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Branded is an early stage investor in the food service space
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed! While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Jimmy Frischling is co-founder and Managing Partner of Branded Hospitality Ventures.
Frischling is an entrepreneur and experienced finance professional with over 3 decades in the financial services, capital markets and hospitality industries. He is a board member at a number of Branded Portfolio Companies including Blanket; Brizo Foodmetrics; Copia; Cut+Dry; Incentivio; Minnow; Ovation; Simple Marketplace; Spendgo; TapRm; Targetable; and Usual Wines. Jimmy holds his Series 79, 7, 24 and 63 licenses with FINRA, a B.A. from Wesleyan University and an MBA from Columbia Business School.
VatorNews: I like to kick these off with the high level view. Talk about Branded, where you sit in the venture ecosystem, your methodology, your philosophy, and why you started a venture fund. Why did you feel that was something that you needed to do?
Jimmy Frischling: I've had the privilege of being in and around hospitality now for probably over 30 years. Decades ago I was a barback and a busboy and a waiter then a bartender, capped out at bartender; I left the industry really because I didn't see a career for myself. I thought it was a fantastic community, I loved it, but I didn't see a career at the time. I went into finance, I went into investment banking, I went and got my MBA at Columbia and I came out and joined the world of emerging markets and alternative asset classes, working for some large banks. When I had a few nickels to my name, because I did love the industry, I invested in my first restaurant, which was run, not coincidentally, by my co-founder here at Branded Hospitality Group and Hospitality Ventures, Michael Schatzberg, a dear friend of mine who I went to high school with. So, the three of us have known each other for decades, and I invested in the restaurant and I had no responsibilities and I enjoyed that. I proceeded to do my thing and I did deploy additional capital with my restaurant friends and group but with no responsibilities.
What made me want to start Branded Hospitality Ventures was hearing from my restaurant partners and friends about the friction between restaurant operators and what I'll call technologists. The two were not speaking enough and, in fact, I felt that those developing the software and the products were not engaging with the SMEs, the subject matter experts, in a way that I've seen in other asset classes, and I was very curious about that. I'd worked in a number of asset classes and we always leveraged and relied upon subject matter experts but in this asset class, I saw that that really wasn't happening. So, in digging into that question, what I've come to believe, and it'll sound like I'm joking around, was that the asset class that is emerging tech and innovation for the hospitality and restaurant business is misunderstood because everyone thinks they understand it. The client, the customer, we call them “guests,” so, generally speaking, people are very comfortable that they can go to a restaurant and they think they can get the job done. They feel very familiar with it and that false sense of familiarity led to people building solutions in search of challenges or opportunities or to address problems for the industry without ever actually speaking to the very operators who are living it. So, our thesis when I launched the company with Schatzi was that we would be an operator-first investment platform focused on the biggest issues, challenges, opportunities, pain points that the operators are looking at and we would look at investing through the eyes of an operator because Schatzi is an owner operator, we have a small army of them, and I thought we could look at technology investments from a unique perspective.
VN: What are some of the problems from the operator perspective?
JF: It's always dangerous to say the following: it's different this time. There are graveyards filled with tombstones of people who said something like, ‘it's different this time,’ so I recognize the risk I'm taking when I say that. But what's different about the hospitality industry, or the restaurant industry, is the fragmentation. In the airline industry, four airlines control over 80% of the flights in this country; in the phone business, three phone companies control well over 80% of the cellular business; and four banks in the US dominate the deposits. In the hospitality or restaurant industry, first of all, if you take the 30 largest restaurant groups in the world, 29 of them are American companies, so go USA. But, in the US, those large restaurant groups still don't account for a third of the market, meaning two-thirds of the market are not these large, dominant players, which is the fragmentation that I'm speaking of, which makes it very difficult to have a one size fits all solution.
