UP043: inKind // redesigning restaurant financing with House Accounts (feat. Kevin Tien of Himitsu and Hot Lola’s)

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Johann Moonesinghe 0:00
I was able to identify 55 people who had been in the restaurant before buying a House Account and then after, and their spend per visit went up by 80% once they bought a House Account, and we were able to look at so that cohort of 55 people and we assign an annual value, so they come in once a month, and they spend $10 a visit. So they’re worth $120, right? And the total value of that 55 people was $31,000. Once they bought House Accounts, their total value was $120,000 a year. So people come in way more frequently and spend a lot more.

Jay Clouse 0:35
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them.

Jay Clouse 0:48
Welcome to upside.

Eric Hornung 1:03
Hello, hello. Hello, and welcome to the upside podcast. The first podcast finding upside outside of Silicon Valley. I’m Eric Horner. And I’m accompanied by my co host, Mr. Shrimp quesadilla himself Jay Clouse, how’s it going, man?

Jay Clouse 1:18
What do you like about that curveball.

Eric Hornung 1:19
yet you’re in Austin, the home of the taco we go to a taco truck has great ratings five stars its a little food truck. Oh, man. It’s right. Oh, it’s literally across the street. I’m thinking about walking out of this intro and go getting one right now.

Jay Clouse 1:33
Granny’s tacos.

Eric Hornung 1:34
Granny’s tacos in Austin. Phenomenal. It’s not toward cheese. I know everyone toward cheese, but we go over there and Jay doesn’t get a taco know he gets a shrimp quesdilla.

Jay Clouse 1:43
I am counterculture. I don’t conform to your taco norms. I’m here to see eat what sounds good. I like seafood. I like quesadillas. I like large self contained foods. And you know, you’ve got like, nine tacos on your Twitter thread as of this recording. Like I think that’s a gratuitous numbers of tacos. I’ve had a lot of tacos too. Sometimes. I want to try to quesadilla. And I’d appreciate it. If you got off my back about it.

Eric Hornung 2:12
You really come after me.

You also just said you like large self contained foods.

Jay Clouse 2:17
Yeah, like burritos like gyros.

Eric Hornung 2:19
I know.

I’m I just never thought about foods being large and self contained before.

Jay Clouse 2:24
I like beige foods. Specifically. Anything that’s beige. I’m in if it’s green. I’m a little wary of.

Eric Hornung 2:31
Let’s dig deeper. I

seriously beige foods?

Yeah, like hot dog buns. You’re like, Oh, this is great.

Jay Clouse 2:38
Yeah, I mean, that’s fine. I mean, a lot of grains like will be fine. But you know, you’re talking about cheese. You’re talking about fried things. Name something that’s beige that you don’t think that I would like

Eric Hornung 2:47

Jay Clouse 2:47
It’s not a food. beige foods.

Yes, that’s the silence that I’m looking for.

Eric Hornung 2:53

Jay Clouse 2:54
yeah, I want to do like about tacos. And also gyros really, is that it’s a food that makes you eat it on its own terms like it will be eaten. But you’re still craning your neck, contorting yourself to make sure that you eat it without just spilling it all over yourself. I respect a food that dictates the way it’s consumed.

Eric Hornung 3:14
So you don’t eat your gyro with a fork and knife? No. Do you

no I don’t know. I just I don’t know, some people might you know,

Jay Clouse 3:23
all this food talk is getting me hungry. Bad news, Eric, we’re gonna be talking about food a lot during this interview

Eric Hornung 3:27
for at least another hour

Jay Clouse 3:28
for at least another hour. Today we’re talking with Johan moon Singh, the co founder and CEO of in kind, in kind is a different type of restaurant financing. they’ve invented a new form of finance, where they purchase a bulk amount of food and beverage credit up front from a restaurant and then sell it to guests over time. The example that Johan gave us was that he has purchased large dollar amounts of credit and restaurants an average of up to $100,000 for discount, and then sells that credit to consumers as large gift cards, an average of $750 per with a bonus.

Eric Hornung 4:01
I’m a little confused on the model. I think it’s interesting. But I I think we’re going to dig a lot into a model here because it’s just so different,

Jay Clouse 4:09
very different. And I wonder you know, what the staying power is it makes I think it makes a lot of theoretical sense. It seems like it’s a very capital intensive business up front with some real risk involved from like an inventory perspective, almost like an inventory of food credit. So excited to dig into that, in kind was founded in 2016. It’s based here in Austin, Texas. It’s raised $2.2 million from TechStars, firebrand and some angel investors. Previously, they started a company called equity eats in 2014. That was an equity crowdfunding restaurant platform, and in kind is kind of the evolution of that.

Eric Hornung 4:48
Let’s bring in Meredith sugar, a partner at Taft Stettinius and Hollister to teach us about preparing for an exit. Taft is a full service law firm known for assisting entrepreneurs across the Heartland. As a reminder, the following remarks by tapped attorneys are for informational purposes only and are not legal advice. This information is not intended to create and receipt of it does not constitute an attorney client relationship. No person or organization should act upon this information without first seeking professional counsel. Meredith, thanks for coming in today. How’s your day?

Meredith Sugar 5:22
Good. It’s a little cooler than we’d like here in Columbus. But spring is definitely on the way.

Jay Clouse 5:27
I hope spring is on the way I hope summer follows that. But in Ohio, you just never really know.

Meredith, I wanted to give you a hypothetical situation here. Let’s say I’m a founder and there is an acquisition offer on the table. It’s starting to feel very real that there will soon be a lot of money in my bank account.

So how might I as a founder think about estate planning services?

Meredith Sugar 5:49
Well, although an acquisition certainly encourages business owners to execute estate plans, their time that I’m engaged in planning is yesterday, it’s not now whether or not an acquisition is imminent, avoiding the time and cost of probate is generally very easy to do by having a trust, especially for business owners, the trust to hold all that person’s assets, including their business. Many other good reasons exist to have a trust, for one a trust and keep children from inheriting at the age of 18. holding their funds and trust even though the funds are always there for their support until ages later than 18. tax planning is another good reason to have a trust. We currently have a very high federal estate tax exemption of over $11 million per person. But this exemption likely won’t stay this high and in the past few years, it’s been as low as 1 million passing away with more than that the mouse objective version to a 40% back trusts are able to make the Tax Scenario as favorable as possible. And more creative types of trusts can help with wealth transfer to lessen the tax burden even more.

Eric Hornung 6:52
Something that no one thinks about. But everyone should be thinking about taxes. Appreciate you coming on. And if people want to learn more about Taft or yourself, where should they go?

Meredith Sugar 7:01
Our law firm website is taxlaw. com and I can be found on the site.

Jay Clouse 7:13
Johan, welcome to the show.

Johann Moonesinghe 7:14
Thanks for having me.

Eric Hornung 7:16
We like to start on upside with a background of the founder. So can you tell us about the history of Johan?

Johann Moonesinghe 7:21

Let’s see. I was born in Pasadena, California, born and raised there. went to UCLA. to study computer science, electrical engineering. And then I moved out to Washington DC to work out there for a couple of years. My freshman year roommate from UCLA called me and said, Hey Johann let’s start a company together. So I moved back to LA we started a company. We had no idea what we were doing. You know, two of us didn’t have much support from community or our families weren’t super helpful with a tech startup. And it ended up failing in about nine months. But we moved out to Boulder, Colorado to be part of TechStars first incubator, and that was an incredible experience. So same founder, Doug and I totally different outcome and just like really, really made the difference for us was this incubator that we went through

Jay Clouse 8:10
the first TechStars incubator. What year was that?

Johann Moonesinghe 8:12
Very first

2007? Yeah, which was great because we got to become really close friends with the founders of TechStars. So David Cohen, you know, Jared polis, David Brown, and Brian, and Brad Feld, Brad actually led around in the company called mad cast. We sold it to another company, and then we, I was kind of looking for it I was going to do next. And Jared had just won the congressional seat. And he was the first openly gay freshman Congressman, which was super cool. So actually, my best friend, Jonathan, who was our first investor in in kind, eventually, he wanted to work for Jared on the hill. So me and Jared and Jarrett’s partner, Marlon, and Jonathan all drove to DC together and ended up out there, started investing in things, you know, kind of like, everybody who sells their tech company does invested in tech companies became an LP and several funds. So I was actually in, David Cohen started a fund that you guys probably know, invested in Uber and Twilio and sendgrid. So I was fortunate to be in now.

did pretty well did some real estate, and then started investing in restaurants. Just because I love food, love wine, friend of a friend was opening a whiskey bar, supposed to be a high end molecular molecular gastronomy, cocktail bar, and it’s two blocks from my place in DC. I was like I’m in right. So invested in that brought in some friends on that investment. About a year later, a friend came into the bar with me and was like, I wish I could invest in a restaurant, you know, I’d come in all the time. And at the time, you had to be an accredited investor in order to invest in a restaurant. So my husband was English, the Defense of Marriage Act, he just got overturned. So I was able to sponsor him for a visa. And he moved to America, and he’s a lawyer. And I was like, I’m ready to start another company. Let’s do it together. So the two of us with two of our other friends started a company called equity eats. And what we did, we crowdfunded for equity, the first restaurant in the country. So it was prior to the JOBS Act being enacted by the SEC. So we actually work with the DC government took a while and you know, law regulation, but we were able to raise, I think we raised something like $400,000. No, $250,000, from like 450 people who are all DC residents. And we actually started our own restaurant that was crowdfunded. And I kind of ran the restaurant plus equity eats for about two years.

Jay Clouse 10:30
How did you from like a platform or like logistical perspective? How did you guys manage that crowdfunding before the JOBS Act was out?

Johann Moonesinghe 10:38
Yeah. So we had to build everything. So we had our own software developers, all the marketing side, like it was all brand new. So we were doing a lot of learning. I think we ended up spending almost $200 per investor just to market the, the raise,

Jay Clouse 10:52
that’s not a typical of crowdfunding though to my understanding, for like, some of the big crowdfunding campaigns, a lot of marketing spend, and effort seems to go into it, even given the reward stuff.

