Present at the Creation
Ever wondered what can happen to the earliest investors if an idea for a business really takes off? Consider the example of Pollo Tropical, a five-year-old fast-food-chicken chain based in Miami. When Larry Harris approached some old friends for money to fund the first unit, it was just another idea that sounded good.
Harris, 33, and his brother Stuart, 40, presented the Caribbean-style-chicken concept to about 25 friends and business associates. The restaurant, they said, would be set up as an S corporation, with profits (and losses) flowing to shareholders; additional locations (if they built any) would be organized similarly. Eight of those pitched said yes, ponying up half of the $300,000 needed for the first unit. The other half came from Harris and his two siblings.
Over the next four years, the original investors got seven opportunities to kick in additional money for new locations. Luckily, they didn't have to dig too deep; they were often able to direct the dividends from the early units into the later investments.
So how have those investors made out? Not badly at all. During a four-and-a-half-year period, individuals who put $30,000 into the first unit received dividends of more than $120,000. And when the company went public at $13.50 per share, last October, the $30,000 ground-level investor got 23,148 shares of stock. Harris notes that securities-law restrictions prevent shareholders from liquidating all their holdings at once. But with a share price that had reached $20 by mid-November, he says, "I think they're extremely happy."