So, going back to what was going wrong, first, technologists were projecting the needs of operators as they saw them to be and, second, what's different about this industry is the truly JIT, or just in time, nature of the way operators think. Operators are trying to serve guests and satisfy guests in real-time in an environment that is incredibly high touch. What other industry has a manufacturing facility on one side of a wall, being the kitchen, and a distribution or retail facility on the other side of the wall, being the front of the house or the dining room? In fact, with open kitchens and a lot of the modernization in the aesthetics that sometimes guests and operators are loving, there's not even a wall separating the kitchen from the dining room. The guest comes in and, in real time, he or she is experiencing the offering of your company. It doesn't exist in many industries; in fact, it exists in almost none of them other than hospitality. So, if you think about the JIT, when technologists are trying to put forward software solutions or otherwise for the industry, they may criticize operators for being too short sighted, but the operator is frantically trying to address the needs of its guests on a very real time basis. So, a lot of technologists who had success in other industries approach this one with a sense of discipline or experience that they knew how to help digitize an industry. Think about the hospitality industry the following way: it's the second largest private employer in the United States, and incredibly analog and antiquated. It's an incredible opportunity to digitize this industry but you can't do it by creating software that will help an operator in three years or five years or in 10 years, because they're fighting for their lives every day. One of the misnomers of this asset class is you really have to address the biggest challenges or opportunities like one through six, not number 76; an operator will not allocate time to fixing problem number 76. You asked me, what are some of the biggest challenges? If you ask any restaurant operator in any developed country, I'd be surprised that they didn't list the labor and supply chain, or supply chain and labor, as the top two answers on the Family Feud board. And then there are a myriad of other issues.
The way Branded looks at this is we try to identify the biggest pain points, specifically pain points that are maybe hitting margins or hitting efficiencies, which also hit margins, and try to find out what is the software that could address that with as little friction as possible? We happen to be speaking on a day when one of Branded's earliest investments, Chowly, an online food integration platform, has announced publicly the acquisition of another Branded portfolio company, Targetable, a digital marketing platform for restaurants. If I take these two companies that have come together, Chowly addresses a myriad of issues facing, specifically, the SMB, the small and mid size business market, addressing things like the off premise tablet hell; restaurants like to use a lot of tablets, they use DoorDash, they use Uber Eats, they use Grubhub, they use Delivery.com and Caviar and Postmates. There's a whole lot of consolidation going on in the industry but each of these tablets is different, each requires manual labor, unless you have a company like Chowly that allows you to integrate all those tablets. Think of it like a universal cable box that allows these delivery platforms to seamlessly integrate with the point of sale. That is a huge labor reducer. When we invested in Chowly a couple years ago now, my partner Schatzi had two people managing the tablets during peak order and delivery time. Two humans were manually inputting these orders that would come in and that’s ripe for human error and it's expensive to have two dedicated staff members manning the tablets. So, Chowly addressed tablet hell, and now they're addressing menu management and order profit flow and seamlessly getting things into the kitchen. With Targetable, doing digital marketing is very difficult for restaurants, especially SMBs: it's tedious, and it's time consuming. Our own experience was that our own marketing team, an outstanding team, found it frustrating to work on social media ads, particularly Facebook is very cumbersome, Google is difficult to do well. So, the idea that we expected restaurant operators, especially small restaurant groups, to have their own, not just marketing team, but be experts in the digitization of marketing, that was a tall task. Targetable likes to say they won't cook if the restaurants won't do digital marketing and what a wonderful thing they've done for now hundreds of restaurants. Combining with Chowly, Targetable will now have an audience of almost 17,000 or 20,000 restaurants to work with. But some of the pain points include, can we reduce some of the labor? Not because we don't like to pay people good living wages but can we have labor in the stores given the increase in the price of labor? Can we find ways to remove human capital from the stores, particularly with tasks that software can address? I have a seven year old daughter, she's never seen a human collect a toll at a toll booth. I think about quick serve restaurants and cashiers: kiosks are proving to be more efficient and effective and the guests like the engagement with the kiosk, and then the human should be a guest ambassador. So, the challenges, as I mentioned, are the labor, supply chain, and there are real solutions to address these and other things but, at the end of the day, we address the pain points that the operators say they care about the most.
VN: It sounds like you're mostly focused on restaurants. Is that your only focus? Because obviously hospitality can also include things like hotels and other aspects, so are you investing in those as well?
