In the last seven years, the members of his group have earned many times their initial investment and have gone on to invest in three other restaurants.
“It’s all been a big, giant accident,” he said. “This path, I could have never predicted. As an investment it had a binary outcome: either it was going to zero, or it was going to be a big win.”
Mr. Rubin attributed the high returns to finding a group that knew how to control building and labor costs. But his advice for would-be investors is this: be prepared to lose the money.
Investing in a smaller restaurant may seem safer than a big-budget production. But while the dollar amounts are lower, the risks are still there — the biggest one being getting people to eat there without the publicity machines that flashier restaurants can muster.
There are manageable risks, like the obligation of the lease and the liability for any injuries or accidents that occur. Investors also need to factor in continuing costs from broken plates and glasses, spoiled food and overly generous staff members who give too much food and wine away.
“Restaurants as an asset class have tended to be bad investments,” Mo Koyfman, a general partner at Spark Capital, a venture capital firm that was an early investor in Twitter. “Anyone who says they like to invest in restaurants is probably not a great investor.”
Still, when Gabriel Stulman, a restaurant manager Mr. Koyfman had befriended, wanted to go out on his own, Mr. Koyfman joined a group of a dozen regular patrons to back him.
“I like to invest in amazing entrepreneurs, and I like restaurants,” he said. “Sometimes those two things coincide.”
He was part of a group that invested in Mr. Stulman’s first restaurant, Joseph Leonard, a retro bistro in Greenwich Village. It opened in 2010, and Mr. Koyfman has put money into the three restaurants Mr. Stulman has opened since.
“I’ve invested in Gabriel Stulman,” Mr. Koyfman said. “He’s a grinder, and he’s possessed the way great entrepreneurs are possessed.”
Investing in a smaller restaurant, in fact, is often a bet on the manager’s ability to keep costs low, quality high and customers walking through the door.
Joanne Wilson, a venture capitalist who also invested in Mr. Stulman’s operations, said she practiced the same restraint with her restaurant investments that she did with her other investments.
“I’m never a lead investor,” she said. “I would never come in and say, ‘I’ll give you half.’ I like to be part of a group of people who are supporting the same thing.”
To her, the risk of any of these investments is obvious but not an obstacle. “Anything that is starting from scratch is a high-risk investment,” she said. “I’m happy to take the risk, based on the idea, the concept and the entrepreneur. But I believe you don’t have to take that full risk.”
For the risk to pay off, it is going to take a lot of patience. Mr. Koyfman said he had been paid back some of his initial investment and hoped to begin receiving profits soon — two years after he wrote the check for the first restaurant.
While the dollar amounts are much higher at Topping Rose House, Mr. Critchell said his partnership agreement with Mr. Campbell explicitly stated that both men were in it together. “I insisted that neither of us would have the right to sell the property for five years,” he said, “no matter what happened.”