Web Exclusive: Idea Man vs. Money Guys

Paul Fleming tells how the relationship can work.

By David Farkas, Senior Editor -- Chain Leader, 3/1/2006

Concept creator Paul Fleming began working with venture capitalists Catterton Partners, Oak Investment Partners and Trinity Ventures shortly after founding P.F. Chang’s China Bistro in Scottsdale, Ariz. Fleming, founder and owner of Fleming Restaurant Management, describes his relationship with lenders and partners.

Describe how you sharpened your financial skills.

Having venture-capital partners has been a hugely positive influence on me, which shocks everybody, because I don’t like the discipline of what I have to go through to figure these [concepts] out. But these [venture-capital] guys are tough and smart.

What kind of discipline do they impose?

They impose discipline from the time they invest. Like I say, they are tough, sophisticated and they represent their interest well. But they also can balance that interest with what’s best for the business. And they taught us, many years before we went public, how to act like a public company. That included having financial discipline, an infrastructure and good unit-level economics. They just made us understand you are either serious about running the business this way or you are not.

How hard was it to adjust to these rigors?

A lot of people hate that about venture-capital partners. But that’s the part I loved about it. Discipline is a now big word in the restaurant industry. It is something we lack a lot of times. When we wanted to bring in outside investors and bring in capital and be liquid, venture capitalists taught us how.

How much of the company did you have to sell to get their help?

The money was not a big deal. That’s why I get a little nervous about these multiples in the private atmosphere. People are not bringing in the best partner; it’s the guy who pays the most. The most important thing about these [venture-capital] guys is they brought their expertise to us. The capital helped. But they had all these other disciplines: branding, retail sales, comp sales and infrastructure.

If you were offering advice, how much of your company should you sell?

It easy to say you should keep more than half. But that doesn’t matter. If partners come in, you’re partners. You shouldn’t get into a situation where you are voting for or against stuff. You should be in business together. So, there is no advice, really, because if you are going that route you better bring in partners you can work with and have them in for reasons other than financial. Which means they bring value to the table, like my guys did. They are going to be on the board, active and serious. And they have a lot to offer, if you listen.

Should VCs control voting rights?

I don’t think that was our deal [at P.F. Chang’s China Bistro]. We were like a fifty-fifty deal. I don’t think we ever got into a situation--and this sounds Pollyannaish--but I don’t think we ever voted on anything. We constantly debated, negotiated and talked. But as long as I was on the board as chairman and CEO, we literally never had one vote that wasn’t unanimous. That’s how good the relationship was.

Look I’m not trying to be flowery about [venture capitalists]. It’s not like we were best friends. They just happened to be fabulous business partners. We don’t hang out; we don’t travel. And it would be easy to say bad things about them. But I had a good experience.

Read the Cover Story: Conceptual Thinking