(00:00) Nathan: Imagine a business where the biggest money printing machine is actually the pool. Nine cabanas at 500 bucks a day. That's 4,500 bucks right there.
Scott: That's the minimum.
Nathan: What's the best day you've done? Like all in sales across the whole property?
Scott: 68,000 we did.
Nathan: That is Cabana Club here in Austin, Texas.
(00:17) Scott: Our goal for the next 12 months is going to be at least 2.5 million, probably closer to three.
Nathan: If they're making money and they could use my capital, I'll offer to invest on the spot. Would you sell the whole business for, you know, 5 million all cash today?
(00:40) Nathan: There's guys' website, show packed parties. Apparently they're just crushing it. So, want to see if they're making money off their pool cabanas and if so, how much, and maybe we'll make a deal on the spot. Scott, I'm Nathan.
Scott: Hey. Nice to meet you, man.
Nathan: Tell us more about the business. What do you guys do?
Scott: We're a concept for anyone, anytime, for almost any occasion. So where we're standing right now is the clubhouse. This is the first third of the venue. This place is open every day at 7:00 a.m. We serve a coffee bar and full bar offerings. We've got three food offerings, two food trucks and a breakfast/lunch/brunch kitchen. They'll come in first thing for the coffee in the morning. They'll come hang out and grab a beer in the afternoon. We have a little stage in the corner. We do anything from networking panels to comedy. It's an everything all-purpose third space.
(01:11) Nathan: So, are you just sort of making money here in any way you can? You're selling stage time or co-working or drink sales? What's the idea?
Scott: The nuts and bolts of what we're selling here is coffee, liquor, beer, and wine. We try to sell the high margin items and then we sub out the food offerings. We have several tenants on property that are all writing checks at the beginning of the month, and then we work on driving bodies here and we sell them the highest margin items.
(01:50) Nathan: And the building we're standing in, do you own this? Did you build it or are you leasing?
Scott: We're leasing it on a long-term lease. We came in and it was a not-well-built-out version of a bar. The whole backyard, which you'll see in a minute, was a dirt parking lot with potholes.
Nathan: When did you open for the first time?
Scott: We've been open just over a year. We opened June 28th of 2024.
Nathan: How did first year sales look? Did they surprise you?
Scott: They weren't bad. There were four or five other patio bars that opened within a 6-month time frame that we did. So I don't think the first year was the start that we were hoping for, but it wasn't bad.
Nathan: What were you hoping for in terms of total revenue?
Scott: Three and a half, four million is what we're looking at. We did just under two last year.
Nathan: That seems pretty good for a half year.
(02:35) Nathan: Scott, this looks like a big chunk of property. We're inside right now, but what's happening out back?
Scott: There's a lot going on back there. The property itself is just under two acres. We have 130 parking spots, which is unheard of for bars in East Austin. The main piece — we refer to this as the pergola area. We've got three LED walls. We actually got Austin Chronicle's vote for the best outdoor screens in Austin, Texas. Austin's a big football town, so every Saturday you'll see different watch parties here. The UT fans come here.
(02:54) Nathan: This is not a cheap buildout. Did you raise a bunch of money early on or how did you fund the buildout?
Scott: We put all this together in 2021 when we were just coming out of COVID. There are other places in town that do coffee and bar or coffee and cocktails. There are other places that have a pickleball court or a mini soccer pitch or bowling or a mechanical bull. We wanted to do something different that has been a need in Austin for a long time. So we added a pool, pool bar, additional restrooms, and cabanas. We're one of the only stand-alone bars in town that has these amenities.
(03:32) Nathan: How long did permitting take before you broke ground?
Scott: Too long. The permitting itself, on the expedited schedule with the city, took about a year. We did demo in 2022. Had some headaches with different contractors. So three years all in.
Nathan: Are you comfortable sharing how much cash you guys had to pour into this thing before your first dollar of revenue?
Scott: It was north of 4 million.
Nathan: Was that higher or lower than what you initially expected?
Scott: It was higher, but a lot of that was due to the inflation costs coming out of COVID. We had budgeted this thing based on 2020's numbers and then everything got more expensive because of the shutdown — everything was harder to get and took longer and cost more.
