American Cafe: Future's in the Name

second in a series.

There is no one right way to get into the restaurant business. this is the story of a critical and financial success.

If it continues its current string of successes, the name café americano may one day apply to the territory served by restaurants, as well as to the style of cuisine. The first cafe opened in Georgetown in 1977; a second opened on capitol hill last year. this year, partners mark caraluzzi, robert giaimo (not the congressman), and james sullivan opened a third café americano in baltimore waterfront. now their eyes are on other cities. In just three years, American Cafe has grown into one of the largest restaurant operations in the metropolitan area.

According to gourmet magazine, which featured american cafe in a recent article about dining out in d.c., the fledgling company is “a youthfully exuberant and incredibly smart venture that grew from modest beginnings 10 years ago with three students selling sandwiches in the halls of one of the local college dorms.”

The partners didn’t start out with a great deal of financial experience: Giaimo, who is the group’s CFO, has a business degree but had never seen a prospect until they made their own. however, American coffee has grown in an incredibly orderly progression, with each step in the process building on the last.

The three partners started in 1970, acquiring a blimp franchise on the site of what would become America’s first café.

They first convinced the site owner, who then helped them convince the blimp chain, which then helped them convince a restaurant equipment company to finance their entry into the business, Giaimo said. the three started with $10,000, raised an additional $20,000 by selling their cars and stereos, and borrowed $50,000.

In 1975, with solid airship success behind them, the three decided to do something else. “It was always our intention to create something that would reflect our taste and standards and give us an opportunity to grow,” said Giaimo.

It cost about $250,000 to refurbish the blimps and get the American cafe up and running, funded by a loan guaranteed by the Small Business Administration. “There’s a lot of paperwork involved in an SBA loan. That scares a lot of people,” Giaimo said. “but the things they want are things you need to know how to do anyway.”

To obtain an sba loan guarantee, a business must be turned down by two banks. “That was the easiest part of it all,” he said.

after the initial agreement with the sba, the cost of the project increased by about $50,000, giaimo said. they went back to the sba and got an additional guarantee, he said.

The next time the partners came to the sba, they were seeking funding for a new restaurant and central kitchen that would allow them to serve six to eight locations in the washington area. The project was expected to cost $700,000 and the partners had to raise approximately $275,000 on their own.

& co., a brokerage firm that specializes in helping local businesses.

The partners and their attorney, with the assistance of Ferris Investment Adviser, Milton Lyon, conducted a private offering with a prospectus and sold the shares in units of 10,000 shares for $25 each. the offer was for convertible debentures (essentially a bond with a fixed interest rate that can be converted into shares, with no guaranteed return, at the option of the owners).

several people and a new york venture capital firm bought shares. six months later, the partners offered to collect on the loans, paying investors a 10 percent penalty if they did. all but one of the investors chose to convert to shares instead.

“For someone to be able to do that, to have shares without interest, without a market, without liquid value, they must have a lot of faith,” Giaimo said. The partners raised approximately $175,000 from its sale, put in about $100,000 of their own money, and borrowed $425,000 from A.D. national bank with assistance from sba.

last january, they started putting together a deal for baltimore. “We were now beyond the SBA limits and we didn’t want to sell any additional shares because we don’t want to dilute our ownership,” Giaimo said. Rouse Co., which built Harbor Place, sought out American Café for the development, he said.

Baltimore company was created with $525,000 from Rouse Co., to be repaid in rental payments, $200,000 from an equipment leasing company, and $250,000 from D.C. national and a collaborating maryland bank. An additional $400,000 came from Monolith Enterpises Inc., the corporate name of the partners.

In total, they raised $1.375 million to build the Baltimore restaurant and an adjoining grocery and market at their georgetown location. Harbor Place Cafe opened in September.