Johann Moonesinghe 11:01
Yeah, absolutely. And for us, I think the biggest problem with equity crowdfunding for restaurants is that restaurants aren’t that profitable. So even if you like, you know, invest in a restaurant that’s doing really, really well. And you invested 100 bucks, like, if you make a $10, let’s say profit per year on your on your investment, which, which is pretty good. You know, now you have to file a K one, you know, with your taxes, and most people like Turbo Tax, their version doesn’t support a K one, so you have to spend an extra 30 bucks for the better version of Turbo Tax, you know, to pay the taxes on the $10 return you made. What we did find, though, that people came in all the time, they still do. So the investors in the restaurant, are there all the time they bring their friends are really great marketers for the restaurant. And that’s ultimately what in kind came out of was this idea of, Okay, how do we provide and they were coming in and spending money. So as you mentioned, that they were doing they were buying food, and at the end of the year, we’re paying them some small amount of money back. So we were like, this doesn’t seem very efficient. What if instead of that, people just essentially bought food and their return came to them in the form of more food, which for a restaurant, we have a ton of food and drinks, but we don’t have a lot of cash. Right? So it took about two years to kind of evolve from this pure equity crowdfunding to what we have today, which is in kind, which is really sort of all around cost of goods for food in a restaurant. And how do we play in that market?

Eric Hornung 12:23
Is 250,000 even enough to start a restaurant?

Johann Moonesinghe 12:26
It depends where you’re starting a restaurant, but what we did was we took over an existing space, but the answer is no, we had no idea what we’re doing. So in that first year, I think we probably lost close to $500,000. So and we only raised 250,000. So I put in the rest. And it took us about a year, which is normal for restaurants, you lose money in the first year. And the second year, you’ve kind of figured out what you’re doing. And you hopefully pay back the debt from the first year. And then by year three, you start paying back your investors, it’s pretty normal

disclose, but it actually wasn’t a huge exit.

Eric Hornung 12:54
I want to talk a little bit about this exit, because I think you’re the first person who’s come on who exited to a scale where they just became an investor. How big was the exit, if you can say or whatever,

Johann Moonesinghe 13:03
it was, I guess it was enough to be enough

Eric Hornung 13:03

enough to not work and it was enough to be an LP and to invest in real estate and to start up a restaurant. So it was like decently sized. What was that? Like? Like, what was exiting? Like?

Johann Moonesinghe 13:23
Yeah, that’s an interesting question. That was a long time ago.

For me, it wasn’t that much of a change in anything. So in college, that same roommate and I, we started non tech companies or non tech company together, we sold paperback textbooks on Amazon, and that did pretty well. And then I actually imported and manufactured Montessori equipment in China was the first person to do that and bring it here. I’ve always been entrepreneurial, and was able to make a little bit of money doing that. And so there wasn’t really a change in my lifestyle from the exit, if that makes sense. Yeah, which is kind of a weird philosophy that I have just in general, like I’m not seeking an exit, even for any kind of eventual will exit it and it’ll make a lot of money. But my lifestyle isn’t probably going to change and not that I have like an extravagant lifestyle. I just kind of keep it pretty mellow lifestyle other than wine. I’ll spend unlimited amount of money on wine.

Jay Clouse 14:17
For the listeners, were literally sitting here with a bottle of wine that Johan brought us

Eric Hornung 14:21
From a small producer in Australia.

Jay Clouse 14:25
And it’s fantastic.

Eric Hornung 14:27
And we’re not just sitting here with it. We all have glasses of wine, just so everyone’s on board. So if I started slurring my speech, that’s what’s happening.

Jay Clouse 14:34
Where did that entrepreneurialism come from? Was that a part of your family?

Johann Moonesinghe 14:37
Yeah, I

think it was. My parents are immigrants. My mom is a high school math teacher, she teaches calculus. And my dad sort of is a respiratory therapist, but he worked three jobs, you know, when we were little to support the family, and both of my parents families in Sri Lanka, or were entrepreneurs and had businesses, my mom’s family, they had a music factory. And it was actually there was a civil war in Sri Lanka. And it was the destroyed and the family had to leave as refugees. But I think as growing up it was like the entrepreneurial sort of spirit in the family definitely, like all my uncle’s have businesses. Did you have like the lemonade stand as a kid? Were you trading like trading cards? Or did it start in college with the book thing? No, I definitely did. Apparently, when I was like, two, I painted rocks and tried to sell them to the neighbors. And then I remember when I was really little, too, I was I hired the neighbors. And we started a gardening company, where I was like, too small to do a gardening but I would, I guess, do the deals that

Eric Hornung 15:35
you said, I know, in kinds of any successful we’re going to make money will probably exit Have you ever failed? Anything?

Johann Moonesinghe 15:40
Yeah, yeah. So zemble was the first company in LA that we did. And it really was our first my first attempt at anything as a pure tech company. And I remember, we had no idea we had value things. You know, we couldn’t tell the difference when convertible note or you know, equity like none some. There was a company called think it was dodgeball, the Google bought for $50 million. And it was related kind of space what we were doing. So some potential investor came in for a meeting. And he’s like, well, like, what’s the valuation we’re looking for? And I was like, well, dodgeball sold for 50 million, we’re probably worth 70 million, you know,

three of us sitting here, like, I’m so and he’s like, Uh huh. Because I would say like, we just didn’t have a lot of guidance or advice, you know, from people. And that led to the failure. But I learned a ton from that failure. And how quickly Did you bounce back from that? We actually sort of transitioned into the TechStars program and that company, so it was a failure in the sense, we ran out of money, and we couldn’t pay anybody. So really, just, you know, Doug, and myself, and Tony, who was another developer, moved to Boulder to be part of TechStars.

Jay Clouse 16:44
What was what was Mad cast? What was that business?

Johann Moonesinghe 16:46
Yeah, it was a blog sharing widget, basically. So at the time, blogs were big, you know, now, people don’t really blog anymore. But the idea was, you could go to different blog posts that you’re reading it remembered who you are. So we used cross site scripting across sites. And we could, you know, figure out, you could share something with someone via SMS, or Facebook or something like that. And we remember that for the next time you went to a site that had our widget, so you could more easily share with friends that you’d already shared with. And then we could take that data and plug it back into an ad network to you know, if you’re sharing things with someone, you’re likely interested in those.

Eric Hornung 17:21
have you kept up with TechStars? Since you went through?

Johann Moonesinghe 17:25
Yeah, so I’m actually an LP I think in three of the TechStars funds. David’s a good friend of mine, Jared is a good friend as well. They are the biggest TechStars ventures is the biggest investor in in kind, currently. And we just hired a principal from TechStars ventures, Derek Keller to be our CFO of in kind. So it’s it’s john fine came from the TechStars network. I’m an LP and his son, he’s an investor in kind. So I think, pretty, pretty close with the TechStars. Network.

Eric Hornung 17:55
What’s changed the most since that first accelerator to Now besides size?

Johann Moonesinghe 18:00
Yeah, I mean, scale, right. Probably in that first accelerator. You know, David was the managing director, he was the guy there with us for the whole summer, he was a startup for him. So he probably didn’t really know, you know, he’ll say that, like he was making it up as he was going. But I think what the biggest benefit was we got so much time with with the founders of TechStars. And the mentors that obviously now they have thousands of companies are accelerating, they can’t spend time with them.

Eric Hornung 18:26
This, you probably are a little biased here. But I’ve been a part of a lot of first round organizations as well. But I think there’s something invaluable for being the first one through if you were talking to a founder who wanted who had the opportunity to go to TechStars or go to a potential accelerators, incubator with a lot of promise. That’s the first one of it. Which one do you recommend?

Johann Moonesinghe 18:48
I think TechStars is such a good brand. Now that has such a strong network that I would go through TechStars personally, and I think there’s a lot of accelerators or incubators out there that maybe promise more than they can deliver. And so there’s like always that sort of trap if that happens, but so I would I recommend TechStars to everyone. I invested personally in a couple of programs that came through Minnesota through that accelerator, and one of the founders was somebody I invested in before TechStars. And I encouraged him, Hey, why don’t you invest in the tech stars accelerator. And he, this was last summer, and he had a great experience. And so I think based on that, like I think it’s probably still worth doing TechStars

Jay Clouse 19:26
Are you an LP in the TechStars fund, that’s invested in in kind,

Johann Moonesinghe 19:31
I am in they have four funds. So bullet time one, bullet time two, which is what David Cohen started, then there was TechStars ventures, which invested in us. And then there’s the second tech adventures fund. I’m in one, two and four. And I think our investment in in kind is actually from three, so I don’t think I am.

Jay Clouse 19:47
And I wonder I just don’t even know like, what does that mean? My head kind of just exploded with the circular logic thinking about it. Like, if that was the case? Is there any problem with that? Is there any, like upside potential for you for that? Like I’m trying I think through like what that would even mean,

Johann Moonesinghe 20:01
there’s such, TechStars is such a big fund that, you know, their biggest investors are institutions, right? The little little guys like me or make up a tiny percentage of their fund. But I’d say firebrand was an interesting one, because john invested in in kind, and he was such a good investor that I asked him, can I invest in your fund? Because you not only do I think you pick great companies, obviously, you picked us just kidding.

I think that he helps the companies that he works with, he really like opens up his network comes back to him being smaller, you know, so he just cares a lot and puts a lot of attention to every company. So I asked him, can I be an LP in your fund? And he said, you’d be the only LP outside of Kansas City. I was like, awesome. So I am the only LP outside Kansas city.