(04:24) Nathan: What was the most expensive thing? The pool? The LED lights? This cabana area?
Scott: This pergola here is custom. It opens and closes from a remote. It gives us patio 365 days a year.
Nathan: And what was the capital source on the 4 million you raised?
Scott: No debt. It was all through equity, and we raised it from friends, family, extended circles. That 4 million was just for our invested class. We have our sweat equity class.
Nathan: So, investors today own about how much percent of the business?
Scott: It's about 40, 44, 45%.
Nathan: So, you guys kept majority control as the sweat equity operator. Was that important to you?
Scott: Yeah. Because the way these things work, people entrust us to run the thing. That's why they invest.
Nathan: Why do they trust you? That's an 8 million valuation, right? 4 million for about 50%. You sold this group on an 8 million valuation. Do you come from a background where you've done this successfully already?
Scott: This is one of six bars that I have. I've been doing this as an owner for 15 years, working in the business for 20 years. This is the largest operation of this size with the parking and everything else.
(05:33) Nathan: Scott, we're back here at the pool area, which you told me is the thing. You're not going to walk into any other bar in Austin and see a pool in the backyard. So how does this make money?
Scott: Well, these cabanas — you can reserve them. In the summertime, the cabanas would be a $250 fee and then another $250 beverage minimum on top of that. That's for nine cabanas, and we have four daybeds.
Nathan: Nine cabanas at 500 bucks a day. That's 4,500 bucks right there.
Scott: Well, that's the minimum. We've had days that are higher than that. Fees are a great thing.
Nathan: What's the best day you've done? All in sales across the whole property?
Scott: I believe it was 68,000 we did. One of the things we haven't really started doing is cover charge or any type of membership. We've got that all modeled out for the future if and when that made sense. Kind of waiting for all the apartments around here to finish developing because the density is coming. They're building 700 units right across the street here, and they're under permitting across the street, which I've heard is going to be a thousand units. All walkable next-door neighbors.
(06:34) Scott: I think people like spaces like this for the networking aspect, being around like-minded individuals, especially in East Austin. This is the cutting edge of the creative part of Austin.
Nathan: So you're making money on beverage sales, food sales, rental spaces back here. Anything else?
Scott: That, plus as a business we collect rent from three food trucks. Well, actually four at full tilt. We have another tenant up at the front that does vapes and CBD and stuff like that.
Nathan: In an average month, how much total revenue will you do, and what chunk is attributable to the folks you're charging rent on your property?
Scott: I think an easier way to talk about this would be to say that two-thirds of our rent payment is covered through sub-rent.
Nathan: One of your advantages is how big this space is, but obviously that hits your P&L because of the lease expenses. Are you comfortable sharing a range of what the lease expense is?
Scott: I can't really get into that. We got a lot of property with a lot of sublet potential for the deal that we made.
Nathan: Is it fair to say the lease is the most expensive part of the cost every month?
Scott: Yeah.
(07:35) Nathan: How many people on staff?
Scott: It fluctuates. We hire seasonally for the summer. We picked up the staff. We have anywhere from 20 to 40 at peak.
Nathan: So when you get your vision fully built out and it's pumping max capacity next year, what do you think you could do dollar-wise in a weekend?
Scott: I think anywhere from 100 to 150,000 could be done in a weekend. That's what we're aiming for next summer. We're already churning up year over year. The density is coming around us, so the walkable foot traffic is really going to help the guest count.
Nathan: What do you think you'll do this year? What would make it like, “wow, we hit our goals”?
Scott: I think our goal for the next 12 months is going to be at least 2.5 million, probably closer to three.
(08:29) Nathan: You don't have anything else encumbering your cash flows because the 4 million you raised was all equity, no debt, right?
Scott: Yeah, there's no actual debt from a bank, anything like that. We have used a product called Toast Capital.
Nathan: There's a lot of small businesses watching this show that might use Square checkout or Shopify, and Toast and all those things offer embedded lending products where Toast sees your revenue. So they'll say, “Hey, Scott, we'll give you 200K. You pay it back at 2% of revenue over time.” Can you share what deal you did with Toast? You were pretty close with the 200.
