robbie Schloss and Nick Thayer. It specializes in over-the-top shakes and offers a full bar program alongside elevated takes on traditional diner fare. Bonside teamed up with JoJo’s as it geared up to open its sixth unit in Orlando and partnered with the restaurant for financing ahead of the new location. Six months later, JoJo’s was tracking a 30 percent increase in top-line revenue, marking the success of the Orlando opening this spring. Govindraj says Bonside initiated discussions for another financing partnership with the ability to move faster and on stronger terms. Within two weeks, it had financed the restaurant for a second time ahead of its seventh unit in Scottsdale, Arizona.
“I think the compelling point from JoJo’s perspective was access to capital on a fast timeline,” she says. “We told them, ‘We know your business and can very quickly underwrite it. You’ve got our investors that have already bought into the concept, so we can present the terms back to them and do a second tranche of financing.’”
Other concepts that are expanding with financing from Bonside include Matchaful, a wellness brand with six cafes across New York, and Bourke Street Bakery, an organic sourdough bakery with five locations in New York and New Jersey. There’s plenty more to come. Food and beverage concepts currently account for half of the deals in the platform’s growing pipeline.
The asset class Bonside created is less of a replacement for venture capital than a new tool designed specifically to support unit expansion. With the company offering capital tailor-made to help brick-and-mortar scale, there are other ways businesses can spend those venture capital dollars—more on hiring and corporate growth, less for building out physical locations.
As the company signs more restaurants and other service-based retail concepts, Govindraj’s conversations with business leaders and entrepreneurs are increasingly centered around how the RRAs fit into their capital stack.
“You’ve got your cash flow from your operations if you’re a profitable business, and maybe you’ve got some dollars that equity investors have put in,” she says. “Now, you have a third piece of the puzzle to work with, which is Bonside financing. You can extend the runway of equity financing by being thoughtful about how you’re using all of those tools. The more you can extend it, the more ownership you have in your business.”