How inKind CEO Johann Moonesinghe Is Trying to Fix the Restaurant Business
Restaurants are a notoriously tough and thankless business. Even the good ones can be financially fragile. That’s why it’s almost unheard of for venture capitalists to back them. But inKind, a platform that writes checks ranging from $100,000 to $10 million to thousands of restaurants, comes close. Its founder and CEO, Johann Moonesinghe, believes he has found a formula that lets everyone win: investors, restaurant owners and customers alike.
inKind operates an app that functions like a ClassPass for restaurants and bars. It sells dining credits that can be used at thousands of restaurants on the platform—plus a 20 percent reward that can be redeemed on a future visit. The appeal for diners is obvious.
Behind the scenes, however, the model is more unusual. inKind raises money from investors and uses those funds to finance individual restaurants. Instead of collecting interest or betting on a massive exit years down the road, inKind takes a share of a restaurant’s future revenue in the form of dining credits—often heavily discounted—which it then sells for a profit.
For example, inKind might give a restaurant $1 million in cash in exchange for $2 million in dining credits, then sell those credits for $1.5 million to app users. For inKind, the biggest risk is how long a restaurant stays in business. If it buys two years’ worth of credits but the restaurant closes after six months, inKind theoretically loses money. That risk is partly mitigated by having thousands of restaurants on the platform, but if closures were to happen at scale, the damage could be serious.
“In the first year, I lost 50 percent of the money that I funded to restaurants because I didn’t know how much credit to buy,” Moonesinghe told Observer. “I bought $100,000 in donut credits from some donut place in Michigan. It was impossible to sell it. So it took us years and years to get better at underwriting and building the consumer base to sell the credit.”
For restaurants, the math is more complicated. Moonesinghe argues that because the cost of food is typically only 20 to 30 percent of the menu price, restaurants can still make a profit by selling credits to inKind at half the menu price. Of course, food isn’t a restaurant’s only expense. The real question is whether a restaurant can cover its remaining costs through smart management or enough revenue from non-inKind customers.
“We really wanted to create a business model where every stakeholder wins,” said Moonesinghe, who owns four restaurants between Austin, Scottsdale and Las Vegas. “If I had opened my restaurants in the traditional way, I wouldn’t be making any money on those restaurants today. All of that money would be going back to pay my investor.”
To date, inKind has provided more than $600 million in funding to over 6,000 restaurants across the U.S. The company recently raised another $450 million from investors and is aiming to add more than 10,000 restaurants to the platform this year.
The latest funding round was led by Magnetar Capital. Participants included notable names such as Jay-Z’s investment firm MarcyPen Capital Ventures, former Yahoo CEO Jerry Yang, all four members of the band Metallica and more than a dozen restaurant owners.
The overwhelming investor interest marks a sharp reversal from inKind’s early years, when Moonesinghe largely funded the company with his own money and struggled to attract outside capital. He launched inKind in 2016 in Austin with his husband Andrew Harris, his late brother Rajan Moonesinghe and product designer Marcus Triest. Moonesinghe said the company’s early days were so capital-intensive that he and his husband cashed out their home and retirement accounts to keep it alive.
“Venture investors hated our business because we’re so balance sheet heavy, we require so much money to give the restaurants,” he said. “And the debt partners didn’t want to lend us, because they’re like, restaurants are the most risky.”
Now, Moonesinghe says fundraising is entirely relationship-driven, and he’s highly selective about whose money he takes. MarcyPen—the investment vehicle formed from a merger between Jay-Z’s Marcy Venture Partners and the investment arm of Pendulum Holdings, founded by former Barack Obama adviser Robbie Robinson—was the first institutional investor inKind brought on.
“These guys really understand us. They understand the brand we’re trying to build. They’re great investors and super well-connected. They love wine, I love wine. So we ended up creating a relationship,” Moonesinghe said.
Because of this relationship-based fundraising approach, inKind’s founders still own more than 75 percent of the company. “This allows us to take a really, really long-term approach. That’s our biggest asset,” Moonesinghe said. “We don’t need an exit. We don’t need to quickly get out of deals. For us, if we can help the restaurants do well and make money for their owners, even if a deal is taking us longer to sell their credit, that’s okay.”