Eric Hornung 20:47
What about john, specifically, he’s been on the podcast, I think he’s how we got connected to you. We think he’s awesome, too. But specifically, having dealt with him in a business setting, what makes john so magical,

Johann Moonesinghe 21:02
I think when, you know, with an investor, you’re always sort of courting, and you know, before the investor commits, and then you as a company or a founder, also want to make sure that you’re going to connect with the investor in the long term. And I remember, I went out to Kansas City and had dinner with john, and the types of questions that he asked me, made me really understand that he would be a good cultural fit for us. And also that he cared a lot about us as founders. So you know, how many hours of sleep do you get? Are you able to exercise like things that you don’t normally hear from an investor? And he’s not looking for four hours of sleep? And No, I’m just kidding, my desk all day, you know, he’s like, this is a marathon, which it is. So I need to make sure that the people I’m investing in, you know, can be around for the long term. And I think that’s different than a lot of venture investors. We’re fortunate and the company’s doing well, and we, so we have a choice of kind of who we want to invest. There’s a lot of war stories, you know, of people who take take venture, and then are just driven to growth at all costs, and it hurts them personally. It also hurts the culture of the business. And I think John’s probably the opposite. Do you think he pulled that from his time at TechStars? I do. Yeah. I think that TechStars has the saying called give first, and it actually they actually do do that, you know, that’s sort of what they believe in. And in the long run, things will go really well.

Jay Clouse 22:18
I’m interested to hear, you know, you’ve clearly made the intentional decision to take on investment, even though you are an investor in different funds and things like that, why not bootstrap in kind?

Johann Moonesinghe 22:27
Yeah, we sort

of do bootstrap inkind, you know, we’ve raised a little over $2 million, which is not that much money in the grand scheme of things. But what we really look for our people who can be really helpful as investors who obviously aren’t going to quit their day jobs or come work for us full time, you know, so we leverage our investor base, probably more than other companies do. Just because I know as an angel investor, when I invest in something I want to reach out and help. But the only way that I know how to help is if I’m informed by the company. So we send out really detailed, honest updates around what’s going well in the company, what’s not going well, to our investors on a regular basis. And then I get awesome feedback. You know, I’ll get five emails back, I’ll get jump on calls with people who built substantial businesses who’ve seen the same maybe issue that we’re dealing, an investor, you know, the more time they spend with you. So they give you money. So they’re obviously bought in but then as they spend time with you their becoming more about it. And they’re even more helpful, right. And that’s, that’s really for us, we take investment from people who we get along with who we really want to help us build the business. You know, Jonathan, my best friend, he was our first investor, and he’s on our board, he probably does 15 hours of work a week of work for us for free

Jay Clouse 23:41
Is that this John.

Johann Moonesinghe 23:42
Yeah, that’s this guy.

Jay Clouse 23:43
Jonathan, Jonathan is joining us here in the conference room. wait Same John.

Johann Moonesinghe 23:49
for free, you know, we can’t afford him. He has a big company. But he puts time into us, because I think of the relationships that we have with our investors.

Eric Hornung 23:58
So I think this would be a good time to kind of transition into our next segment, which is how did you start liking wine so much.

Johann Moonesinghe 24:04
So I was in, in college, and I went to France, and I went to I don’t speak any French, but I went to a restaurant I think was called Tayo Ball. Any French listeners are probably that’s totally wrong. But I had a 1975 Shito u kem, which was the desert wine on turn. And it was the first one I had, I was like, wow, this is what wine can taste like. And after that, I just started trying more and more wine. Growing up, we didn’t have any alcohol in the house, like none. Now, thankfully, my parents drink quite a bit of wine with me. But yeah, just developed off that particular glass, I can remember it, I have a bottle now I haven’t opened it. And then it’s been, it’s been fun. You know, people, some people play golf, right, I don’t play golf. So what I do do though, is I hang out with people who are in the industry, or, you know, or investors and we drink wine together, we have a house here or in kind offices, a house. And part of the reason for that is because I wanted a kitchen. So when john fine comes into town, we cook dinner together, we drink wine together, and it creates that sort of culture.

Jay Clouse 25:12
It’s very cool. The wine culture, I’m an outsider into this wine culture, and you guys are much closer to it than I am. So my perspective is that there is so many types of wines, and it’s almost like an art collector type space where there are all kinds of artists, and when someone talks about it, it’s kind of like, Do you recognize them? And then if you don’t, how much do you bullshit to pretend like you do. So what type of like wine culturees Are you guys? Do you? Are you like trying to become a Somali a? Do you like love to try to get down on some of those specific notes of what’s in this wine?

Johann Moonesinghe 25:45
So maybe I’ll answer first, I think the more you learn about wine, the more you realize you don’t know much about wine, you know, like, every day, I’m learning something new. And that’s, that’s to me what I like I like hanging out with people who know a little bit more about wine than me, and they can teach me something you know, about the bottle that we’re drinking. Or if I’m drinking wine with people who know less than whine about me, I try to teach them something about the wine, we’re drinking, you know, this wine here, three grapes, I don’t know what they are, you know, from this tiny, tiny producer, just south of Sydney, like we none of us probably have had this wine before, then. So it’s special to be able to share that experience with people. terms of price. There’s obviously bottle wine, that’s $500 probably cost tastes better than a bottle of wine. That’s $10.

Jay Clouse 26:29
I love the idea of a new bottle of wine as a shared experience with somebody hadn’t thought about it that way.

Eric Hornung 26:35
I’ve never really got into the tasting notes, by the way is the first question you’ve ever asked me on the podcast.

I think that’s like you pretty much said my answer, which is like wine is about the people not about the product. And it’s just a centerpiece for the conversation. And the nice part about it is it makes you giggly and happy. You know. So you’re never having a bad conversation over wine. Although sometimes it can be a little emotional.

Jay Clouse 27:02
So you you transition into this equity eats platform and you guys crowdfunded that first restaurant at some point you shifted into in kind. So talk to us about that transition, and where you are today.

Johann Moonesinghe 27:14
Yeah, it took a little bit of time to you know, we crowd funded from restaurants. And then to see if those restaurants were going to do well or not, you know, they started sort of, we could see em return as an investment as an asset class. And I had actually invested personally in about 30, restaurants before equity eats, and you know, they were kind of some of them are doing really well. And after a little while, so I would say a year and a half, we started to realize that the investments in restaurants, so you know, through the crowdfunding platform, or even personally, as an asset class, we’re not that great, right, like, a couple of bars that have killed it, or you know, but most of the 30 restaurants probably like, three are great investments, you know, so. So we had a friend, whos a chef who actually was working in our in our restaurant is doing a pop up there. And he said, Johan, will you invest in my next restaurant, and I look, again, back at the restaurants that we had done, and it looked at the crowdfunding platform, and I was kind of like, you know, what, I don’t really want to, you know, I want to help you. Because, you know, I love you, and you’re a great chef, and you’re gonna have a great product. But is there a better way to do it? And so what we did was we, you know, he found a second generation space, and he needed money to open and it was opening in 30 days. So I said, Kevin, why don’t I just buy credit in your restaurant, you know, I won’t take an ownership perspective piece, you don’t have to pay me back, I’ll buy credit and buy it at a discount, and then I’ll turn around and sell that credit to people and pay myself back. And that way, you don’t have to have any other partners in the restaurant. It’s just going to be you and Carly’s was, was an operational partner. And that’s what the first year we did under in kind, and it just went really, really, really well. We took the credit, you know, I didn’t know that many people to sell the credit to so I had to sell it in high dollar amounts.

Jay Clouse 29:05
And you took that marketing on yourself. You weren’t asking him, like, go out and market this and sell the stock that I like the credit that I bought, you’re doing it on your own?

Johann Moonesinghe 29:14
Yeah, yeah, we had gotten good at like, how to market things from through crowdfunding, you know, so we were gonna be better than he was. But then also, we had people that eaten at his food at my restaurant. So I knew those people. So I called them, you know, I was like, Hey, you loved Kevin’s food. Why don’t you buy $1,000, we call them gift cards at the time. And I’ll give you a $300 bonus, right? Or buy a $2500 gift card, and I’ll give you $1,000 bonus, people were like, that’s kind of cool. Yeah, I’m going to eventually go, like his food when he opens. And we were able to sell all the credit. And we actually sold the credit in about 60 days. And so I looked at it from a restaurant investment perspective. And I was like, Whoa, I need my money back and a profit on this deal in 60 days. And Kevin looked at it. And he was like, I just have to service people coming and eating. And two and a half years later, only, like 65 or 70% of the credit that we sold had been used. So he looked at it and the cost of capital, you know, was was nothing.

Jay Clouse 30:11
How long does that credit persist? How long do you have to hold that as like, essentially kind of like a liability for them to come back and use it versus saying like, Okay, this is just written off now.

Johann Moonesinghe 30:21
Yeah, so it falls under gift card law. And usually in those states, gift cards can’t expire the face value. So if you paid $1,000 for we call them house accounts. Now there’s about $1,000 house account, and it gave you a $300 bonus, the $300 bonus expires in three years, but the original thousand dollars you paid never expires.

Eric Hornung 30:39
How much did you buy at a discount? Like what discount? Did you get that like 50%? 60%?

Like Where? Where was it?

Johann Moonesinghe 30:45
It’s almost always a 50% discount.

Eric Hornung 30:47
Okay, what are gross margins in the restaurant industry?

Johann Moonesinghe 30:50
That’s a great question. gross margins are usually cost of food is usually about 30%. So if you’re selling a dish, a salad on your menu for $10, that salad is costing you about $3 to produce cocktails, usually, you know, cost 10%, 12%, something like that. So you have much, much higher margins. You know, steak, for example, is probably your lowest margin item. And you know, they’re you’re probably making 60% gross margin. So gross margins in restaurants are very high, very high net profit of restaurants are not so great. You know, a well performing restaurant probably as a 10%. net, but a 70% gross margin,

Eric Hornung 31:29
what are the biggest hindrances toward? So it’s a revenue generating game, right? And space is your kind of biggest constraint on how many plates you can serve in a night. Yep. So is this helping restaurants before at earlier on is that like a benefit here?

