Food service has a terrifying reputation as a business sector—restaurants routinely go out of business in their first year. Deep funding would create a buffer and help it grow, of course, but I still wouldn't want to bet on a restaurant.

One of the amusing ironies of the food-delivery bubble for me was that you're taking the crappiest part of a crappy industry's economics, and scaling it.

It's all of the costs and logistical pain of running a restaurant, with none of the margins. Brilliant!

Indie restaurants, maybe. But for franchises, the opposite.

Depends on the franchise. Subway, for example, is apparently an absolutely brutal franchise to run, whereas Chik-fil-a is super careful about who they give them to.

Restaurants, not junk fast food chains. He or she was probably referring to corporations like Bloomin' Brands (OSI) and Brinker International.

I happened to pick two fast food chains because I know they're on polar ends of the "How nice is it to be a franchise" spectrum. The core of the point is that not all franchises are created equal.

But it matters which franchises you are talking about. A restaurant like Maggiano's, or Bonefish Grill is as far removed from Subway as Subway is as far removed from a 7-Eleven.

It's worth noting that Bonefish Grill operates a "managing partner" system, vs an ordinary franchise. The corporation owns 85% of the business, while a location's managing partner (who invests some money to get started) owns 10% (a regional manager owns the other 5%).

IOW, they're not, strictly speaking, a franchise.

What is the upside for owning only 10%? Seems that the only asset that you have is that interest which you can sell to someone else, that is managing partner, with approval of corporate.

In the bonefish grill's that I have been at (several), the managing partner is typically present at the restaurant when I have been there. As such this is in a sense like buying yourself a job. (You could say the same about some franchises but somehow I see this a bit differently..)

I agree. The benefit of this system is primarily that of the corporation. You get a manager, sell them a small percent, which helps cover some (a small amount) of the location's launch costs, gets the manager committed and makes them feel like a real owner, which makes them focus on success much more... with little serious upside. Not to mention, it puts the manager at a financial loss (their initial investment), if they quit within 5 years.

I knew a managing partner of a Carrabba's. He quit something like 2 years later and bought this little burger drive through. It must have been really bad at Carrabba's...

AH, but you couldn't get any investors for that.

You could absolutely get investors.

Just not any VCs.

Nothing is impossible: Philz Coffee has raised $15m [1] and The Melt (grilled sandwich chain) has raised money from Sequoia [2]

[1] http://techcrunch.com/2015/02/18/philz-coffee-funding/

[2] http://blogs.wsj.com/venturecapital/2014/11/12/sequoia-backe...

In fairness, that's because VCs can't really make money investing in companies like those.

I think it's just that the VC model is predicated on finding that fraction of a percent of investments that gives you astronomical ROI as opposed to more conservative investors seeking lower returns more often (the type of person who would invest in a restaurant just to get a check every month). They are willing to get nothing back a majority of the time while the more conservative investor would probably be bankrupt if even 50% of his investments netted a total loss of investment.

Right. If you're going to accept a 50% failure risk, your average return from the companies that don't fail has to be better than 2x. If 70% of them fail, even 3x isn't enough.

Chipotle, even after getting hammered in the recent past, has a market cap of 15.5 billion dollars. It's rare, but it's possible.

That's not the point. VCs are interested in quickly (5-7 years) getting to 15B in market cap, not 22 years.

Chipotle went public 13 years after it was founded at half a billion dollars in market cap. While not as flashy as some of the unicorns, that would still have been a pretty decent showing.

In fairness, that's because VC culture is a parasite on normal society.

Are they really? The high failure, high return model has allowed many programmers (and others within VC-backed companies) to have employment that wouldn't otherwise exist. I'm happy to be outside of SV, doing well in a 100% bootstrapped company, but I think VC culture has had the opposite effect of a parasite (or at worst, I'd call it a symbiote)

Yes, in many many ways.

They are money losers. It only looks like they are not because of a temporary bubble. This bubble is popping and their losses are becoming clearer. There are many that will personally make money despite running a fund that loses money.

Their culture is steeped in groupthink. Which by definition results in malinvestment and destruction of wealth. This wealth comes from pensioners who can't get sufficient returns from lower risk investments.

At some point pension funds and pensioners are going to run out of money which will be bad.

Specifically for bootstrapped companies. VCs increase the input cost; labor and rent etc. And they subsidies competitors. E.g. Customers who would normally pay you for services get it free from a VC funded startup. Then VCs run out of money and competitor goes bust. This induces boom and bust cycles that mask steady improvements with hype. This hurts the market.

Programmers would be much better of with a steady market where there is a discoverable market value for their work.

Pension funds invest tiny, tiny portions of their portfolios in venture capital, and they do it deliberately, as part of a strategy to diversify asset classes. Venture capital is probably not going to mess with too many people's pensions.

The Kaufmann report on venture capital (which is not, to put it charitably, aggressively pro-venture-capital) is a good place to start on this.

As for bootstrappers (I am one of those, and have been for ~12 years now), I think @Pinboard has a thing or two to say about the VC threat/menace.

They could (and do), but the prospect is longer-term and riskier, which makes it far less appealing.

Even with as risky as opening a restaurant is I think getting VC-level returns out of a startup if far riskier.

Less likely != more risk.

Blue Bottle Coffee.

https://www.crunchbase.com/organization/blue-bottle-coffee

Yes, but on a serious note the difference in potential upside between investing in this vs. a traditional restaurant chain is like that between investing in Amazon vs. a traditional book store chain. If you can find a way for the business model to work it is operating in a way where the inventory and distribution are handled in fundamentally different ways than in the past.

Your average diner knows NOTHING about scaling a business to a national or international level, nor about venture capital and the pressures of shareholders.

From the look of things around here, your average tech company ain't much better.