Danny Meyer's New Investment Fund Targets Fancy Fast Food

Danny Meyer wants the world to have more upscale, fast-casual restaurants — with employee benefits beyond the average fast-food spot. With his Union Square Hospitality Group behind him, he has gathered investors to collect $200 million so far to make it happen.

Following yesterday’s news that USHG formed a private-equity fund called Enlightened Hospitality Investments LP to make investments, USHG chief investment officer Mark Leavitt says in a follow-up interview that the company is specifically looking at restaurants that will scale — particularly those in the fast-casual realm.

For the past several years, USHG has been running strategy and hospitality consulting for businesses, with restaurants, cafes, and hospitality-facing companies approaching them for financial support.

Now USHG can help them out. Besides looking at fast-casual restaurants, Leavitt says the businesses must be “employee-focused,” primarily food, restaurant, and hospitality companies, Leavitt says — meaning they must offer competitive salaries and benefits not common in the restaurant and hospitality industries. They also want companies with a strong management team, a brand with a following, and to support restaurants that offer “craveable foods,” he says.

“We’re excited we can pair capital with strategic advice,” Leavitt says.

Third-wave Joe Coffee is one of the companies that USHG got to know through the group’s hospitality training — which led to it becoming one of the first businesses backed by the fund. In January, USHG announced the partnership, along with Joe Coffee’s plan to expand its footprint in New York, Philadelphia, and beyond. While the companies didn’t reveal a dollar amount in the investment, Wall Street Journal reported on Monday that financing for each endeavor in the fund hits the “$10 million to $20 million range.”

While USHG would own a percentage of Joe Coffee, “We are passive, minority investors,” says Leavitt. “We back them to do what they think is best for business,” which is why the fund looks for strong management teams to control the direction of growth and strategy as opposed to USHG stepping in. The same is true for its investment in West Coast ice cream company, Salt & Straw, another company that went to USHG for strategic advice. The fund has also invested in the reservation app Resy.

Even though the private-equity fund quietly started in 2016, Leavitt thinks it will “get more interesting” about a year from now, as the group ramps up its investments.

And while a restaurant that wants to expand its NYC footprint might offer a scalable idea, the fund is looking for businesses work in other cities, too, he says.

As far as expanding a restaurant like Martina, USHG will have a say in the fund. Meyer and senior management would work with chef Nick Anderer on things like the growth plan, speed of expansion, and locations, Leavitt says.

But those plans are still in progress: He did not reveal if Martina, Daily Provisions or any other USHG restaurants are on track to get funding — or when.