JF: For us, the addressable market is anywhere food and beverages are sold and served. So, you're right, restaurants clearly are an area where we feel incredibly confident in working on, but it's also the food and beverage in hotels, stadiums and arenas, cafeterias, hospitals, investment banks, colleges and universities, airport food courts. The only thing that is our gating criteria is the tech and innovation must be applicable to businesses that are selling or serving food and beverage. And some of my favorite companies, I admit, while we look at them through the lens of a food service operator, I love that they can help in other asset classes. We work with a company called Leasecake: any company that has multiple leases, multiple properties, would benefit from engaging with Leasecake. Many restaurateurs have multiple locations so, therefore, multiple leases, but so do banks and so retail stores and drugstores, so Leasecake has a number of industries that they support and work with closely, we just happen to look at them through the lens of food service and the venues that have multiple properties.
VN: I want to know about the macro trend you're betting on. When the pandemic hit people couldn't go out to a restaurant anymore, they had to order online and have food delivered, so a lot of restaurants that hadn’t offered that before had to, overnight, start offering those services. Now people are eating indoors at restaurants again but I'm sure delivery is still higher than it used to be. So, how have things changed in the last three years or so? And how is the hospitality industry responding to that?
JF: First of all, 2023 was really the first full year, post-pandemic. And, you're right, there were certain companies that were tremendously successful or got a great deal of attention during the pandemic; I could mention Peloton, away from our industry, and the success it had during the pandemic, and then maybe the reversion to the mean when people also remembered they like going to the gym or going for a bike ride. There were companies that we were invested in and working closely with that had explosive growth because they were a darling for off-premise and delivery and then there was the reversion to the mean of people also liking getting together in restaurants.
I like to say that the amount of money being spent on food and beverage year-over-year is somewhat unchanged; it grows with the population growth. The pie is somewhat set to the population. Therefore, how people spend that money is really the differentiator. When I grew up, my mom used to make dinner for our family five nights a week, we had a home cooked meal. I don't know about yourself, but I'd venture to say that that's not the norm anymore, it's certainly not the room in my house today. Delivery was a small percentage of our sales in some of our restaurants back in the late 90s and 2000s and, when I say small, I'm talking about not 1.5% of sales. Then it started to grow and spike and, before that pandemic, you had companies like Seamless and others who stepped in to try to facilitate corporate catering and corporate meals for weekends and evenings and then it moved into just the average Joe who could order quite a lot to their home. And then, with the pandemic, as you said, everybody had to do it. I'll first say that I don't think a meal is better delivered than it is in the restaurant; I can't think of many foods that travel well, or get better as it travels from point A to point B to your home, but I will say about the changing consumer preference, it reminds me of what some of the kindergarten programs would say to my wife and I: we meet the child or the student where they're at. Restaurants, or the foodservice industry, now have to meet the consumer or the guests where they're at. Delivery is here to stay and now the guest knows they can get anything delivered to their home, including any number of even high end restaurants that probably embrace that, but they can also get a lot of prepaid meals from grocery stores and even convenience stores now have interesting prepared meals and are running interesting delivery. Some of the ghost kitchens, and those are challenging words in our industry given the amount of money invested in them and the losses, but the fact is there are wonderful kitchens that reside as delis or otherwise and can produce interesting meals for the guests. So, the competition for the guests' attention is fierce.
The clear consumer behavior change is the guest now knows that he or she has a myriad of options to choose from and they want personalization and that's a big change I see. They want to feel that the restaurant or the venue that they're working with knows them. This isn't about digital marketing or loyalty or guest feedback, it's all those things, its guests' engagement. How does a restaurant earn Steven Loeb’s loyalty? How do they earn a greater share of your F&B spend? I can't answer that question, you have to answer that question but, to be clear, it's probably the venues that make you feel like they know you. They know your preferences, so if you're a person who likes this type of dish then they're going to want you to know when they're serving that dish, or they're going to recommend a pairing of this and that. It's like when you walk into a restaurant and they know your table, or they know what you'd like to drink and they bring it to you. That is hospitality. The essence of hospitality is a relationship that makes you feel welcomed and that is something that the guest is craving and every vendor who sells food and beverage is going to have to recognize how to earn your loyalty because you have a lot of choices. That's a material change. The guest has come back into the store, no doubt they're showing up for in-person dining, our numbers say that, but we are now competing with so many more potential forces that can also feed you and that's something we have to recognize as owners and operators.
VN: That's very interesting. I don't think I've ever been to a restaurant where they have that information, where I would sit down and they’d say, ‘Oh, here's your drink that we know that you like.’ I've never experienced that.
