The Frances Modern Inn: Why Vicki Walked Away From Outside Capital

Nathan: Can you make money running a boutique hotel in Austin Texas? Can I ask what you paid for it? Do you remember? Vicki: 4.6 million. Nathan: How many rooms? Vicki: 15. Nathan: And what does this run for a night? Vicki: 450 to 525. Nathan: We’ve really gotten our hotel occupancy up to around 75 to 60%. Expedia. They take a large commission. What’s large commission? Vicki: 18%. Nathan: Are you comfortable sharing sort of monthly revenue? Vicki: We’re like 95,000. Nathan: What would be a “you’ve smashed it in 2026” revenue number? Vicki: Close to a million. Nathan: We are here at The Frances Modern Inn. We’re going to go in, meet the owner. Hopefully, blend their ideas with my cash to generate a big return and extra growth. Let’s go check it out. If we haven’t met, I’m Nathan Latka, Founderpath. Over the past 3 years, I’ve invested $200 million in 500 software companies just sitting behind my computer. Today, that all changes. I’m hitting the streets looking for small business owners that have a big idea. If their idea plus my capital could equal big returns, we’ll do a deal right on the spot. Nathan: The question I’m wondering is, do people still stay at boutique hotels like this? Is this the future in the age of AI where we’re stuck behind our computers? Here’s the deal — I’m going to walk in, meet the owner right now. Let’s go knock. Nathan: Hey, how are you? I’m Nathan. Vicki: Hello, Nathan. I’m Vicki. Welcome to The Frances. Nathan: So nice to meet you. So this is a boutique hotel concept. How many rooms? Vicki: 15. Nathan: Can we go check out one of them maybe? Vicki: Absolutely. We purchased the hotel on the last day of 2021. Our intention was to remodel it. We had a slow start because of supply chain. Nathan: Can I ask what you paid for it? Vicki: 4.6 million. Nathan: Were you just already really wealthy from a past career? Where did you get the money from? Vicki: I was fortunate enough to own a small percentage of a piece of land down in the Rainey District. Nathan: This is the second floor. Vicki, this is your nicest suite? Vicki: Yes. I bought this hotel from the original owners, and they actually lived here. This was a small apartment. Nathan: And what does this run for a night? Vicki: This is depending on season. Hospitality rates are very seasonal. We’re in our low season right now. In the low season, it’ll go as low as $275 through the week. In the high season, it’ll go as high as $450 to $525 on the weekend. Nathan: High season would be what month? Vicki: High season is March, April, May. October, November, a little bit of September. The summer is the low season, just because of the heat. Nathan: How do you fill a space like this? Are you on Expedia, Airbnb? How do you find guests? Vicki: The majority of our bookings are direct because I’ve got a really great website. About 80% is direct and about 20% are from the online booking. We’re really a four-story building. The whole first floor is restaurant. Second two floors are rooms. Same room mix, seven on each floor. And then we have a fourth floor, which is a rooftop deck. Nathan: You bought the place for 4.6 million. What did it cost you to do the buildout? Vicki: 2.2. Nathan: Another 2.2. So you’re in it for 6.7. Vicki: 6.7. Yeah. Vicki: This is a suite. About 350 square feet. Nathan: Where did the name come from? The Frances Modern Inn. Vicki: That’s my grandmother. She taught me kindness, and she taught me hospitality, and just she taught me how to listen. Nathan: That’s amazing. What does this room go for a night? Vicki: $200 a night right now. So this is your regular hotel room plus tax. It’ll go up as high as $300 in the high times. Vicki: I want to show you the rooftop deck because that’s a wonderful amenity. Nathan: Oh wow. This is great. So right now, this is available for hotel guests just to hang out, have a glass of wine. Vicki: We’ve also built a service bar, and our intention is that this can also be rented for events. Nathan: What will you rent this area for? Vicki: I’m thinking probably somewhere between two and three thousand. Nathan: You put a lot of money in this to get it going. Are you comfortable sharing sort of monthly revenue? Vicki: This month, last month? March was great. We were like $95,000. Nathan: And that’s really South by Southwest probably, right? Vicki: Yes. Nathan: How low will it go in the off-season? What were you doing this month in July? Like 10, 20K? Vicki: Last year, July was 27. Nathan: And why do you say that’s scary? Vicki: My break-even is, depending on where I draw the line, between 40 and 60. Nathan: How do you come up with your break-even? Vicki: Most of my costs are fixed, believe it or not. There’s hardly any variable costs. Nathan: Debt service? Vicki: My debt service is 25 a month. Nathan: 25 a month. Okay. And then on top of that? Vicki: Operating costs. Humans, food, cleaning. Mostly humans, which are like 18 to 20. Nathan: And then everything else — utilities, etc. Vicki: And this is all just gorgeous, beautiful restaurant space. This is restaurant number two. Restaurant number one opened at the end of ’23, December of ’23, and operated the whole way through ’24. It wasn’t financially successful enough quick enough. So then we had to shut it down in February of ’25 of this year. We owned the restaurant. We hired people to manage. They did a fine job, but we were naive about how long it would take to get to break-even. Nathan: Talk to me about where you see the business going from here. Do you try and generate more revenue for this property? Do you open a second restaurant? Vicki: Events. Nathan: Events. Vicki: In the last couple of years, we’ve really gotten our hotel occupancy up to around 75 to 60%, which is pretty incredible. Nathan: 60 to 75% fill rate on average year-round? Vicki: Yes. If I could average 60% year-round, that would be great. Nathan: So what is it now? Vicki: I have like 85 on the high months, and then on the low months, we’re dipping down below 50. Vicki: If I can keep it at 60, then I can operate pretty much at a profit. With this restaurant lease — we leased this space for the restaurant. I do not own the restaurant. I own the building, but I do not own the restaurant this time. We’re going to lease it out. Nathan: The restaurant lease market in Austin is fairly expensive. Vicki: From 35 to 60 a square foot. Nathan: What do you like to lease this space for? Vicki: I don’t want to disclose that one. Put it this way, it helps me get to break-even. Vicki: With the hotel revenue and with the lease, I can break even pretty easily. So my job now is to make profit. What I think is going to take us up and over is the events. Nathan: And if you ramp up the events program, plus the safety of this restaurant lease, plus your other revenue at 40, 50, 60% average occupancy, what would be a “you’ve smashed it” year? Vicki: It’ll be right at a million. Nathan: Right at. This year, what are you on track to do? Vicki: I think it’ll be about 800. Nathan: What was last year total? Vicki: About 750. Nathan: And then 2023? Vicki: About six. Nathan: So 2022 you do nothing because you’re still building. 