Famoso Inc. founders, from left, : Justin Lussier, Christian Bullock and Jason Allard
Since friends Justin Lussier, Christian Bullock and Jason Allard opened their first Famoso Neapolitan Pizzeria in Edmonton in 2007, the chain has grown to 15 restaurants in Alberta, Ontario and British Columbia.
To continue with the ambitious growth they envisioned, the trio realized they needed both a cash infusion and expert advice to help them expand their operation, including opening another 15 outlets in Canada this year.
They could have gone with investors who offered just funding, or sought out guidance with no financial involvement. For the Famoso founders, a combination of money and mentoring made the most sense.
That combination came in the form of Michael and Simon Serruya, who are behind the frozen yogurt franchise Yogen Früz. Through their International Franchise Inc., the Serruyas have a 20-per-cent equity stake in Famoso Inc.
"It was important to us to not just take a cheque from somebody," says Mr. Lussier, Famoso's chief executive officer, who was introduced to the Serruyas through a mutual investment banker friend.
"We had plenty of people who wanted to invest in us, but had nothing [more] to offer. To me, it's more beneficial to have a partner involved because they are really there any time you need them, and they put their heart and soul into every decision."
The money and mentoring equation is a tricky one to balance for both entrepreneurs and investors alike.
Some investors want to do little more than put their money into promising companies, and hope it will make more; others want to lend their expertise and guidance as part of the deal; and still others will take no stake in any company with which they have a mentoring relationship to keep decision-making from being influenced by financial involvement.
Meanwhile, some entrepreneurs seek only a cash infusion from investors, feeling they don't want or need their input; others may desire a mentor who offers advice only so as not to give up any ownership or let money be a control or influence; and, like the Famoso founders, still others welcome both.
Famoso is the latest addition to the Serruyas' stable, which includes brands they created (Yogurty's and Yogen Früz, which was co-founded by brothers Michael and Aaron, and sibling Simon later joined in), plus others in which they have taken equity stakes and helped to mentor, including American Apparel Inc. and Jamba Juice.
The Serruyas have also made "a number of passive investments in the past," with no mentoring involved, though their "preference has always been to invest in companies where we believe we can add value," says Michael Serruya, a director of International Franchise.
And there are other companies to which the Serruyas lend a guiding hand, but no money. "Having been very young entrepreneurs once upon a time, we understand the challenges that face many entrepreneurs today, and the importance in motivating and sometimes guiding individuals that are just starting off in the business world," Mr. Serruya says.
The Serruyas base their decision to invest in companies on three main criteria: They want strong and capable management and clear goals and vision; concepts and brands with the capability to be scaled for aggressive growth; and concepts or brands with potential for foreign appeal to leverage their international network of partnerships, he says.
As a general rule, they won't invest in startups, but want a track record. "Sometimes these smaller companies graduate to become larger more successful companies, in which case, there may be an opportunity for us to invest down the road."
When they do invest, "we typically look to acquire equity, then obtain board representation, while at the same time assisting to augment management skill sets in any way possible," Mr. Serruya says.
Chris Carder, co-founder of Toronto-based innovation firm Kinetic Café, estimates he has mentored about 40 companies but has taken an investment stake in just five.
He likes such relationships to begin casually, without any initial financial interest. His mentoring can involve everything from weekly meetings to phone conversations several times a week to answering e-mails whenever mentees need help.
"Mentoring is almost like dating," he says. "I might say, 'Let's work 60 days together and see how you like working with me,' and, if I believe in their company, I might take a percentage point or two. I can afford to put in four or five hours a month to show them how I work, how I communicate," Mr. Carder says.
Among companies he has only mentored , he says often they are second-time entrepreneurs who have sold out a company and don't need any additional investment, but do want advice. "They come to me because they want a collaborative, peer-based mentorship relationship, where I push them, press them and ask them tough questions…but they really won't ever need dollars from me," he says.
While mentoring and ownership can present "a fantastic opportunity," Mr. Carder says, it's important to find the right fit. Both parties have to determine that their philosophies, values and objectives align. Potential pitfalls include mentor-owners who may not share an entrepreneur's vision or goals.
Investor-mentors should not have the sole goal of making money, he says, or make deals on which they need to make a quick profit.
As well, "the mentor needs to be able to separate their investment hat from their mentor hat," he says.
Mentors should also help protégés build an advisory group so that the mentor-owner's advice is balanced by other points of view, he suggests.
The Famoso founders have welcomed both the investment and guidance from the Serruyas to help put them on the growth fast track.
They will be able to draw on the Serruyas' experience and access their vast network of contacts, Mr. Serruya says.
Because the Serruyas are familiar with markets across Canada, says Mr. Lussier, their input has been helpful in choosing the best locations. They can also leverage the relationship to lease spaces which can be divided and shared with Yogurty's.
Most owner-mentor agreements outline in detail the roles and responsibilities of each party.
The Famoso-Serruya agreement spells out what decisions need votes from directors or shareholders, and which ones fall under the operation of the restaurants. Decisions that involve large expenditures of cash, legal and financial risks or any structural changes to the company must be voted on by the shareholders. But if Mr. Lussier wants to introduce a new menu item, he doesn't need shareholder or director input.
"However, many discussions we have with the Serruyas are on issues we do not need approval for, but want their input on," he says.
Mr. Lussier says while he and his partners were well-versed in creating customer experience and good food, that was separate from issues such as real estate, dealing with contracts and franchising, "and that's where the learning opportunity [from the Serruyas] comes in.
"We've learned more than we could ever imagine."
MENTORING AND MONEY: HOW TO CHOOSE
Here's some advice from Chris Carder, co-founder of Toronto-based innovation firm Kinetic Café:
* Determine if your philosophies, values and objectives are aligned.
* Do a random reference check
* Be upfront about your end game, whether it's to sell the company in a year or hang in for a long term
* Consider what your intended mentor/owner can bring to the table beyond cash
* Don't rush into a financial arrangement. Make sure you have spent time getting to know each other before formalizing a deal
* Look at alternative models, such as offering a half or full per cent in your company in return for mentoring, or arrange a reward based on how many sales a mentor helps generate, for example
* Be prepared to listen to the advice you receive and follow through with mentor suggestions.
* It's still up to you to run your company.
Special to The Globe and Mail
Through their International Franchise Inc., the Serruyas have a 20-per-cent equity stake in Famoso Inc. An earlier online version incorrectly stated they had acquired a 50-per-cent equity stake.