JF: I have friends that love trying new places, that's their thing. My wife and I, for our date nights, we probably 80% of the time go to the joints we know. I'm not saying one is better than the other but I am saying that, with data and the digitization, you can now do a lot of ordering in restaurants where, even if they don't know you very well, they now have the ability to capture what you've ordered and the next time you come in they have the ability to actually even say, ‘we understand you guys like red wine’ or, ‘you like pinos and what we have a special pinot we're looking at tonight.’ On the one hand, I used to think that was going to freak guests out. ‘Wait a minute, are you spying on me?’ and a couple of years ago, I would have said, ‘that's too personal.’ But I have to tell you, it's like when you check in at a hotel and, as I said, there might be a lot of franchises but hotels are dominated by brands, and Marriott Bonvoy, they know my preferences. They know what room I like, near the elevator, far from the elevator, near the gym, away from the gym, what view, king size bed; restaurants more and more are going to do that. And more and more the guests are saying they're okay with it; in fact, they prefer it because it makes them feel personal.
But, I want to be very clear, despite all the explosion of tech and innovation and the transformation that's going on in the industry, we're still in the very early innings. This is an industry that's been set in its ways forever and, let's not forget, you can run a restaurant with a little white notepad and a sharp pencil; pencils don’t even need to be that sharp, and you could still run it. But there are better tools available now to create these types of experiences and leverage data and analytics and, along those lines, data and analytics is an area that's still underweighted in many investors' portfolios, but Branded’s weighing it heavily because what this industry represents is consumer preference data and it's the third most valuable dataset in the world. I'll rank financial data one because a lot of money changes hands, I'll rank healthcare data two because it's truly life and death and a lot of money changes hands and then, in third place, the bronze medal goes to my industry, the restaurant industry, because it really is about expressing consumer preferences. And there are a lot of companies who want to know what Steven and Jimmy like to eat, drink, and otherwise, and when we like to eat and drink and and and whatnot.
VN: Let's talk about your fund a little bit. I believe it’s a $50 million fund. Is that correct?
JF: Yes, we have launched a new fund, the size that you gave is also accurate. I'm really excited about our third fund because, at the end of the day, asset selection and criteria is the number one answer on the board in terms of delivering returns for your investors and LPs. You still have to choose the right asset but people often don't think about the timing of the investment and the environment for the investments. Our first fund was in 2021, our second fund was a 2022 vintage, 2023 was a challenging year and we did not launch or close any funds and now we've come to market in 2024 with our third fund, and this is the best environment we've had for investing, given where multiples are, and the overall timing and environment. And so, I love our investment thesis, which is operator-centric, operator first, ensuring that we're investing in software that impacts the operators in the immediate, or at least the very near term, but the environment for investing in 2024 is superior to 2022 because multiples are much lower, because capital is less free flowing.
By the way, the reason why multiples are lower is because capital is hard to come by, which makes raising capital for a fund truly challenging but that's the give and take. If money was free flowing, then I believe the multiples would not be as attractive for investment as they are today. But, yes, we are looking to do our third tech and innovation fund, we're advancing it, we are excited by it and I'll say our investment thesis has proven to be the right one, at least for Branded and our LPd, in terms of how we've been able to shorten duration and really focus on companies that can grow and drive sales very quickly. And the environment is wonderfully attractive, the best I've seen, certainly in the last several years.
VN: How many investments do you plan to make out of the fund? And how much are you going to put into the companies in the initial check and over the life of the company?
JF: I'm a big believer in diversification. We certainly offer side cars and SPVs and co-directs when that is appropriate but I believe in the diversification strategy. We had 19 investments in our Fund I, now down to 17 because of two exits we've had from that fund, and we had 24 investments in our Fund II.
The sweet spot, as indicated by Fund I and II, is between 20 and 25 investments in the fund. That’s appropriate and it reflects wonderful potential diversification. We also have a 10% cap on any single investment; most of them do not hit the max of 10 but a 10% exposure to any one company in a fund is substantial and that's where we cap it. We typically only have very few exposures at the 10% level so usually it's quite a bit lower than that. And then my goal in this fund is to deploy about half the capital rather quickly in companies that we either know well or are vetting and feel fit our thesis of being operator-centric, and then reserving a meaningful amount of the capital for follow-on investments in these companies with the idea that we can commit or invest additional capital to the folks that are meeting their hurdles, projecting accurately, and we could deliver it to them more capital as we get to know them further.