Johann Moonesinghe 31:45
Yeah, we just did this study, it was the first time we’ve done it, where we were able to get data from a restaurant that had people who were frequenting the restaurant, and then who bought house accounts in the restaurant. And then we were able to see their frequency and their spend after the bottom housing out. So prior to that, I could compare check sizes for somebody using house account to like a credit card statement. But the people are buying house accounts are better guests anyway, so they’re going to spend more money per visit anyway. So it’s not a really great comparison. But in this example, I was able to identify 55 people who had been in the restaurant, before buying house count, and then after, and their spend per visit went up by 80%, once they bought a house account, and we were able to look at so that cohort of 55 people and we assign an annual value. So they come in once a month, and they spend $10 a visit. So they’re worth $120, right? And the total value of that 55 people was $31,000. Once they bought house accounts, their total value is $120,000 a year. So people come in way more frequently and spend a lot more.

Jay Clouse 32:48
Is that almost like the psychological effect of why casinos use chips? Because it’s like not real money.

Johann Moonesinghe 32:54
That’s exactly the example I in my mind that I use. Yeah, it’s chips in a casino, you know, you it’s credit on an app, you’ve already pre paid for it. So rather than getting a glass of wine, you get a bottle of wine, right? You get extra cocktails. And then there’s also this kind of somebody called it the why not factor, which is, hey, we’re going to dinner tonight, where should we go, we might as well go to this restaurant, we have credit in it, right. And this happens all the time, the frequency increases a lot.

Eric Hornung 33:19
When I was growing up, a lot of my friends belong to country clubs. I didn’t thanks mom and dad. But I got to go with them all the time, because they had a house account effectively, where they’re like, do we have to spend $500, so we would just go and order everything. And we usually overdraft the account, but sour punch straws, chicken fingers, all the good stuff. Right? So I feel like that makes a lot of sense. From a luxury perspective, when you have a large ticket items. I’m curious what your breakdown is in customers, because I saw on your website that it’s $750 is the average amount of income user, like single transaction? And you have four James Beard restaurants or something like that.

Johann Moonesinghe 33:59

Eric Hornung 33:59
So is this like all luxury facing? Or will this work in smaller markets with smaller numbers?

Johann Moonesinghe 34:07
Yeah, so we start the house accounts at usually 10 times the per person check average. So if you have, we have a great breakfast place in Utah that has five locations that we funded. And it’s probably a $10 per person, check average. So we actually start the house counts there at 100 bucks, and it would have like 100 gets you 120 250 gets you something and 500 gets you something. So we the analysis that we do ahead of time as we go, how many house accounts can we sell in this particular restaurant? And then how do we price our accounts. And that’s how much funding we can provide upfront to the restaurant. So usually, if it’s a lower check, average, the funding amount is lower, we can still work with the restaurants. But yeah, like it’s but you can’t provide as much capital. The other aspect is you can always increase the bonus amount they’re giving the customer to make it more attractive. So we just did a test with a coffee shop in Brisbane, Australia, where he was offering high dollar, house accounts and they started at 250 bucks, but he’s giving them like a $200 bonus. So and then they were selling a lot. And he’s really happy because coffee is really high margin, right. And he’s on the same street as three other coffee shops. So he’s like, I’m going to lock in my customers, you know, they’re gonna pay for $450. And they’re going to come in every day. Right? So that is a model, we’re still figuring out like fast casual, I think the answer is going to be to increase the bonus amount. And that way we can keep the tiers higher and locking the customers. But it means that we will have to buy the credit at a higher discount at the table.

Eric Hornung 35:40
What’s your current margin look like? Because it sounds like you could still just play with your margin to make it whatever you want it to be with the bonuses. That’s your that’s the is that the biggest cost driver for you guys?

Johann Moonesinghe 35:51
Yeah, buying the credit is the biggest cost driver. Yeah. And then we also we incentivize staff in the restaurant, if they talked to people about it, when you have regular customers who come in, and you say, Oh, hey, we have this awesome new loyalty program, check it out. And if somebody buys a house account based on them, and their referral will pay the staff or sometimes a manager depends on the restaurant.

Jay Clouse 36:12
So it’s not always the opening of the restaurant, when they want this funding, it can be at any point that they they want to take on additional funding to help with operations.

Johann Moonesinghe 36:19
Yeah, we we work best with restaurants that are already existing, they’re either opening second locations, or are building a patio. Because we’re able to underwrite better, we can kind of know, okay, we can sell this number of house accounts. And those types of reference restaurants, if it’s a brand new restaurant opening. And the group doesn’t have another restaurant for us to underwrite against usually will offer like $25,000 or something like that in funding. We provide it 30 days before they open, and then we tell them, Hey, this is going well, and for selling a lot of house accounts, we are totally happy to give you more funding 30 days later, 60 days later,

Eric Hornung 36:52
do you have a lot of customers that are restaurant groups? Or is it mostly individual restaurants,

Johann Moonesinghe 36:58
in terms of customers, so we financed about 150 restaurants so far, and I would say probably from like number of restaurants perspective, we probably have more groups than individual restaurants, it’s easier for us to to underwrite a group. And it’s also easier for us to work with the group. So, you know, our biggest funding about I think is about $800,000 to date, and our average funding per restaurant is about $60,000 and 58,000, something like that. So if it’s a group of 10, restaurants, you know, we can provide $600,000. And for us, you know, it’s easier to provide that. It’s also easier to sell the credit because you can use the credit any of the restaurants in the group,

Jay Clouse 37:38
have you have a restaurant that you funded, where your assumptions just proved totally wrong?

Johann Moonesinghe 37:44
Yeah, definitely we funded, we funded one restaurant, where the we were like, this is great, great a lot of customers, and they are a franchise, and what happened was the franchise or said, Wait a minute, you can’t sell house accounts in this restaurant, and owner of the franchise push back. And he’s like, no, this is great for the business, and franchise or overseas company. And they were like, nope, you can’t do that anymore. So we ended up not being able to sell house accounts in that restaurant, but we have, what happens generally is we have a really good relationship with the owner, the people are funding. And so we try to work through whatever you know. So we had one case where we, in my opinion, we took too much credit. So the funding sold really, really quickly. Like you know, we sold out a credit in three weeks, and in their margins are a little bit lower than restaurant margins are, would normally be. And so we actually gave a rebate back to the company and we said, Look, we made enough money on this. And you know, we want this to be a better even better for you didn’t ask for it. And we gave it back to them.

Jay Clouse 38:48
Yeah, I was gonna ask where that kind of breaks down like can can you sell out so quickly. And then people come in with such velocity that it just breaks the restaurants ability to actually fulfill that credit obligation?

Johann Moonesinghe 38:59
No, because we only sell high dollar house accounts. So if we sold, you know, pay 50 and get 100 in credit, we’d fill the restaurant seats with with people using credit, which would be detrimental to the restaurant. So we we really designed this out of restaurant owners, we want to be have a super restaurant friendly platform that in the long run makes sense. And something like 80% of the restaurants that we’ve worked with we funded a second or third time, right? So it’s really worked well for those restaurants,

Eric Hornung 39:30
what’s the ideal percentage of customers in a given week, month, year, whatever that come in and pay using credit versus come in and pay using full full cash,

Johann Moonesinghe 39:41
I’ll give you two shorter numbers, the restaurant we were able to look at their people who were buying in the store before buying house accounts. So there was 55 people who bought house accounts, that database that they had was 5500 people who are part of their loyalty program. So those are pretty regular customers, but also 5500 people, 55 of them bought a house account. So it’s a very, very small number of people. So we’re selling $100,000 in credit to a restaurant and we’re selling $1,000 at a time. That’s only 100 people. So in any given day, more than likely no one’s using credit in the restaurant. And that makes it very healthy for the restaurant. So the in the back to the second answer is the most cash that will give a restaurant is 4% of their expected annual turnover or their actual revenue. So if they’ve already been opened,

Eric Hornung 40:30
how’d you to that number.

Johann Moonesinghe 40:31
So we we also did present discount. So we end up taking 8% of the revenue and credit. And we know that 40% of the credit gets used in the first year on average. So we’re like, okay, so that means three, three and a half percent of your revenue is coming through credit redemptions, and not through cash, you can still operate and have a successful business. And the second year, it’ll be like 20% is ready to redeem so it comes way down. So in that first year, we just really don’t want to have any kind of a cash strain on the business

Eric Hornung 41:00
do tips get included in the house account, or are they separate,

Johann Moonesinghe 41:04
you can’t pay the tip using your credit you bought. But on our app with the credit card that you use to buy the house account, it gets attached to your profile. And so when you pay, you can just charge that credit card for tip. And the reason is, you know, when when a restaurant calculates the cost of inkind, they go, okay, they’re buying $100,000 in credit, if all hundred thousand. And that gets used, it will cost me 30 grand, right in food. If they then had to pay tip on top, you know, there’s another $20,000 in actual costs that they’d have to pull out of their pocket becomes more expensive for the restaurant. And the customers. This has been really interesting. We looked at one of our James Beard award winners, we looked at their tips, the average tip that a customer left, when paying with the house account was 27%. And yeah, like that’s 50% higher than you know what you normally see in a restaurant. And what that’s done is in that restaurant, it’s created this great sense of like community around housing on holders. So servers, when they know house account holders come in their regular, their regular, they provide them with an even better service experience, which leads to a higher tip. And so it’s like this virtuous circle, you know, people getting better service

Eric Hornung 42:10
and also incentivizes them to do use the bonus program we’re talking about where servers can make a percentage on selling house accounts, right?

Johann Moonesinghe 42:18
Yeah, absolutely. And the servers know that, you know, they don’t probably know that eight to the guests is 80% more, but they know the guest spends more. And the service tip is usually is based on the money they spend. And because we designed it so that you know you pay the full price in credit, you’re going to tip on the full price. So you don’t tip on like a discounted amount, which is a lot of the problems, a lot of discounts. You know, if you come into the restaurant, I get 30% discount, more than likely will tip on the discount amount. But with our program people are tipping on the full amount.

Eric Hornung 42:45
How long have you been owning restaurants?

Johann Moonesinghe 42:49
So we opened prequel in DC for five years ago now.

Eric Hornung 42:54
So restaurants are notoriously cyclical, when we have a kind of crashes in the macroeconomic space, there generally is a decrease in people going out to eat. Do you think that that same thing holds for in kind? If we had a crash, like an economic crash? Or recession? Do you think that inkind would suffer in line with the restaurant industry.

