Mass Appeal

Righting It

Even if HeartWise manages to gather a bigger helping of profits, is approaching VCs the best way to look for funding? "There are advantages to going to venture capitalists," says Kharasch, noting that VCs are willing to take bigger risks-a plus in an industry considered high risk by any standard. "But often, they'll take more than 51 percent ownership." VCs could conceivably fire all the partners, leaving Deahl without a business or the opportunity to recoup her investment. She would have to seriously ask herself whether she's willing to give up that much ownership in an opportunity that she's already put so much of her life and money into.

Deahl is also caught in the Catch 22 of needing funding to grow in an industry where the money goes to those who already have some experience with expansion. "Venture capitalists have a different take on restaurant and retail investments," says Guinn. "For technology and products, they tend to believe the appropriate time for investment is at the drawing-board stage. For retail and restaurants, [they] prefer more of a track record, [which] can range from five to 30 stores to operations in three different geographic locations."

So how can Deahl get the money to build HeartWise to the five stores she needs to attract venture capitalists? Guinn suggests she hit up angels again, but he adds one tip: Go to people who know the business. Investors not familiar with typical restaurant profit margins may not discern the potential in HeartWise's model. Guinn says, "[Approach] somebody successful in the restaurant industry, whether they're retired and wishing they had a new brand to play with or still operating a restaurant chain but looking for another place to play."

Guinn suggests that Deahl look for angels at restaurant conferences. "Walk around, shake hands, and carry a one-pager about your business," he says. "The goal is, for every 15 people you annoy, one will take you seriously." He points to investor funds as another option. Capital Across America and Isabella Capital help women-owned firms.

Kharasch told Deahl one possible angel is sitting right in HeartWise's store. "You have Seattle's Best signage in the store," he says. "I [might] approach them about some type of partnership or being a participant in opening other stores, once the concept is where you want it. Look at them as a potential investor."

Regardless of where Deahl looks for money, what's most important is proving investors can get a good return from her company. "If you were my client," Kharasch advises her, "our goal would be to have a well-oiled machine."

Who: Rosemary Deahl, 47, founder and CEO
What: HeartWise Express, a Chicago restaurant that touts high-quality fast food, opened in 1996.
Money Matters: Deahl wants to expand from a single restaurant into a national chain. She seeks $5 million to develop up to eight stores that will serve as a springboard for future growth.
The Numbers: 2000 revenues: $1 million. 2000 profit: $50,000. Projected annual growth: 4 percent. Deahl and her husband, David, have invested $2.5 million of their own money in HeartWise.


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This article was originally published in the July 2001 print edition of Entrepreneur with the headline: Mass Appeal.

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