VN: Where does it fall in terms of stage?
JF: Our second investment was a Series A, it was a $4 million raise at a $12.5 million dollar pre-money valuation. Today, that would be a convertible note or a safe note, it would be a seed stage investment, not an A, so sometimes the naming convention gets moved around as venture firms hijack the A and take it to later stages because they have a lot of money to deploy.
We define seed stage as a minimal viable product and revenue producing; we don't need much revenue, but we want to know that somebody has paid for the software, is using the software, and there are revenues. And then out to the A is a good place for us because, as I mentioned earlier, multiples are lower, so I've actually looked at a few companies that are doing their Series As and, based on their revenues, they're sometimes cash flow positive, and where they're being valued, I have to say, we can de-risk this third fund somewhat by looking at companies that are a little more mature. They quite a bit of revenue and, in some cases, are profitable but the multiples and where they're at allow us to get in at valuations that we think are incredibly attractive. So, seed out to the A is the right space for us, and I feel that positions Branded in a wonderful spot, which is typically playing earlier than a lot of the usual suspects and traditional players. Sometimes I think of Branded as a really good minor league baseball team where our goal is to identify, vet, and validate the talented companies, invest and be active with them and help them drive sales, and get them ready for the big leagues. That's not me being self effacing in any way, there are companies that play in our space that have substantial amounts of capital to deploy and I liked the idea of showing them some of our best performers and having these companies somewhat graduate Branded and move on to this next phase of their own maturation and their own journey. We get them ready for that. So, I love working with later stage investors, because they asked me who I think is ready for primetime.
VN: Are there specific numbers that you want to see? Are there minimums of number of customers, minimum ARR, any metrics where you say you, ‘you have to have this much for us to want to invest in you’?
JF: We have to see some revenues but there's no minimum threshold. Actually, one of our most successful investments, the company had $15,000 and that's not monthly recurring revenue, that's ARR, that was their annual revenue line. $15,000 was a low bar and this company is now truly up and over approaching $4 million of ARR at a valuation that is seven times where we invested. So, I'm not against investing in companies with at least some but de minimis revenues.
That said, the environment has to be respected because it's the second most important criteria behind the investment thesis of an investment manager. We're in an environment now where we can invest in later stage companies by our definition of the early stage market. I've worked with companies that actually have $3, $4, $5, even up to $10 million of revenues but their valuations have not run away because the environment is no longer free flowing and there are certain investors that are no longer cutting term sheets and investing after 45 minutes of a phone call. I'm not picking on anybody in particular, though maybe I am a little bit, but because the capital flows have changed so much, we can now actually push our criteria out further. So, there is no minimum number of revenues, there's no criteria, unless it's below zero, then that's a ‘no.’ But in 2024, as the year kicks off, we're looking at companies that actually have substantially more revenues attached to their business than we were in Fund I or Fund II.
VN: What about the team? What do you want to see from an entrepreneur or CEO? What experience do you want to see from them? And what qualities are you looking for in that person to make you want to put money into them?
JF: When you're investing in the early stage space, team is critical. Let me be a little bit more specific: the CEO, the founder, the C suite, the criticality of that is something that continues to only increase in importance. Decades ago, I worked at a bank that had a monthly or quarterly internal publication and back then we didn't have the internet so it was actually a publication, they handed out a little internal newspaper. I saved a chart and in the piece it said, ‘the 21 things to guarantee either your happiness or misery,’ and number one on the list was, ‘marry the right person, it will guarantee 90% of your happiness or misery.’ I saved the chart because I couldn't tell you number two, I couldn't tell you two through 21. My point is, if 90% is attached to one thing, that's the thing you should focus on, and the rest will take care of itself. When investing in early stage companies I used to be uncomfortable when someone would say, ‘you're making bets,’ I was very uncomfortable with the word ‘bet.’ And then I actually decided not to be uncomfortable with the word and embrace it. When you're making an investment in an early stage company that has de minimis revenues, and maybe is still figuring out product market fit, that is a bet. Therefore, you better bet on the CEO and the founders. Then, in terms of what are the qualities, we would fly out to meet these CEOs and his or her leadership team and we consistently were told we were the only ones doing that but we want to break bread with the person we're going to invest in. I've heard people say they want to play golf with the person they're investing in, well, I'm not a golfer, but I understand the sport and I understand you get four or five hours of quality and private time with the person and I get it. For us, I guess our golf course is we’re going to sit at a restaurant and we're going to order some food and beverage and we're going to spend a few hours together and see if there's a likability factor and then get to know one another.