Scott: Yeah.
Nathan: What's the take rate? Is it 5% of daily sales?
Scott: The most recent one we did is about 14.
Nathan: 14% of daily sales?
Scott: Yeah. We're looking to refinance that.
(09:21) Nathan: So Scott's inside setting up a transition. They're getting some new shots, but you just heard he's paying Toast on a $250,000 loan, 14% of monthly sales. They've done about $2 million of revenue in the first 12 months. They're doing about $160,000 a month in revenue, paying 14% of that back to Toast quickly. The deal here is just to make him an offer for 250K to take out Toast. What do you guys think?
(09:41) Scott: When we got this place, this was a cinder-block garage with some broken garage doors. The idea was to take the existing shell and maximize the use for the square feet. We were able to get five bartenders in here. We have a dedicated service well to expedite service. We added more men's and women's restrooms, added funky wallpaper and tile to make it fun. But this is essentially a speed bar. So if we have 300 people out at the pool, this is turn and burn. When we're at full capacity, this is where you can make a lot of money.
(10:15) Nathan: I'm listening closely to how you're talking about the business. We know about the Toast deal you have outstanding — expensive capital. There's maybe an opportunity there. Are there any other ways you could grow the business faster with additional capital?
Scott: Having some operating capital would be nice. When we opened this place, we had a bit of outstanding payables that we've been catching up on over the past year.
Nathan: What is that? Construction people that you owe?
Scott: Loaded construction stuff and those kinds of things. You do what you need to do to get open. You pay it down as quick as you can.
Nathan: How much of that is still sitting on the books today?
Scott: A little less than 200,000.
Nathan: So you have 250-ish thousand out with Toast where you're paying back 14% of monthly revenue. You've got folks that did construction work or materials for you. You still owe them about 200,000 bucks. Do you have to pay interest on that or you just got to pay down as fast as possible?
Scott: We've just been on payment plans and chipping away.
(11:06) Nathan: You know how I'm thinking, right? Like I'm an investor. You work with investors for a living. Is there a right sort of way you'd want to think about a deal or a dollar size here? If not, I can do the hard work and propose something, but I'm curious if you have an ask.
Scott: I think we'd be welcoming to anything that was slightly better than hard money terms — a little bit more of a runway to pay it back, pay it back fixed every month, or maybe find a way to incentivize a faster payback on better months. If it was a round figure, 500,000 would be good. I think the lower or average lower end of hard money is like 10%, and if we could get 3 years to pay it back, that'd be great.
Nathan: Interesting. So you'd prefer to keep all the equity?
Scott: We could talk about equity, but I figured debt would be more appealing for you.
Nathan: Why? I just look like a debt guy to you?
Scott: I looked you up online a little bit.
Nathan: This guy he knows. That's good he did some research.
(11:57) Nathan: Would you sell the whole business for 5 million all cash today?
Scott: I have more people to talk to about that, but I think it could be entertained.
Nathan: You do this kind of concept for a living. How does a place like this get valued on the equity side?
Scott: There's a lot of variables in this business. The Rainey Street district a couple years ago, bars were doing a million a month. This part of Austin, there's bars being built all around us. There's multi-family being built all around us. We're ready for the big tidal wave. So when that does come and our numbers go up, we're going to maximize the return in a very short period of time.
(12:30) Nathan: If I can't own the whole thing, I'd love to figure out a way to get going together. So I want to make you an offer. I think I can just beat the Toast deal. We can keep this really simple. I like to get creative, but this isn't that creative — it's kind of boring. You're paying back a 14% take rate monthly on Toast. You're going to pay back pretty quickly in terms of months. I can effectively give you a longer time to pay that back by offering you 250,000 dollars today, but at an 11% take rate or a 10% take rate. Is that a deal you'd be open to?
Scott: I would prefer a lower take rate because that's part of the thing I'm trying to get out of. I would prefer to pay you a higher interest rate and more time, but not necessarily on a take rate.
