CapitalSpring's Jim Balis on Restaurant Investment Strategies
In a recent episode of "Rock My Restaurant," host Paul Barron welcomed Jim Balis, Partner and Head of Strategic Operations at CapitalSpring, to discuss the evolving landscape of restaurant investments. Balis described CapitalSpring as a flexible restaurant-focused investment firm that differs from traditional private equity by offering various investment options, including minority stakes and financing solutions. With nearly $4 billion invested across 3-4,000 restaurants, CapitalSpring targets investments ranging from $10-150 million in concepts spanning from emerging brands to established chains.
When evaluating investment opportunities, Balis emphasized that CapitalSpring looks for brands with strong unit-level economics, preferably with store-level margins exceeding 15% after rent. They prioritize businesses demonstrating growth potential with solid pipelines and returns on investment north of 20%. While they've invested across segments from fine dining to fast food, Balis highlighted their recent investment in Bushfire Kitchen, a small California-based fast casual concept that impressed their team with exceptional food quality and potential for multi-market expansion.
Regarding valuations in today's market, Balis characterized the current environment as "moderate" rather than hot or cold. He noted that multiples typically range from 5-6x EBITDA on the lower end to teens for exceptional performers with superior economics and proven multi-state scalability. For an average brand seeking to become great, Balis suggested a 10x EBITDA valuation would be considered favorable in the current climate, though macro factors like potential tariffs on Mexican produce and Chinese packaging materials create uncertainty.
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On the topic of when founders should consider taking capital, Balis explained that different funding sources serve different purposes - friends and family provide patient capital without immediate return expectations, bank financing preserves equity but limits growth potential, while private equity offers substantial capital for aggressive expansion in exchange for ownership stake. He noted CapitalSpring generally prefers a "cleaner cap table" with primarily the founder and their firm, though existing investors sometimes remain aboard for the growth journey.
For brands contemplating exit strategies, Balis advised considering multiple factors beyond just unit count or timeline. These include the private equity fund's life cycle, trailing twelve-month performance metrics, pipeline strength, and having a compelling growth story for the next buyer. He observed that franchisors typically command higher multiples than company-owned operations due to their steadier cash flow streams and relative insulation from commodity price pressures.
Looking ahead, Balis expressed optimism about the "fast casual 3.0" segment - concepts delivering elevated dining experiences without full service, similar to Bushfire Kitchen or the European brand Honest Greens. While he doesn't see casual dining disappearing, Balis acknowledged the sector faces challenges with off-premise consumption and changing consumer preferences. He believes concepts that offer casual dining quality and menu breadth in more efficient, counter-service formats will continue gaining market share as dining habits evolve.
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