I will say there is no magic and secret sauce other than we have recently embraced a tool called Waddell, which we ask all of the companies that we're looking at, even companies pitching us, to take. It’s give or take 100 questions and really a psychological exam and we want to see what Waddell scores. It's not a gatekeeper, it's not a pass/fail, it doesn't say we will or will not invest, but we use Waddell as yet another tool. As a technology investor, we certainly want to be leveraging the best tech for us, and if there's a tool that can give us some insights that maybe we didn't pick up on our own, we at least want to vet and validate whether it's helpful to us. So, I will say the team is critical and the leadership is really what I'm talking about and there is no linear path to success with these companies. It’s volatile and I guess what I would say is you want to be investing in partnering with a person that will roll with the punches and will figure things out and I guess, to a certain extent, Branded feels like that's us too. We are very active with our young companies, we're not passive, we invest, and then we want to help.
For us, given how focused we are on the foodservice hospitality space, over half of the companies we invest in, the CEO worked in the industry. It's not a requirement, but that's a commonality among them. The other half respects the fact that because they didn't work in it, they have to either have to hire people on their team or work with groups like Branded to ensure that they actually have the feel for this industry that, I believe, really only comes with working in it. So, if you're going to sell into this industry, you're going to build software for this industry, and try to sell into this industry, we think you either have to have the experience yourself or you have to have brought on team members that have it or partner with folks that have it, because it's a very unique space. Going back to earlier in our discussion, it's misunderstood because everyone thinks they understand it, which is why you really have to have that experience yourself or around you.
VN: Are there other funds that you have encountered that specifically focus on hospitality and that are doing something similar?
JF: When we started we were fairly out there on our own and by that I mean as a fund that's dedicated to this industry and taking a very operator-centric approach and doing it in the early stage space. Another fund has recently come into the market and they're friends of ours; in fact, we collaborate quite a bit and I welcome them and others. When this other fund launched, by the way, somebody else wrote about them, and referenced us as the OGs of this space, which is a crack on my age and Schatzi’s age and how long we've been in this industry. I hope it was a compliment but I certainly thought it was a crack on how long we've been doing this. But I actually welcome and encourage other investors to look at the space and the reason I want that is, for this asset class to achieve what it could achieve, there needs to be more investors looking at it like an asset class. There’s healthtech and fintech and property tech, and there's so many other asset classes that have been able to secure meaningful investor bases and capital flows. And that, to some extent, contributes to their success.
Our first exit was a company called Bbot and the CEO, who we worked very closely with, is a friend of ours named Steven Simoni. He focused on QR codes and basically helping guests order and pay at the table using his software. I remember how generous and helpful he was to folks that you would look at and say, ‘but those are Bbot’s competitors.’ Steven’ point was Bbot is never going to have the lion's share of the market share, it's too fragmented and he said he needed the guests to embrace QR codes. He needs the guests to embrace using their phones to order and pay, he needs operators to embrace using phones, and wedding guests to use their phones, if he's going to succeed. So, he was very helpful to other companies. I feel the same way: I would love to encourage and work with other investors to look at this asset class as one that is uniquely large, fragmented, and going through a digital transformation. Think about how many asset classes have not already gone through such a transformation. So, yes, there are now other funds that are emerging and actually one of our friends in the market is named Emerging. And then there are the folks at Kitchen Fund, who are maybe a little later stage than we are but a tremendous group. And then there are folks out Utah called Savory and they focus much more on restaurants than they do tech, but they do play in both spaces. So, there are more folks coming into the market and I'm probably neglecting others but it's an asset class that deserves the attention, maybe less from just crossover investors, but from more specialists to come in because the asset class would benefit from incremental capital sources. I guess, the cliche is that rising tide lifts all boats, that could prove to be very helpful for this asset class, and the operators who we wish to make better.