Johann Moonesinghe 43:16
cash conscious. And so they’re more likely to buy something that gives them a bonus, you know, and continue going to those restaurants. So I actually think and then the other part of that is as a financing option for restaurants, we’re competing with private investors are working competing with banks, I guess, or cash advances, things like that. The harder those become to get has the economy comes down, you know, the sort of the easier it is for us.

I actually think that if we had an economic crash in kind would do better. So I was talking to a restaurant group in Melbourne, Australia, and in Melbourne property values apparently have been coming down. And he believes that the economy is slowing down. And so he wants to use inkind, because he said we can lock in customers spend in our restaurant group, right? And customers as the economy does worse, become more sort of selective about where they want

Eric Hornung 43:45
cash conscious,

Jay Clouse 44:09
Do you see people using this to manufacture credit card spend? Like what I would I open up a credit card, and then use that credit card to buy a house account because I’m going to get a bonus. But then I’m also getting a bunch of points back on my credit card because I just bought $1,000 and house count.

Johann Moonesinghe 44:24
It’s a great idea. Yeah.

Eric Hornung 44:27
You really should go to the flyer talk…* loud laugh*

Jay Clouse 44:32
do any of the restaurants have like secret menus for house accounts.

Johann Moonesinghe 44:35
So what we what we do is we don’t we promise the house gun holders their bonus. That’s what their promise that’s what they’re buying into. But definitely the restaurants do special things for the house account holder. Yeah, we just had a restaurant, I went to dinner last two nights ago, the Brewers table here in Austin, I think eater name them on the best brewing restaurants, great restaurant, the Brewers table did a special dinner last week. So how’s it got holders invited them in? gave them some new menu items trying out? Right? So the idea is, you got these house account holders, and they’re great regular customers? How do you leverage them to bring in new customers and build a better community? You know, that’s I think, in the value of in kind, like very straightforward is really, really low cost financing, right? That’s what we are. But what we’ve learned sort of from looking at the restaurants that we finance is really like loyalty side of it becomes very valuable. And then bringing in new customers, by having your best customers refer them to come in is kind of the third value.

Jay Clouse 45:31
It seems like there’s a weird moment in time where loyalty in general seems to be at like an all time low. But at the same time, I almost thirst for more of that. And so when I have like a good excuse to have that, like I have loyalty to my Barber, he’s actually been on the show. I have loyalty to my Barber, but just about nothing else. Like I had a gym that I loved my co working space I feel loyalty to with community. I think this like really taps into that, well, there’s a Tim Ferriss episode, and I don’t listen to a lot of tim ferriss anymore. I don’t know, I felt like I had to preface that that way. We interviewed Nick Okonas to restaurants heard of him. He he built a product that was like, sort of like loyalty, but as about pre selling seats in the restaurant through an online software so they can optimize actual, like utilization of their time. And like their table availability. And if you like something like that would dovetail here well, too.

Johann Moonesinghe 46:24
Yeah, we, you know, my backgrounds in tech, right. And so we test a lot of technology products in our restaurant in DC. And then we can either integrate them into the Incan sort of platform, or we just make recommendations, the restaurants we’re working with, because restaurant tours don’t have time to analyze every point of sale and every new reservation system. But we do. So we do a lot of that and then just make recommendations. You know, I just met with entrepreneur in DC has a great ordering system. You know, QR code doesn’t require an app, you can order more food, it works really well with search, times and restaurants. And so now we’re recommending a lot of restaurants we work with, we see that same problem, you know, for two hours a day, on Wednesday, Thursday and Friday, during happy hour, they’re really really busy. They can’t sav up. So this augments, you know, having physical staff in the restaurant,

Jay Clouse 47:10
have you ever failed to sell out on the credit,

Johann Moonesinghe 47:12
we have ways of basically making sure that will eventually sell the credit, if we don’t, or if the restaurants not, you know, participating, then we actually sell back credit to the restaurant at the cost that we paid for it. So nobody likes to do that. But the restaurant is owned by credit back in the restaurant. But no, I mean, of the hundred and 50 restaurants that we’ve done, we’ve lost money probably on three, where they went out of business while we still held credit in them. And so we’ve just sort of improved underwriting, you know, all three of those examples. We didn’t check for this. Now we do they were behind on sales tax, and you know, so the government shutdown, but so now our underwriting is better.

Jay Clouse 47:53
Is this kind of a land grab? Like, why can’t someone else do this?

Johann Moonesinghe 47:57
Yeah, I guess you could. No one else is doing it, I think we’ve learned a lot about underwriting, we’re really good at selling the credit. And now we’ve sold, you know, we have thousands of house account holders. And that is actually really attractive. So if you’re a restaurant in Washington, DC, which is where we have the most, and we’ve helped finance you, basically, we can go to our thousands of people in DC who bought house accounts, you know, and other other businesses, and give them $20 in credit to come check out your restaurant, you know, we don’t try to sell them in house account, we just say hey, go check out this restaurant, and we think you’re going to love it. They go into the restaurant, if they have a great experience, then we’ll try to sell them a house account. But because of the user base that we have, we’ve now sort of become a little bit more defensible. I’d say other than that. The only reason somebody wouldn’t do this is because generally speaking, there’s a lot of learning and how to find restaurants. And if you don’t know that, you know, you’ll learn it, you’ll just spend a couple million bucks.

Jay Clouse 48:50
It seems like the natural like tech evolution, a lot of people be like, one uniform house account buy into the house account. But I feel like that might actually chip away at the foundation of what you’ve built here. Have you guys thought about that?

Johann Moonesinghe 49:01
Yeah, it was meeting with some potential investors in the valley. And that’s what they were like, one unified house account. That’s what we want? Yeah, I think you’re exactly right, it would the loyalty, part of what we’re doing is we’re getting people to go back and spend more money in a particular restaurant, right? If suddenly, you can spend your money in any restaurant, you’re not going to get that behavior, you’re just gonna get a behavior of customers who essentially are getting a discount for going out and eating. Right. And that’s not to be everyone, you know, maybe eventually, there are better ways to allow people. So what restaurants really want are new customers trying them out, right, and then for the regular customers to have a great experience and spend more money. So the nice thing about being able to buy a universal house account is it would bring new customers into the restaurant. But I think there are other ways that we can solve that problem, that doesn’t diminish the core loyalty value,

Jay Clouse 49:51
I would assume it’s like a group of friends. If I have a house account, I’m more likely to recommend that restaurants by group of friends who hasn’t seen it, and then like sign for the check and have them venmo me or something. And that’s accomplishing the same thing.

Johann Moonesinghe 50:02
Absolutely. Or a lot of restaurants, they’ll offer you a referral. So hey, you can send $10 to any friend, any friend that you think would like the restaurant, and when they come in, they’ll add $10 to your house account, or you know, or book a private event and will give you 3% back to into your house account. So those kinds of things like basically help build loyalty, bringing new customers, and then also increasing revenue because restaurants love private events, as an example

Eric Hornung 50:27
seems to make a lot of sense to me from a restaurant side of thing. But from a user side of thing, I kind of have a question around the expansion model. Because, yeah, it makes a lot of sense. You guys can go to pretty much anybody in DC. And like, Look, we have this backlog of users that are in DC. But if you came to Columbus, for example, I don’t think you have anything there. I could be wrong.

Johann Moonesinghe 50:49
I have to look, we might have one. But but generally speaking, probably not.

Eric Hornung 50:52
yeah. So you can’t use that same pitch to all the restaurants in Columbus. So what is your idea for expanding? Because you have to go geography by geography? You can’t you don’t have that class pass model?

Johann Moonesinghe 51:03
Yeah. So if we were going to a restaurant in Columbus, and they asked us for financing, we, it would probably be an easy sell in that they look at our cost of financing. And they go, Okay, well, this is way cheaper than alone. This is long term cheaper than equity. Right. So they probably would sign up because they want the funding, right? And at a very low cost, we won’t be able to send in users from other restaurants or from other businesses, because we don’t have them. But just from a funding perspective, the restaurant in Columbus would probably want to work with us. We’re really good at selling the house accounts, like at marketing them and we take on all of that,

Eric Hornung 51:38
what makes you so good at that, I guess is my question.

Johann Moonesinghe 51:41
done it for so many restaurants now. So you know, wording on flyers, or we do things with like conversational text messaging, which you know, invested in a an AI company that is were using their a lot of their technology around. So it seems that an individual restaurant, my opinion, is that every restaurant should sell house accounts, whether they using kinda not like they should sell the house accounts, you should offer your guests $1,000 gift card and give them $1300 in credit, like this is a good thing, it will help your business, we just make it a lot easier to manage that process. And then, you know, using technology to sell the house accounts, and then also to leverage the community of households in your particular restaurant to drive in more traffic.

Jay Clouse 52:20
This hasn’t been explicitly said. But I think if I’m reading between the lines, you guys have a mobile app that manages the house account transactions and payments and stuff. Right?

Johann Moonesinghe 52:27

Jay Clouse 52:28
So that’s his own proprietary technology is involved with inkind’s business.

Johann Moonesinghe 52:31
Yeah, absolutely. We have a manager app, we do some cool things with data. So you know, hospitality ultimately is about is loyalty, like, comes through hospitality. So when you go into a place and they know your name, as an example, you’re more likely to come back, right? You did a good experience, or they know what kind of wine you like, or whatever. So we have that information. So when somebody buys a house account, they can actually in the app, they can give the restaurant whatever information they want. And when we put Bluetooth beacons in the restaurant, somebody walks in on the managers phone their picture pops up, you know what their preferences on wine, their name, manager goes over the table and says, Hey, how’s it going? You know, Jeff, thanks so much for coming in. Suddenly, Jeff has had a great experience. So you know, you can’t do that with a physical gift card like so we have a lot of technology in the back end, that comes along with what we do just to make it a even better experience.

Eric Hornung 53:18
What doesn’t inkind do well?, like everything that sounds awesome, it sounds so thoughtful and thought out. But you’ve only raised $2.2 million. So like, there has to be some limitation somewhere or you’re just minting money? I’m not sure. But like, what does an income do Well, right now?