(13:14) Nathan: I know Toast pretty well. I know the effective yield they're making on that lending product. It's in the 40% range in terms of effective interest rate, for the reasons you mentioned. You do a bunch of revenue one month, you pay it back much quicker, and the effective rate is just through the roof. So basically two options: I could say 250,000 dollars at a take rate under 14%, so it's better than Toast — or I could give you a fixed interest rate, but I don't know if I could get all the way down to 10%. Is that a deal breaker?
Scott: We could do 10 and a quarter.
Nathan: This guy. I just got 25 bips. I got some work to do. I'd love to have your financial person tell us what the actual effective interest rate on that would be. In my offer, I'll come in 10% under Toast. So if Toast's effective interest rate is 40%, I'll come in at 30. I'll just beat them.
Scott: That is also still kind of in the gnarly debt area that we're trying to get out of. So I know it's better than Toast. I do appreciate it. I think the number 250 could work. We still need to keep going on exactly how that looks. If you're talking about a take rate, I could give you a take rate of like 6%.
Nathan: And what would that be in a dollar figure that you think per month?
Scott: On a 100K month, that'd be 6,000, and on 200K, that'd be 12,000. I think that's more palatable for the business.
(14:43) Nathan: Maybe find another way to sweeten it for you. Maybe we did it in benchmarks, right? If we do 100, then you get 6%. If we do 150, you get 8%. If we do 200, you get 10%, and if we do 250, you get more. So you're getting more with the benchmarks, but that way if we have a slower month, it's not just taking a big chunk of the money from them. Your take goes up with the sales of the business.
Scott: The take rate will go up no matter what because it's 8% of monthly sales. As revenues increase, I'll make more on a dollar basis back quicker. You see what I'm saying? My preference would be if you gave me some tiered options on the check size I'm writing. So Nathan, if you write a 200,000 dollar check, we'll give you X% take rate. If you do a 300,000 dollar check, it'd be a Y% take rate, or vice versa.
Nathan: Would that make a difference to the business or no? Tell me the limitations of how much the amount could be. Is 500,000 in the question or is it too much?
Scott: I think we could do anywhere from as little as 100,000 bucks. Although I think you probably want to do at least enough to take out Toast, right? So 250.
Nathan: That wouldn't eliminate the Toast.
Scott: Exactly.
Nathan: So we got to be able to take Toast out. Exactly. And then all I'm thinking about in terms of the max amount is, I'm doing the math on if they're doing 100,000 bucks a month, how many months is going to take me to make that money back. I generally want to be out of a debt deal with my money back within 2 years. So we can reverse engineer from that.
(16:00) Nathan: If you did 250, would you take 8% take rate?
Scott: An 8% take rate. And how many months do you think it would take you to get paid back then?
Nathan: So 2 and a half million is where we're headed this year, at least. And 8%, so it'd be just over a year before I got my money back.
Scott: And then I need to get a sweetener on that, right? I have to make money on my money. So what fee on top of the 250 would you guys owe me back over that period of time? What would you be comfortable with?
Nathan: I generally, when I structure these kinds of deals, they're called merchant cash advances. It's what Toast does with the take rate. There's usually a fixed fee. It's usually between 10 and 20% of the total principal. So I would come in in the middle. I would say, “Hey, 250K loan up front. You then owe me back 250K plus 15% of 250K, right? Which is 32,500. So you'd owe me back 250K plus 32,500 over the next however long it takes at an 8% take rate. So if the business crashes, it takes me way longer to make my money back. Now if it grows really quick, I make my money back much faster.”
Scott: Would you do a 10% kicker on everything else agreed? Would you do the 10% fixed fee?
(17:00) Nathan: Okay. So instead of 15, do 10% fixed. Yeah, that I would do right now. So the 10% kicker on 250K would basically be like you guys owe me back 275,000 dollars and I'm making that back as 8% of monthly sales until I'm paid back that amount.
Scott: I do that deal.
Nathan: We have a deal?
Scott: Yep.
Nathan: All right, Scott. Let's go to town, man. That was the best negotiation we've had in 16 episodes. If you guys like that deal, remember new episodes drop every Wednesday.