VN: Let's talk about differentiation. If there are other firms coming up that are also in hospitality, and they are ostensibly your competitors, you're probably going to the same LPs, I would imagine, and you're asking them to be your partner and let you deploy their funding. What's your pitch to say, ‘here's why you should trust me.’ Is it that you are, like you said, the OGs and that you've been doing this a long time? How else do you differentiate yourselves?
JF: First of all, I pride myself on being as unfiltered as possible and direct and, I always hope, professional and respectful as well. What differentiates Branded is the flywheel that we have created. First and foremost, we invest capital and that is the core thesis of our business, to deploy capital in the hospitality tech and innovation space. We've talked about that. We also have a robust, what I call, solutions business which is our advisory and consultative business; that's separate from investing and we're really there to dig in and work with our companies and work with our portfolio companies and the industry to ensure that we are trying to focus on margin optimization. Again, our thesis is operator-centric, so working and offering professional services to the restaurant industry is something we think is important. We also developed a media effort, we have a podcast that we've had for the last several years where we continue to grow a subscriber base that I'm shocked about. We still want to listen, laugh, and learn about the industry. We have an industry newsletter that goes out every Saturday, we’re a prolific event hoster. These are all nice things, but we invest, we advise, and we really work with companies to help drive sales. Capital can solve a lot of issues, but capital won't drive sales, and that's one thing that Branded does through its solutions platform, we really help shorten the time and cost of customer acquisitions. It's something we do for our portfolio companies. And then the media side, or the marketing side, allows us to, hopefully, amplify the good things going on at these young companies, again, for the purpose of bringing awareness, boosting and boasting the value they bring.
This is an industry where I like to joke that we need less salespeople, we need more marketing folks, and we need more experts to be part of it. What I hear from many of my restaurant friends and the folks that are in our hospitality network is they really don't want to hear from emerging tech companies. They have a very busy day, a very tough job, and added diligence; they could spend 24 hours a day, seven days a week, diligencing the tech companies that are out in the market, except they don't have the bandwidth or desire to do it. So, what they typically do is, if I'm a restaurant guy, and you’re a restaurant guy, I might ask you, ‘what do you use for your delivery platform?’ or, ‘what do you use for your inventory management? Do you like them? Who's your POS? Do you like them?’ You'll tell me what you like or you don't like, and that's a great source of information for operators; Branded wants to be another source of intimate information. That includes, by the way, if you call me up for your restaurant company, and it's a very fragmented market, as I said, we may not have the right solution for you in our portfolio, I'll tell you the right one for you, even if it's not in our portfolio, because the relationship we have with our hospitality network, the operators, is one of the most valuable things that we've created. That to me is the differentiator, we actually know and speak and communicate with the hospitality community. We do it through our podcast, we do it through our newsletter, we do it through our events, and we'll do it directly with them and we rarely charge that group because, as far as I'm concerned, they're trying to help them with their efficiencies and margins and I want to know what they care about. So, it's a very good exchange. That's the differentiator, the network.
VN: You mentioned a few of the companies in this conversation that you've invested in. If you want to talk about those companies, or if you want to talk about totally different ones, it would be great to hear about some of the investments that you've made, and what it was about those companies that made you want to invest in them. When that founder, that CEO sat across from you, what was it that made you say, ‘Okay, this is somebody, and this is a company that I have to invest in’?
JF: The first one that comes to mind is Bite. I made a joke about the toll booth collectors and how my daughter has never seen my wife pay a toll as opposed to using the EZ Pass lane. So, Bite kiosks fit our investment thesis to a tee: we love companies that are one of the few, meaning I don't love companies that are the one and only, because if they’re the one and only doing it that presents a certain risk of really charting unbelievably new territory. I know there's great potential value there, but it's also a riskier proposition. I also don't like the one of many because that suggests the space is crowded, so I like one of few. There are a few very good players in the kiosk space, but I love that Bite happens to be one of the very good ones. It's led by a tremendous CEO, Brandon Barton, and Bite kiosks in general are addressing labor issues, quick serve restaurants and Shake Shack have gone very public that they're outfitting all of their stores, of which there are now over 500, with kiosks. They have found the kiosk as an order taker at a quick serve restaurant is, respectfully, superior to what the human can do; you still get to have a few humans being out in front, welcoming guests, greeting guests, helping guests, being guest ambassadors and here's a tremendous company, Shake Shack, that is proving that the kiosk just knows you and me better, with pictures, images, and pairing, it does a better job than the human can do. So, Bite kiosk is a unique investment for us, because it's both software and there's a piece of hardware, which is the kiosk itself.