Johann Moonesinghe 53:33
Yeah, I think it’s probably depends who you ask, if you asked a venture investor that would say, in kind isn’t aggressive enough on our growth? You know, if you ask me, I think the company will grow to a very, very large size. And we’ll do it in a manner that actually like maintains customer centric, sort of slow growth, great culture for the business, you know, everyone’s happy, we’re like a family. And so I think we do that well. But a lot of people would probably say, No, you guys should be growing faster, you know, our revenue is actual revenue in January was probably like $400,000 in the month, you know, if we grow in the way that we expect, probably by the middle of the year, we get a million dollars a month, like it’s, it’s a pretty good business, you know, it’s growing Well, we’ve got a great partnership in Australia, we have a lot of other people reaching out to us to partner with us. But we’re just we’re super happy. And we’re like group where we want to grow. But we want to grow in a way that really makes sense. And that’s probably what we maybe don’t do. Well, I’m not, I’m not a super aggressive founder, you know, I really believe, like, let’s work the best that we can on the product that makes us really customer centric. The restaurants loves it, and they’ll continue to use us. We don’t have any sales people as an example, you know, every single restaurant we work with, has been a referral from a restaurant that’s worked with us, and has or has been a repeat customer of ours, because it’s worked so well. So as we move into sort of our next stage, which is more on the growth side, we’ll start to hire salespeople,

Eric Hornung 55:00
what is your team size right now?

Johann Moonesinghe 55:02
Including the three people in Australia think we’re at 11? Okay. There’s a developer in Mexico and one in California.

Eric Hornung 55:08
Are you guys going to raise soon?

Johann Moonesinghe 55:09
No, no, we would always raise money, if there was the right partner that wanted that could add a lot of value, and that we really wanted to, like, bring on the journey with us on the equity side. On the debt side, you know, I mentioned we just brought in a new CFO, part of what he’s doing is going out to institutional debt investors. So the money that we provide to the restaurants we borrow, and then we pay back those investors as we sell the house accounts. And that’s gotten to a point where it’s big enough now where we can’t finance it ourselves, or with our existing investors, debt capital. So now we’re looking for larger debt partner,

Eric Hornung 55:46
what do you guys pay? And like a cost of capital side of things on debt? Because you have a lot of a lot of accounts,

Johann Moonesinghe 55:52
we pay a lot.

Eric Hornung 55:53
Yeah, like 11%, 12%

Johann Moonesinghe 55:56

Eric Hornung 55:57
Wow. It’s like sub junk.

Johann Moonesinghe 55:59
But it’s only because everyone who is a debt investor is also an equity investor in the business. Basically, we go out to our existing investors, and we say, Hey, we need another million dollars to fund this proj this month projects with this week’s projects, and like last week’s and then who wants in? So we have a waiting list of people who want in, and depending on how quickly we can sell the credit, the investors make more money. So last year, you know, there’s not it’s not a fixed return. But I think last year, our debt investors made about 17 and a half percenton their money.

Eric Hornung 56:31
So you guys just like cash flowing like crazy.

Johann Moonesinghe 56:33
You know, it’s like that knob between like growth and profitability. So before we brought on our CFO, you know, it was expensive. It was profitable. Now, you know, were spending more on growth more development. So this month, probably won’t be profitable. But it’s kind of a nice to have be able to turn that dial.

Eric Hornung 56:50

Johann Moonesinghe 56:51

Eric Hornung 56:52
What do we not asking?

Johann Moonesinghe 56:53
Where can you buy a house account?

Jay Clouse 56:58
Before it before we do that, talk to me about being in Austin? What’s that mean to you guys?

Johann Moonesinghe 57:02
Yeah. So we moved to Austin, great, great city, there’s no income tax here. There’s no state income tax. And DC is a lot more expensive in terms of hiring people and having an office and all that. So I think Austin, we really like it’s been a little harder in Austin to find more senior talent. You know, Derek, there were at least four or five startups in Austin that were competing for him, you know, senior developers, like, we’re having a little bit harder time finding, you know, but I think that’s probably the downside of Austin. But otherwise, yeah. Really, really like Austin.

Jay Clouse 57:34
Awesome. Well, thank you so much for your time here. This has been fascinated me and Eric through a lot of numbers, questions that taught me a lot that. If people want to know more about you or in kind or check out the house account after the show. Where should they go?

Johann Moonesinghe 57:45
Oh, yeah, go to in kind calm. And my email is Johan, Joe H and n heading kind. Yeah, love talking with everyone. You know, so she we love food, and we can have bottle of wine together. Perfect.

Eric Hornung 57:54
Yeah. Cheers. He’s not joking about that one.

All right, Jay, we just with Johan, that was a fun interview. something a little different. A little new industry for us. Have you ever owned a restaurant?

Jay Clouse 58:08
I’ve never owned a restaurant. And I don’t really plan to own a restaurant. But that was one of the most compelling arguments and conversations for owning a restaurant.

Eric Hornung 58:17
Maybe we should bring on someone who has owned a restaurant.

Jay Clouse 58:19
Yeah, we thought it’d be good to get some additional insight here for this interview with Johan. So we brought in Kevin tien the executive chef at him at Himetsu in Washington DC, as well as hot Lola sandwiches in Arlington, Virginia. Kevin was nominated as a rising star chef of the Year by the James Beard Foundation. And as used in kind now twice to open those two restaurants. We thought it’d be a good addition here to talk to an in kind, user and customer to get their perspective. So please enjoy this short conversation with Kevin.

Kevin, welcome to the show.

Kevin Tien 58:52
Hey, thanks for having me.

Jay Clouse 58:54
We interviewed Johann of in kind and I know you’ve interacted with him with hot Lola. But it sounds like you also launched a second restaurant with in kind.

Kevin Tien 59:03

Jay Clouse 59:04
Can you talk to me about how you met the inkind team.

Kevin Tien 59:07
So I met Johan, Andy, and Matt at a space they had here in DC called prequel. And at the time, they had rotating chefs go through and work on a restaurant concept. But at the time, I wanted to do a like, small temporary pop up over a weekend. They had no idea who I was, I just told them a couple places where I worked. And they’re like, you know what, let’s try something different. And they took a chance on someone who pretty much walked in off the street, it was a wildly successful pop up, I think through like them watching how I work with them. And with the guests and with like my staff, they saw something there. And they felt like they want to help me invest in a new project. Eventually, whatever I opened up mid Su, and now hot mobiles.

Jay Clouse 59:51
Why did you want to work with in kind? What was it about what they were doing that you saw could be useful for himestu? And then now hot lolas?

Kevin Tien 59:59
I think the biggest thing for me was they took a chance on me, right? They asked me you know a few basic questions on like my experience, and how I see like the operations and the workflow and everything going. But other than that, they let me be very self managed. And if I needed any help, they were always there to help, like, give me guidance and advice on what can help make our business successful. So I literally text them all the time, all hours of the day, from like eight in the morning to one in the morning to the middle of the day. even call, they always pick up the phone immediately. So outside of just being like a like capital partner. They’re also good, like business partners, and now we’re like really good friends. They’re always there for you even like after they helped with your initial investment.

Jay Clouse 1:00:44
If it wasn’t for in kind and the capital that they were able to help bring to the table, what would you have done,

Kevin Tien 1:00:51
I probably would have sold my skill set on the streets and started doing like a lot of people do like pop up dinners all the time. But you know, pop up dinner can get expensive from like finding a location, and then you’re putting a lot of money up front for all like the staff and then like sourcing the food. And at the end of the day, it takes forever to kind of like, make the amount of money you need to open up your own spot. Within time, what they did was they gave us a lot of money up front. But on the back end, they sell, they sell restaurant credit, which is fine by me. Because all day food costs is the cost that I can can control. But at the same time, if I’m putting out a good product and providing a good service, I’m building brand loyalty, not only are they giving me capital, but they’re giving you this like big customer base to start your business off with. And then like all the credits that you sent to your restaurant is used over time. So it’s not like everyone’s redeeming it now.

Jay Clouse 1:01:39
Did you have like an audience or people who wanted to be your customer already, how did in kind sell credits to a restaurant that didn’t yet exist.

Kevin Tien 1:01:48
So I was actually their first person they ever invested in. Up until that point, I was pretty quiet about where I worked. But I work for a lot of like nicer higher end restaurants in DC that have looked really good right reputation. But you know, I wasn’t the head chef anywhere. I was a sous chef here. line cook here. But it started off slow. You know, I say our first week, we opened on the same day as like a very like another big restaurant opening in DC. So a lot of it was like word of mouth, us like being a big part of our community talking to the neighbors talk to everyone in industry. And then after our after month, three, we got kind of like I call it our big break. tom reed from the Washington Post came by wrote a review on us is very, very nice. And after that, you know things getting busier, you know, and it’s all word of mouth. It’s always putting out a good product. It’s always asking questions like how we think operation should run and always asking for a lot of feedback.

Jay Clouse 1:02:43
Can you talk to me about customers who come into your restaurants who have a house account? How are they different than customers who may be coming your restaurant for the first time?

Kevin Tien 1:02:53
No, I think everybody here gets like excellent service and excellent treatment. But one thing that in kind does is we have this like little module. So as soon as a house account comes in, all the management staff gets another patient, it says this person has arrived at himetsu. So we know like, hey, these guys are kind of like our early adopters. And they believed in us in the beginning, they gave us money when we were nothing. So you know, we say Hey, good to see you again, Tom. You know, thank you so much for continuing to support us. What we tell everybody is this, you know that they was getting a little bit extra? Because they were here before we were anything?

Jay Clouse 1:03:28
Do they seem to have more of a connection to the restaurant than other customers do?

Kevin Tien 1:03:35
Yeah, all the time. And I guess the funny thing is we actually had a house account come in the other day. And every time they come in, they come in every couple months, and they see like how much the menu is changed or they see like the restaurants change. And it’s really funny because they’re like, oh man, remember back in the day, you didn’t have this. And we were operating like this. And and it’s fun for them to see us like grow into what we we are now. And then I think they’re really excited to see like how we were from here as well. I like watching your kids grow up and then like, leave go to college?

