Noticing the growing popularity of coffee bars in in the United States in the 1980s, Bob Hashemi, an engineering student from New York, decided to see if there was a market for such bars in the UK, and set about raising the finance. He eventually opened his first outlet in London's South Molton Street with a £20,000 personal investment and a £78,000 bank loan secured through the Loan Guarantee Scheme (see Management Today, December 1997).
Hashemi's outlet broke even within a year and he decided it was ready for roll-out. But to do this he needed more finance. He didn't want bank debt, and the amount he sought was too small for the average venture capital company, so he decided to seek 'business angel' finance. He went to a venture capital publication specialising in linking start-ups with business angels and succeeded in raising £300,000 in return for 40% of the equity.
He later engaged in a reverse takeover of Arion Properties plc. Arion Properties, capitalised at around £2 million, was a fairly moribund property company whose shareholders were only too happy to see some action. Accordingly, Arion plc bought Coffee Republic for £3 million through issuing 30 million shares at 10p. The result: Arion plc became Coffee Republic plc. The managing director is Bobby Hashemi, the business is coffee and there is £1 million of new cash in the coffers. Hashemi is happy but already has new targets: 'I now have efficient and rapid access to the markets. This is what I need to achieve my target of 20 stores by the end of 1998.'
Sarah Gracie is a senior writer at Venture Capital Report.