I'm also just a huge lover of PourMyBeer, which is being rebranded as PourMyBeverage. It's a self pour beverage solution and, in fact, I'm wonderfully biased but I still have great joy that PourMyBeverage is the world leader in self pour beverage solutions and technology. The act of pouring beer, wine, coffee, soda, that act in a restaurant takes a lot of labor and if you will allow the guests to do it for him or herself, and we actually used the system in one of our restaurants in New York before we invested, the guests just love the engagement of trying different things and sipping different things. It was social, it was communal, they can talk to people, and we were charging for every ounce, it eliminated waste, and eliminated theft. And there's this great data play because we now know who's drinking what and when they're when they're doing it. So, there's a company that I feel, in the world of automation, respectfully, before we see robots replacing humans out on the floor, or even in the kitchen, the idea of letting a guest pour a drink or a beverage for themselves, has much greater potential and much lower friction because guests know how to turn a tap and activate it and it's such a simple, seamless solution that I'm very bullish on that. I joked with the CEO, Josh Goodman, who's the founder and a tremendous person, when Major League Baseball changed the rules and the rule change cut 60 minutes off the game time, that was also 60 minutes of selling F&B. And I remember telling Josh, ‘you're going to hear from some stadiums, because they need better flow, through better throughput, the lines are no good.’ And, sure enough, deals have been cut with a couple major league baseball stadiums and that's an ideal space for the system and more to come on that.
So, I gave you, I gave you Bite and PourMyBeer and I'm sure there are 40 other companies who are now mad at me for not picking them at this point.
VN: That's really interesting, because I used to work at Citi Field and I poured beer and the rules of the baseball stadium were so strict about who you were allowed to serve and how many beers they could have. For them to change that for people to be able to pour their own beer, that's a major change.
JF: The biggest user of PourMyBeverage is actually Burger King over in Europe. The soda machines went from the employee side of the counter to the guest side and then guests assumed they would buy a cup and I guess the assumption was free refills. I'm not sure that was part of the deal but the guests certainly assumed that was a free refill and then guests stopped buying the cup and they started bringing in their own and helping themselves and that was crazy. So, it's so liquid agnostic, and that includes non-alcohol.
To your point about alcohol, the system is approved in all 50 states. But, you're right, I'm fully aware of the strictness in stadiums; I will only tell you that what stadiums are going to do is have an area where it's available. You get carded going into the area and then there's limits to what you can pour before you have to reactivate the card, reactivate the way in which you access the system. So, it's actually wonderfully controllable. In our own restaurant, we would limit guests to 32 ounces of beer before they have to check in with somebody to make sure that they were okay.
VN: What's the thing that really motivates you to do this? What's the part of the job that you love the most when you go to work every day?
JF: It's the people. I love that I get to help build young companies. I love that I get to invest in emerging companies that want to help the industry and I know how that sounds: like, ‘help? Is that really what you care about, Jimmy?’ The answer is yes, it is. I love the hospitality industry, it's really important and tech and innovation can be of real value. At the end of the day, the food and beverage industry, the hospitality industry is about people and it's about the food and the beverage, that's the most important thing. We're not going to replace people or the food but we can be a tech enabled business, or we can be a tech supported business, and I love that I not only get to, hopefully, bring value into this industry that I'm truly passionate about. I've worked in other industries where I loved the job, or maybe I loved the compensation, but I've never felt this way about the actual asset class of which I am fortunate to be engaged with and that is very motivating. But the idea of helping young emerging companies grow and scale, I find that to be just a true joy of this job. And maybe it's somewhat too personal to me, because when a company is not doing well, I want to do everything I can to fix it and it's unfortunate but, sometimes, you can't fix it and you have to accept that you're going to lose. But we go to the mattresses for these companies because we really want them and we care about them and their teams to succeed. And then even my own team, I get to help build and work with new talent and how fun is that? I get to watch people take on new responsibilities, new roles, so I'm building a company at the same point we're investing in other new companies and emerging companies. I find this kinship, we are investing in emerging companies and we ourselves are one. And, again, how fortunate am I to get to be part of that? That's what motivates me.
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