InKind CEO Johann Moosinghe Restores Restaurant Funding

Restaurants are a tough and thankless business. Even the best can be financially fragile. That is why it is almost unheard of for venture capitalists to support them. But inKind, a platform that writes checks ranging from $100,000 to $10 million to thousands of restaurants, is getting close. Its founder and CEO, Johann Moonesinghe, believes he has found a formula that allows everyone to win: investors, restaurant owners and customers alike.

inKind uses an app that works like ClassPass for restaurants and bars. It sells dining credits that can be used at thousands of restaurants on the platform—and a 20 percent reward that can be used on future visits. The appeal to diners is obvious.

However, behind the scenes, the model is very unusual. inKind raises money from investors and uses that money to finance individual restaurants. Instead of collecting interest or betting on a big exit years down the road, inKind takes a portion of the restaurant’s future revenue in the form of dining credits—often heavily discounted—that are then sold for a profit.

For example, inKind might offer 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 the restaurant stays in business. If it buys credits for two years but the restaurant closes after six months, InKind loses money. That risk is partially mitigated by having thousands of restaurants on the platform, but if the shutdown were to happen on a large scale, the damage could be severe.

“In the first year, I lost 50 percent of the money I was subsidizing restaurants because I didn’t know how much money to buy,” Moonesinghe told the Observer. “I bought $100,000 worth of donut credits somewhere in Michigan. They were impossible to sell. So it took us years and years to get better at underwriting and building a customer base to sell the credit.”

In restaurants, the math is more complicated. Moonesinghe says that because food costs are typically only 20 to 30 percent of the menu price, restaurants can still make a profit by selling InKind credits for half the menu price. Of course, food is not the only expense of a restaurant. The real question is whether the restaurant can cover its remaining expenses through prudent management or sufficient revenue from non-inKind customers.

“We really wanted to create a business model where all stakeholders win,” said Moonesinghe, who owns four restaurants between Austin, Scottsdale and Las Vegas. “If I had opened my restaurants in a normal way, I would not be making money from those restaurants today. I would have paid all that money back to my investor.”

To date, inKind has provided more than $600 million to more than 6,000 restaurants in the US.

The latest funding round was led by Magnetar Capital. Participants include notable names such as Jay-ZInvestment company MarcyPen Capital Ventures, former CEO of Yahoo Jerry Yang, all four members of the band. Metallica and more than a dozen restaurant owners.

The strong interest from investors marks a big change from InKind’s early years, when Moonesinghe largely funded the company with his own money and struggled to attract outside capital. She launched InKind in 2016 in Austin with her husband Andrew Harris, her late brother Rajan Moonesinghe and product designer Marcus Triest. Moonesinghe said the company’s early days were so cash-intensive that she and her husband took out their home equity and retirement accounts to keep it afloat.

“Business investors hated our business because we are burdened, we need a lot of money to provide restaurants,” he said. “And our creditor partners didn’t want to lend to us, because it’s like, restaurants are too risky.”

Now, Moonesinghe says fundraising is driven by relationships, and he’s very selective about who he takes money from. MarcyPen—an 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 in Kind.

“These guys really understand us. They understand the brand we’re trying to build. They’re great investors and they’re very well connected. They love wine, I love wine. So we ended up building a relationship,” Moonesinghe said.

Thanks to this partnership-based fundraising approach, inKind’s founders still own more than 75 percent of the company. “This allows us to take a really long-term approach. That’s our biggest asset,” Moonesinghe said. “We don’t need to get out. We don’t need to get out of deals immediately. For us, if we can help the restaurants do well and make money for their owners, even if the deal takes a long time to sell their debt, that’s fine.”