Jay Clouse 1:04:04
Yeah. As the restaurant owner, you mentioned that food cost is something that you can control. Do you have any worries or fear with the amount of credits that you could have out at any given time?

Kevin Tien 1:04:17
No, because I think a lot of the people who like get the credit, they also like realize that we’re a business and we have to like, obviously, like pay up, pay all our costs. So like actually a month ago, we had a customer for the first time. They’re like, Oh, we actually want to use our credit that we bought when you guys first opened and I was like, but you’ve been here a million times. And we’ve been open for two and a half years. They’re like, yeah, we know but you just opened and you need to make money. So we want them to like pay for our meal. So from a customer standpoint, they understand as well, that we’re new business, and a lot of them hold off on using their credit.

Jay Clouse 1:04:47
That’s wild. Is there anything else about in kind that I’m not asking that I should be asking you?

Kevin Tien 1:04:53
I think if anybody wants to partner with them, I would highly, highly recommend it. When I first met him, I didn’t know. But like I said they took a chance to me. And they’re always in like an open book and a good resource for information. And just like all around good people, you never don’t really find a lot of people that want to give a business money and really don’t want really don’t want anything in return. They just want to see like your success, which is amazing.

Jay Clouse 1:05:17
Awesome. Kevin, if people want to check out your restaurants, where would they go? Where do they have to be?

Kevin Tien 1:05:22
You’d have to come see Hermitsu in Washington DC and they have to go to hot Lola’s in Arlington, Virginia. Oh, very different restaurants, but both very delicious.

Jay Clouse 1:05:35
All right, Eric. So now we spoke with both Kevin and Johan of in kind. We have a lot of information here and a very unique business. We can start with the founder, we can start with the opportunity. Where do want to start today?

Eric Hornung 1:05:46
Have you ever thought about creating a mock award called the Jays Beard award?

Jay Clouse 1:05:50
Jays beer or James Beard award?

Eric Hornung 1:05:52
James Beard Did I say that?

Jay Clouse 1:05:54
I don’t know if you said beer or beard

Eric Hornung 1:05:56
Jays Beard award would be a funny award James Beer award, but also be a funny award. And really, I mean, you have the authority to kind of give it out.

Jay Clouse 1:06:04
That’s true. I have thought in the past about creating fake awards for all kinds of things. I had a mentor one time tell me that one of the best ways to get in front of somebody that you’re trying to meet is to invent a fake award and then tell them that they want.

Eric Hornung 1:06:17
The thing about the Jays Beard award is that it plays off the idea of James Beard. So people will like have an instant heuristic there where they think it’s either funny, or like semi serious.

Jay Clouse 1:06:30
You have a lot of legal experience. Eric, doesn’t that sound like it falls in the camp of consuming or confusing to the consumer, where I might be in some legal trouble?

Eric Hornung 1:06:39
Look, I’m not a lawyer. And we have our friends at Taft who could probably answer that question better for you. But what I will say is if you’re not trying to make money from it, the chances of you getting in trouble are slim.

Jay Clouse 1:06:52
Well, Eric, because you’re ducking my question. I’m going to say I would like to start by talking about Johan the founder.

Oh right, you asked me a question. I should have answered that.

Yes. That’s how questions work.

Eric Hornung 1:07:01
All right. Well, yeah, let’s start with Johan the founder. That’s a great idea, Jay,

Jay Clouse 1:07:04
thank you. This was one of my favorite conversations on the background of the founder, one being because what a unique and awesome story being in the first batch of startups in TechStars first accelerator, finding enough success with an exit that he could then invest in the first TechStars fund. You and I are both working through the venture deals course right now through the foundry group with some of the TechStars team virtually. And it just strikes me that that must have been one of the best learning experiences for an entrepreneur that you could have ever asked for.

Eric Hornung 1:07:39
I would agree with that. One shadow I have on his background, is that

when you say shadow, I have to say woaaaa

we’ve said shadow so many times on this podcast, and you’ve never once said, Whoa,

Jay Clouse 1:07:51
it’s got to start somewhere. Go on.

Eric Hornung 1:07:52
Okay, sorry. So one shadow I have on his background isn’t about him. It’s about the heuristics. I think that in venture, there’s this idea of Oh, this person vetted them, or they have this on their resume. And maybe it’s not venture, maybe it’s just the world in general, if this person has Goldman Sachs on their resume, I’m more likely to hire them. Because I think that they know finance, because they have this name. If they have TechStars on their resume, I’m more likely to believe that they know what they’re talking about, because they have this name. And a lot of cases, that’s probably true. And that’s why the heuristic stands. However, as soon as I heard that, I got skeptical during the interview, not because I got excited during the interview, it was like, oh, there’s this thing that I know means you should be great. And that immediately triggered in my own head, you’re probably not great. On top of all that, he gave me wine. So really, I was being buttered up to like him, you know. So like that in me like triggers instant skepticism. So as we went through the interview, and as we ask tougher questions that he answered so succinctly, and well, he really changed that skepticism back to my initial thoughts, which was, wow, this is an awesome founder.

Jay Clouse 1:09:04
And to give the listeners Some even more behind the scenes, when we were reaching out to companies to speak with in Austin for South by Southwest we reached out to Johan is one of the first founders. And we asked him some questions, because we just couldn’t find a lot of information online through our own diligence. And we wanted to make sure it was a good fit for the format of our show. So we asked him some questions, and he gave us a lot of insight. And then before committing to be on the show, he asked us a bunch of questions about the podcast and our numbers, which was new to me. And I think, you know, tying all these pieces of information together, what you see, is a founder who’s very thoughtful, and intentional with how he spends his time, and how he approaches the things he spends his time on.

Eric Hornung 1:09:47
I want to do a quick check against care alert. And I don’t think you thought I was going to bring up care alert on this podcast. But in our deal memo for care alert, we discussed the idea that being an investor can make you a better entrepreneur or not. I think I the jury was still out for me. For you, you seem to take more of a stance that being an investor didn’t necessarily mean that you’d be a better entrepreneur. After talking with Johan, has that idea changed for you knowing that he’s an LP in four separate funds? And he seems to have a knack for the investor side or not?

Jay Clouse 1:10:26
Well, I don’t remember precisely what I said in that care alert memo. I’m going to guess that I was saying, I didn’t believe that to be true, unless the investor had previous entrepreneurial experience. And if that’s not congruent with what I’m about to say, you have to tweet at me and let me know. But I think it stays the same, in that it’s more about the past entrepreneurial experience to me than the investment experience. So you’ll want obviously has past entrepreneurial experience, which married with investment experience, I think is great. I think that’s extremely compelling. If it was just an investor who came into the world of venture, there’s a lot of value there. But I don’t think it’s the same as having the experience of starting and running a company yourself through all the stages that Johan has any shadows pop up for you throughout this interview? Well, as we get on Johan the founder front, no, I think rock solid founder, somebody that I would love to get behind if and when the business makes sense. When we dig into the opportunity here. I’m a little vague still on the size of the market here and how well this scales. I love the business. I think it’s an incredible business. I would love to run this business. I’d love to be a part of this business. Depending on what profile I’m looking for, in my return. It may not be a business that I’m investing in. But we’ll work through that here in the opportunity.

Eric Hornung 1:11:45
How big do you think the US Food and Drink market is?

Jay Clouse 1:11:50
So I think from a pure food and drink size, it’s probably very large

Eric Hornung 1:11:55
food and drink at restaurants. Sorry,

Jay Clouse 1:11:57
do you have that number? If I guess a number, will you tell me how close I am?

Eric Hornung 1:12:00

Jay Clouse 1:12:00
All right, I’m going to guess that it is $20 billion.

Eric Hornung 1:12:04
Okay, it’s $800 billion.

Jay Clouse 1:12:06

Eric Hornung 1:12:09
I would have said warmer colder, but you were just so ice cold. It wasn’t even funny.

Jay Clouse 1:12:14
Well, here’s the thing. here’s, here’s my question on this. And I guess, as I’m talking through this, my question on this was, from the house account standpoint, I love the concept of house accounts. And I think that it needs to be something that is not a class pass style. You can have a house account, and use that at any restaurant you want. I think the magic is in having account specifically with restaurants that you love. And I don’t know how well that model scales. But given that you have communities all over the world and all over the country. And you could have like a city that has two house accounts in each of them and have those all over the country, it probably is a large enough level of scale that it makes sense.

Eric Hornung 1:12:53
Yeah, I think that big number is just a fun anchor. I don’t think it’s exactly what I would use to evaluate this opportunity. That being said, I did put some numbers together that I would use to think about this opportunity and start my continued due diligence. So he said that their average account size funds $60,000, there are 660,000 restaurants in the United States, that gives you about $40 billion of total funding, if you just use their standard size, which could grow could shrink, I don’t know what the makeup of their hundred and 150 current restaurants is in comparison to the general us makeup in terms of check size. Another way to look at that is you take that $800 billion number, and you say, okay, 8% of those sales are going to flow through in time in a perfect world where they have everything because they have the 4% that they fund. And then they take they’re essentially selling 8% of sales, right. So that gets you to 64 billion, let’s call it 60 billion. I don’t think that applying 100% of restaurants to this model is the right move. So whenever we don’t know what percentage to apply, I think there’s two paths we can go down, we can do the top 50/50. Or we can do the credo principle 20% makes up 80%. I’m more a fan of credo. So we’re going to go down to 20%,

Jay Clouse 1:14:13
like 20% here because it feels like this is not your everyday restaurant type of model, you know they they’re going higher end very specific restaurants.

