Equity Fund Co-Founder Pete Mavrovitis Discusses NYC’s Growing Appetite for Food and Hospitality Startups

We are excited to work with the team at Enlightened Hospitality Investments, a growth equity fund affiliated with Danny Meyer's Union Square Hospitality Group. EHI comprises entrepreneurs, operators and investors with over 30 years in the hospitality business and beyond. We sat down with EHI co-founder and partner Pete Mavrovitis to discuss the company’s investment strategy and tech’s growing appetite for scalable restaurant concepts. 

For those who aren’t familiar with EHI, tell us a bit about it?

EHI is a value-added strategic investor formed to leverage the brands, businesses and team of Union Square Hospitality Group—the restaurant company started by Danny Meyer over 30 years ago and creator of Shake Shack—to identify growth potential and investment opportunities in both internal and outside ventures. EHI partners with portfolio companies to provide strategic direction, operational expertise, increased visibility and access to relationships in the hospitality space and beyond.

We provide capital and strategic advice to companies that we wish we’d created ourselves and leaders whom we wish we’d hired. EHI now gives us the ability to work with those brands and people. 

What category is EHI looking at predominantly?

Most of our investments have been in food and restaurant tech as well as scalable restaurant concepts, but what really drives our investment interest is the team and culture we are backing. That box must be checked for us to really look at an investment in a company.

After that, we like to say that we’re looking at brands that have “crave-able” food and a tribe (e.g. Shake Shack); and for tech businesses we look for businesses that are making life easier for their users and disrupting how something was done traditionally (e.g. Goldbelly, Resy and Gather). We recently invested in Banza, a chickpea pasta company that is the fastest growing pasta company of any type, which is disrupting a multibillion-dollar traditional industry with a delicious, better-for-you product that has a great brand.

At what stage of a company’s lifecycle is EHI most comfortable investing?

We describe our fund as “growth equity,” which generally means Series A through C, although these days funding rounds can be defined in various ways, so we focus more on the number of locations for a restaurant company or minimum recurring revenue for a software business. We generally look at restaurant concepts that have five or more units and operations in multiple markets, and tech businesses that usually have $5 million to $10 million in revenue.

Could you share some insights into where you get your deal flow and how you source deals?

We actively identify categories and trends and then seek out companies and teams in those categories. We are proactively reaching out to companies and attending conferences as well as speaking at conferences.

EHI’s co-founder Danny Meyer also wrote a book called Setting the Table which is read by many people in the hospitality industry—but also, importantly, by people outside of the industry—so we often meet with companies that contact us because they were inspired by reading Danny’s book.

What do you look for in a management team? What do you worry about or avoid?

We are looking for passionate founders who are strong culture carriers—and who are also great businesspeople. We try to avoid turnarounds, be it operationally or culturally.

What does EHI bring to the company other than fresh capital?

We certainly think of ourselves as a strategic investor and only do deals when we think we can be helpful and the company wants that help. We don’t manage the companies we invest in, but we are always happy to provide advice, insights and connections/introductions from the EHI team. The portfolio companies also collaborate with Union Square Hospitality Group—a team of best-in-class professionals who run a large restaurant and foodservice business and have expertise in technology, finance, HR, PR/marketing, real estate, international licensing and many other areas. 

What are three things you must see in an investor deck before you move to a conversation with the management team?

That’s an interesting question. As I mentioned, the team and culture are critical, but if I am just looking at a deck before meeting the team, I would want to make sure the following boxes can be checked:

1) Is it a category or business that can be big and has a product that people need? If it’s a tech business, is there a big total addressable marker (TAM) and does it have a meaningful reason to create a new category or take share from incumbents? For a retail business like a restaurant concept, can it work in many markets and is it adding something meaningful to the industry and consumers?

2) Does the business have excellent unit economics? We understand that growth-stage businesses may not have a lot of bottom-line profit, but it’s critical that the business fundamentally works—so, strong unit economics are key regardless of whether it’s a software business, managed marketplace, direct-to-consumer product or a coffee shop.

3) Is there a leader and team in place? We understand that teams need to be developed, especially when you’re in the Series A or B stage, but it’s important to us that there is a strong foundation in place.

Aside from ROI, how would you define a “successful investment?”

One in which we added value during our investment period and helped the company achieve something it couldn’t have with just having raised capital. It could be anything from advice and insights that guided business decisions to strategic introductions and partnerships.

What’s the best part about investing in NYC?

We don’t invest solely in NYC but being able to easily meet for coffee or lunch (especially at one of the USHG restaurants) to just catch up or brainstorm is certainly a benefit versus only seeing the team at quarterly board meetings or special events.  

What are you most looking forward to for EHI?

Continuing to develop a community of like-minded companies that benefit from being in the same ecosystem with each other.

What do you see in store for food-focused, fast-casual startups in the next five years?

There is a ton of competition, so having a unique concept with “crave-able” food is key to attracting and retaining customers. At the same time, to run a profitable business, strategic use of technology will become increasingly important, whether it is guest-facing or for back-of-house systems and processes.

What are some of the brands you’re excited about growing at EHI?

All of them! Joe Coffee, Salt & Straw, Goldbelly, Banza, Madison Reed and Dig Inn are our consumer-facing brands.

What are some of the advantages and challenges presented by the early-stage scalable restaurant concept investment space?

People love going to restaurants and trying new ones—that’s what we like to do for fun, and what a growing number of millennials like to do, too—it is a long-term, sustainable business with great growth potential. The challenges are numerous as restaurants are much more complex businesses than most people think. In addition to mastering the essentials—great food, a great team in the restaurant and a strong brand following—restaurants need to implement systems around financials, HR, scheduling, real estate, inventory, delivery, ordering and other areas as the business scales.