2023 you do 600,000. 2024 you go to 750. 2025 we’re now at 800-ish, and 2026 you scale up with events to a million. Vicki: That’s the vision. Nathan: I’m thinking, okay, how do we get the occupancy rate up? What have you tried to do to fill the extra vacant rooms each night? Vicki: Mostly what we’ve been doing right now is social media — simply posting. Mostly a lot of posting, and taking really good care of our guests. It’s all about reviews. Nathan: Are they on like Google? Vicki: Yeah, a lot on Google. Google, TripAdvisor, and Expedia. Nathan: And so why did you decide to sell your excess inventory through Expedia, but not Airbnb? Vicki: I have it on Airbnb also, but Airbnb really has not done anything for us. Nathan: Do you have any other ideas to fill the other excess inventory? Vicki: I’ve just hired someone whose expertise is hospitality and digital marketing. I’ve turned everything over to them, and they will do everything from SEO, to managing the OTAs. Nathan: OTAs — that’s online travel agents. Vicki: That’s Expedia. They take a large commission, which is difficult for small hotels. Nathan: What’s large commission? Vicki: 18%. Nathan: So if you sell a room for 300 bucks a night, they’re going to take $56. Vicki: Yes. Nathan: Let me throw an idea by you. Would you sell all of your excess inventory to me that you have over the next 6 months? You know what your vacancy rates are going to be. Would you bulk-sell them to me at a discounted rate, and then let me book them, and I keep whatever I sell them for? Vicki: That’s an interesting thought. I don’t know. I have to think about that. Nathan: I know my average vacancy rate’s going to be 50%. Of the 450 room nights a month, I’ll bulk sell 200 to you at this average price per room night. Vicki: Right. Nathan: I’d need a discount because it’s vacant otherwise. And I’m betting that my marketing skills can fill it at a higher rate than what I paid you. Vicki: I think it’s a really interesting thought. My concern: there are so many last-minute bookings. I’d be selling off my flexibility. I’d be selling off rooms that I may book because 1 or 2 days before they fill up. Nathan: You have an idea in a certain month, right? Maybe you only sell me 10% of your room nights per month, so you can still have the buffer. Nathan: Let’s talk about other ideas. Do you have other cash needs where if you could wave a magic wand and have a check, you knew you could invest it and make money — whether it’s on the event business or something else? Vicki: It would be in the event business. A good strong marketing team for the event space. They find us now. But we haven’t made an effort to go out and find them. Nathan: How much capital would that take? Vicki: Not that much. Yes — I have plenty of sources of capital also. But I like you and you have great ideas. Come over. Nathan: Well, to me there is a lot of money in Austin and there is a lot of money around, and I don’t really need much now because I’ve invested so much already. But the connection, the collaboration, the ideas — that’s one of the things we offer people, and that’s one of the things I like. Vicki: Mhm. Nathan: Let me pitch you a bit on me on how I think I can help, and then maybe it makes sense for you to take my money versus somebody else’s money. You and I would have battles at probably this exact kitchen table over listing on all the sites. Even if a room is going to be vacant, we make no money. If they fill it, even if they take a big fee, that’s some money. As long as we cover our costs of the linens and cleaning the room, right? Vicki: Yes. Nathan: I’m really strong on SEO. I believe a lot of the future of hotel volume — the way I find boutique hotels and travel — is I go into ChatGPT and I search “top 10 boutique hotels in Austin.” So making sure we rank in that ranking is really, really important. Vicki: Huge. Nathan: Right? And then if we can do that and also understand our economics on a per-room-night basis, we can decide how much we want to spend on ads to get that booking. Do these sound interesting to you at all? Vicki: Absolutely. Nathan: Well, then what’s the right sort of check size for me to think about if I want to make you an offer, knowing that what I bring to the table are those three things? Vicki: I honestly, as much as I like you, don’t want anybody else’s money right now. I’ve got to manage everyone’s money. Nathan: How many investors do you have currently besides the debt? Vicki: Just myself, my partner, and his father. Nathan: Well, guys, this is like how you see in small businesses, right? We found a great location here in Austin, Texas up here on 11th Street. Vicki’s got a powerful vision. I’ll tell you this, I might not be an investor today, but I will certainly be a customer when I bring my team in. We’ll want them staying at The Frances Modern. And Vicki, it was great to meet you. Thank you so much. Nathan: All right. What do you guys think? Should I sweeten my offer or does she just have too much money? Leave me a comment below. If you’re looking for capital, go to founderpath.com and create an account for free. Then connect your profit and loss statement so I can understand your cash flows and revenue. Then my AI agent will write a 10-page memo for you all in under 2 minutes and it will include a capital offer at the end. If you like the offer, just type yes in the chat. Tell me what bank you want us to wire the money to and we’ll get a deal done together. I’ll see you over at founderpath.com.