Eric Hornung 1:14:23
So what that means is that you’re going to be funding somewhere in the neighborhood of 8 billion to 12 billion. So let’s look at their kind of unit economics real quick, before we get to some sort of profitability potential. If you sell $100 worth of credit $50 is going to go immediately back to the restaurant $20 is going to be paid out in bonuses. And let’s call it $10 is paid out and might be a little high to servers, to incentivize things to additional bonuses to marketing to all of these kind of admin stuff, that’s going to leave you somewhere in the 20 to 30% margin range, probably close sort of 20%. So if we apply that to our new number of 20%. Now let’s step back, we had the 40 billion, we have the 60 billion, multiply those times 20% to get the total number of restaurants that might be in kind users, that’s 8 billion to 12 billion roughly. And then if we take that 20 to 30% margin, we’re looking at something like two to 4 billion in profits. That’s a huge opportunity.

Jay Clouse 1:15:25
That is a huge market as defined by Nick Larro, Drive Capital, given that his metric was if you had 100% market share, and this is even 100% market share. They said if you had 100% market share, could you capture a billion dollars in profits in the United States?

Eric Hornung 1:15:42
Yeah, so probably some adjustments we can make on that. Obviously, one thing I’m not including his interest percentage that will go down as this business model gets flushed out. But at 17 and a half percent right now, that’s going to cut a lot into that number, not counting in extreme growth. So that could be excessive amounts of headcount that has to be on boarded to hit sales of that number. But I think if we just kind of thinking about this idea, the big takeaway is, wow, there’s a lot of potential here.

Jay Clouse 1:16:13
Yeah, a lot of market. And if I’m going to play on the qualitative side here a little bit, you know, in our conversation with Kevin, he noted quite a few things that Johan said, but it’s always greater to get it from a customer. A couple things that stood out to me from the interview, he said, outside of good Capital Partners, they’re really good business partners. He backed up their their statements of restaurant credit being fine, because those food costs are something that he can control. He says, I’m building brand loyalty. I think one of the underplayed aspects of this interview that to me was extremely compelling that Johan kind of mentioned offhand, but Kevin mentioned the interview as well, is the technology that underpins this both from the mobile app that is the house account, but more so from the technology inside the restaurant that gives them a notification when it house account holder walks in the restaurant and allows them to do very specific and targeted experiences towards those house account holders.

Eric Hornung 1:17:08
There’s a restaurant in New York City called 11. Madison Park, it’s the number one restaurant the world three Michelin stars ate there with friend of the podcast, Colleen, before we left New York back for Cincinnati, was kind of like a bucket list item to do. And all those didn’t happen to us. I had heard through friends that there is one person at 11 Madison Park, who their title is called the dream weaver. And it is their entire job to listen in to your conversation, but to eavesdrop on what you’re talking about what’s going on, and make your experience like unforgettable. So one way that this manifested that I heard about was the dream weaver heard someone talking about how Yeah, this gold crusted caviar or whatever is amazing, but I’m really just craving a hot dog. And they went down to a hotdog stand in Madison Park, which is where 11 Madison Park is located outside of and got a hot dog brought it to the chefs of 11. Madison Park, it said make this the best hot dog in the world. And they did, they made an amazing hot dog. And in between courses, they brought out this hot dog. And I think that that kind of like personalization experience that happens behind the scenes that is very intentional, and takes a lot of work to come up with is kind of the same feeling you get as a customer going in and not seeing or feeling that technology, but it just happening for you.

Jay Clouse 1:18:34
I love businesses that don’t feel such an existential threat to continue to produce money, that they can focus on different aspects of the business like that, you know, and I think honestly, in kind of was born out of that level of comfort and flexibility, you know, and I just love businesses like that, because they tend to be more interesting, more unique, more experienced and consumer focused. I love that story.

Eric Hornung 1:18:59
All you have do is charge $350 a plate and then you can write out to Jay

Jay Clouse 1:19:04
luxury goods would be a great business to get into a

Eric Hornung 1:19:07
couple other things that stuck out in this interview. To me that kind of loop back to the beginning of where we started here with Johan as a founder is just how good he was about the numbers about giving us great numbers and about explaining key concepts and drivers of why this business model works by using numbers like to me that’s like my dream come true. And it’s what we we don’t really get that that much on the podcast, because I don’t know why but it’s just maybe just not the way that most founders present ideas is by using numbers,

Jay Clouse 1:19:37
I think it comes with a level of experience to either comes with a level of experience of being an entrepreneur and understanding that you have to eat sleep and breathe those numbers to survive. Or it comes from somebody that has like a hyper technical or mathematical background.

Eric Hornung 1:19:51
Yeah. Or as an investor, maybe he knows what investors care about. And what they’re going to do. So the number that stuck out to me the most was this 80% spend increase when they were using house accounts. So he said that this group of 55 people spent $31,000. And then after getting house account spent $120,000. And if you break that down, that means per person they used to be spending in a year $560. And after we’re spending $2200,

that’s incredible, because that same person is probably going to eat there regardless. And now they’re just spending more.I think that is an incredibly powerful statistic.

Jay Clouse 1:20:31
And again, I don’t have data to back this up. All I have is intuition. I believe that that comes down from a higher level of scarcity and loyalty programs that exist now in the culture. And I think a little bit of a thirst for it. You know, I’ve mentioned the past on our show episode that at this point, I’m really only loyal to my barber. But if I had a reason to be loyal to some other type of business, I would probably love that. And if you went the class past model, which I would imagine a lot of investors would push Johan to do. I just think that evaporates. Like I think that 8% spend increase is not going to be the case i think it becomes Groupon.

Eric Hornung 1:21:07
Do you think if every This is another shadow I have, do you think if every restaurant or even a critical mass of restaurants adopted in kinds house accounts that were specific for their restaurant, it would lose its luster as well?

Jay Clouse 1:21:20
I do. But I just don’t think that this is for most restaurants. Like I think this is for people like Kevin who have a background in Momofuku as a sous chef and then open their own restaurants that are incredible quality food from a well known chef that can build loyalty around the food and not just be, you know, one of five restaurants that people say, Hey, where should Where should we go tonight, and it’s on the list.

Eric Hornung 1:21:48
quick aside on Momofuku. I was at Coachella in April, and one of the beer gardens had Foucault in it. And have you ever had Foucault the fried chicken?

Jay Clouse 1:21:58

Eric Hornung 1:22:00
So good. I had it like four times. It was amazing. I am a big fan. It’s actually used to be in New York City. I think they’re closing and reopening. But if you can’t tell from the end of this interview, I’m a bit of a foodie.

Jay Clouse 1:22:13

Eric Hornung 1:22:14
You like that? Kind of a foodie? I don’t know, I just talked about 11 Madison Park in Fukuoka on a deal memo that we’re talking about a company. So

Jay Clouse 1:22:22
you’re right, you’re right. You’ve you’ve had more varied and exciting food and drink experiences that I have you ate an onion like an apple yesterday, I was hungry. I loved hearing the perspective of working with john fine, who has been a guest on the show and helped make this connection. I think it’s really, really powerful to say, I enjoyed this person so much as an investor that I asked to become an LP in his fund. That’s really, really great validation.

Eric Hornung 1:22:48
And I hit back on one number before we get to what we want to see in the next six to 18 months. But he was very open about the revenues that they have. Now he said 400,000, MR run rate, looking at a million by mid 2019, that’s kind of in line with what I kind of worked out, which was their 150 restaurants at 60 k funding, that’s 9 million. So I think there is a ton of room to grow. I think they’re doing it slowly, thoughtfully, and making sure that they have their use cases built out, they were talking about the coffee shop difference from the Utah diner difference from the James Beard award winning restaurant difference. And I think each of those have kind of nuances. There’s also the geographical constraints of when you move to a new city, you don’t have that user base built up that he was talking about. So I think revenues are going you’re going to see revenues, I guess this will be my sixth 18 months. I guess that’s what I’m doing right now. My biggest thing I want to see in the next six to 18 months is I’m kind of torn. It’s either geographic expansion. Or it’s proving the thesis that the user base in one city translates from one restaurant to multiple restaurants and makes more successful launches possible about you, what do you want to see in the next six to 18 months?

Jay Clouse 1:24:06
I’m looking at a couple of key learnings from their team. I want to see, are they experimenting in different types of restaurants or in different types of geographies? And are those converting at the same? You know, are they having the same levels of success? I want to see if the restaurants that are already open 6-18 months from now, if they’re still enjoying that same increase in spend, after a year, two years have passed? What is the real lifetime value of this of this customer? And then you know, I’m looking at my friend revenue and number of restaurants that they’re opening, because I’m less. It’s interesting. I wonder to your point, if it is going to be kind of this clustered house account holders transfer to other restaurants that have house accounts, or if it’s more successful just going to more of the hot Lola’s chickens and admit Sue’s in different markets all over the country. You know, is it having a couple of house accounts in a city that ends up having the greater reward from having customers that spend 80% 100%? More

Eric Hornung 1:25:06
Jay we had a lot to talk about in this deal memo. It was a fun one. It’s a relatable one. If people want to chat with us, where should they? Where should they interact?

Jay Clouse 1:25:16
As always, guys, we’d love to hear from you on Twitter. Preferably you can tweet at us at upside FM. If you have something that’s a little more long form that you want to send our way you can email us hello@upside.fm. I’ll talk to you next week.

Interview begins: 07:12
Insight begins: 57:53
Debrief begins: 1:05:28

Johann Moonesinghe is the co-founder and CEO of inKind.

inKind has invented a new form of finance where they purchase a bulk amount of food and beverage credit up-front from a restaurant, and then sell it to guests over time. They purchase large dollar amounts of credit in the restaurants (average $100,000) for a discount and then sell the credit to consumers as large gift cards (average $750) with a bonus.

inKind was founded in 2016 and based in Austin, Texas.

Learn more about inKind: https://www.inkind.com/


Kevin Tien is the Executive Chef at Himitsu in Washington, D.C., and Hot Lola’s in Arlington, VA.

He was nominated as a Rising Star Chef of the Year by the James Beard Foundation, and has now used InKind to open two restaurants.

Learn more about Himitsu: https://www.himitsudc.com/
Learn more about Hot Lola’s: https://hotlolaschicken.com/


This episode is sponsored by Taft, Stettinius & Hollister, a full-service law firm known for assisting entrepreneurs across the Heartland.

Learn more about or get in touch with Taft: https://www.taftlaw.com/
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