OT - Anyone have investor money experience?

Joined Apr 2005
713 Posts | 0+
CHARLOTTE, NORTH CAROLINA!!!!
Well, as many of you know, I'm still on the quest to open a quality "social club" and tobbaco shop here in the DC Metro area. I've been very impressed with the great kindness and wealth of knowledge represenatives from all the cigar manufacturers have been with talking with me, and with that, I now have a better idea of the up front capital I will need.

Since I can't afford all of it, I was thinking of putting a business plan and mission statement together and start shopping for investors. The unknown to me is as follows:
I know that I cannot qualify for governmental grants and or subsidies do to the nature of the business.
I also know that I will need a hefty chunk of change up front, if things are going to go even remotely like I have them in my head.
I will more then likely be purchasing from wholesalers to build my inventory up, before extending relations with the manufacturers dirtect?
Would your "A" typical investment firm even look twice at this type of business, since I would not be selling stocks in the future, and be looking for more of a loan/giving a piece of the pie type of situation.

Sorry for the length, but I know we have an amazingly Diverse group of members and I thought I'd throw it out there for you to see if anyone had any knowledge.

Thanks for reading,
Paul
 
Get a business model together and see if general cigar will franchise it as a club macanudo and put up some funds.
 
Already tried that, They don't want to touch it. Reasoning was shakey, but I spoke with two different folks out at general, and while they were great, and our conversations were very lengthy and informative, the end results were no. Maybe worried about taking away from the mystique of the New York?
 
Try reaching out to friends and family for "investors". If set up as a Subchapter S Corp. you can have up to 300 stockholders under current law.

Depending upon how your current financial situation is, you may be able to obtain a Home Equity Loan, or if you check with your local chamber of commerce or like organization ,they may be able to help you get low interest financing. You may also want to check with the Small Business Association(SBA) about low interest loans.
 
Mike,
All of your suggestions are right on par with my thoughts as well, the down side is that for the establishment we are looking to put together will not be able to be funded by personal and business loans. I'm looking at needing a minimum starting cashflow of real close to 1 million dollars, and that's if I rent the brick and mortar building. I have about 10 rental property and our house, and even if I mortgaged them out to 99% I would still be short. Thinking this adventure may have to come to a close for the time being, at least till we can raise allot more capitol. Pricing here is just so damn high!

Thanks for the input though! Appreciate it.

Paul
 
Eclipse,

Would one of your rental properties be in a suitable location? There is a shop across town from me that bought a small house and turned it into what they wanted. Might be an option to lower your start up costs by eliminating the rent.

Here's the address of the shop here.
http://www.thebriary.com/
 
Great thought! None that I know of could be rezoned, and 80% of the properties fall under historical classification, so, they tend to frown on majoy renovations that take the residence away from the original specs. I'll look into it more though! Good call.

Paul
 
Some thoughts - hope you don't get pissed off, just trying to help, and give you some perspective I have on equity for small start-ups:

- Have you considered applying for an SBA (Small Business Administration) loan?

- It is difficult for me to imagine you getting a loan without giving up a substantial amount of equity for this deal. There are always exceptions, but for that kind of money a typical equity shop would keep 80% ownership, and give you 20% "sweat equity." Harsh reality, but true - they hold all the cards. This is especially the case for you because the liquidation value of the stuff you'd spend the capital is very low if the business doesn't work out. In other words, not much collateral value there to back the loan. Very high risk to the investor - will require a high rate of return for that risk.

- Your best chance, as per a fellow above is the "business angel" route - find some rich folks that are interested in doing this, regardless of the risk.

- Is $1 million for a SINGLE unit in rented space???? That sounds extremely high. I have no idea what the economics are of your business, but when I see small retail units developed in rented space, I think of $300K - $700K as rough range of cost to make improvemetns tot eh leasehold property.

- Let's say you have to pay 10% interest for the loan - that's $100K right there you have to make in the place annually to pay interest. A loan against "leasehold improvements" (you don't own the property) would likely have to be paid back in, say, ten years. That's another $100K you have to generate annually. Then you have to pay yourself. What's your time and effort and risk worth here? IMHO that's another $100K you have to generate annually. OK, basically you have to gin $1000 bucks a day ( 'cause you're closed Sundays and holidays) profit to make this work at that level of investment, and to make everybody happy. That's A LOT of cigars, eh?

- Now, if the investment was more like, say, $300K, it would be a lot easier to make the busienss work.

My primary piece of advice: get the cost down - WAY down.

Best of Luck!!!
 
Great info Rack, without a doubt I understand what you are saying. As I mentioned previously, the main focus for this establishment is less on the actual stick sales, and more in membership. The overhead I would hold would be the renovations to any place for any amount fo time is very high in this area. The other is that, as it is invisioned now, the establishment would be at least 5 - 6 thousand square foot. Rent for a place that large in the radius I would like it is very high. Take into affect that insurance premiums will be higher do to the type of business this will be, factor in that many building owners would not like this type of establishment in their building, the price is higher. I also do not have inventory of any king right now. Display cases, the cost of building a walk in humidor, and the items to put in these cases all adds up quickly. The overall picture for this establishment is one of class, so, that tends to cost money, hard woods, not your run of the mill display cases, custom containers, etc .. For an establishment that is 5-6 thousand square foot, I invision a large walk in humidor and lots of wood. I understand this is very inspired vision for the business, but if it's going to be successful, and stand out from any other smoke shop, it has to give the people something no one else can. In this case, a classy yet relaxed social club where men and women of age can come, enjoy a stick or pipe of there choice, bring a bottle or purchase a beverage, and converse or take part of activities sponsored or provided by the establishment. I need to be able to provide activities that no one else is, or can, I need to get those visits from cusano, CAO, Perdoma all these guys to make my members feel like the X amount of dollars a month or par year they are spending is worth it. The point to all this is, yes, there are many ways to lessen the cost, and trim the fat, but the result will be a place that already exists somewhere else in the area, to make something that will not only succeed, but flourish, it has to be on a level different from the rest. The price tag for that is high. All this input is very helpful though, so, keep it coming!