Diversification is one of the key principles of investment strategies. It’s a little like making sure you eat your greens, fruits, proteins, and grains instead of focusing solely on one food. It gives your body the best opportunity to gain the nutrients it needs to thrive, reducing the risk of chronic and long-term disease. Likewise, a diverse investment portfolio reduces your risk
On the other hand, you have the carnivore diet, a diet based almost exclusively on animal foods. Though difficult for many to wrap their minds around, given the long-term effects on the human body and the planet, there are those who report never feeling better since embracing this lifestyle.
In investing, this would be considered putting all your eggs in one basket and aligning with Warren Buffett’s statement, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” That is to say, if you understand the entirety of your business in great detail, you don’t need to spread your investments across a dozen different verticals, an act that can potentially dilute potential gains. In his view, diversification is used by those who don’t fully possess confidence in their chosen field.
While it’s hard to argue with a man who’s worth over $131 billion, this advice goes squarely against the theory that diversification reduces risks and limits losses. So, where does the balance lie between having faith in a high-performing asset class and diversifying your portfolio?
At the Emerging Fund, we believe there’s a happy medium, a balanced diet, so to speak. We are experts in the restaurant industry and the technology that serves it. This knowledge offers a unique opportunity to gain diversified exposure across multiple consumer-driven verticals while remaining in our wheelhouse.
Let’s see how it’s done.
The Restaurant Industry
For those looking from the outside in, investing in the restaurant industry revolves around selecting emerging brands and investing in their potential for major expansion and success. It’s like getting in on Chipotle when it only had a dozen locations.
The happy medium, however, lies between risk and return and, for many, is found in diversifying among different asset classes and geographical locations. It’s the key to getting a good night’s sleep. By investing in the restaurant industry the right way, you achieve industry-specific above-average returns while reducing the volatility of an asset’s price movements. How?
The restaurant industry is one of the most diverse sectors in the economy. It encompasses real estate, supply chains, technology, entertainment, sports, consumer behavior, and more. It offers a unique opportunity to gain diversified exposure across multiple consumer-driven verticals without spreading yourself too thin. Here are a few examples.
Experiential Entertainment Venues
These venues are expected to see significant growth in 2025 as they focus on the experiential model that today’s consumers demand. With a strong focus on immersive interactive experiences and social competition, they are highly attractive to customers seeking memorable experiences beyond the traditional entertainment prospects.
Unique themes, concepts, creative storytelling, and activities that encourage social engagement are at the forefront of this restaurant industry sector. These venues possess multiple streams of income, from ticket sales for activities to unique beverages and menus, merchandise, event hosting, memberships, and more. According to Mathew Focht, GP of the Emerging Fund and founder & CEO of EMERGING, it’s this diversification that reduces the dependency on food and beverages alone, providing exposure to discretionary spending in entertainment.
Technology Disruption and Efficiency
Restaurant technology has evolved at an incredibly rapid pace, disrupting the once commonly held belief that these solutions were a luxury. Today, they are a necessity.
Tech-powered customization is one of the major players, offering restaurants the opportunity to provide both an experience and convenience, two of the main ingredients guests are searching for. AI is skyrocketing, from chatbots to automating customer service and providing predictive analytics.
As Focht stated, “You’ll find technology gaining ground in ordering and educational platforms, supply chain optimization, and customer engagement. At EMERGING, we believe that investing in tech-enabled concepts provides the opportunity to capture upside from the digital transformation of the industry, including automation, AI-driven personalization, and data analytics, which are impacting multiple verticals beyond hospitality.”
Real Estate and Location-Based Experiences
Restaurants play a role in the revitalization of commercial real estate and urban environments, adding a physical asset component to the portfolio. Whether focused on the dining experience or the dual experiential entertainment concepts, they contribute to foot traffic in urban centers and retail spaces, impacting the adjacent real estate, entertainment, and travel sectors.
Supply Chain and Food Tech
“The restaurant sector connects directly to agriculture, food production, logistics, and distribution, providing indirect exposure to these critical supply chains. Investments in restaurants and their technologies also tap into the future of food innovations like sustainability and eco-friendly supply chains, which are reshaping how we consume,” reports Focht.
According to Morgan Stanley, the first half of 2024 saw sustainable funds modestly outperforming traditional peers.
The EMERGING Fund
The EMERGING Fund is made up of partners, investors, and founders with a wide range of extensive knowledge in the restaurant industry. From experts in supply chains to technology and real estate, we form the entirety of the possibilities that exist within this space.
Currently, our portfolio consists of 13 investments across this sector, with an expected low 20s in total. Not only do we invest in these companies, but we also act as mentors, driving client growth and sales and helping them reach the next valuation milestones sustainably.
Are you ready to get a good night’s sleep and eat a balanced diet? The road to healthy diversification lies in the EMERGING Fund. Contact the following to learn more:
Investment inquiries: David Bagley db@emerging.com
Partnership inquires: Hilary Slocum hs@emerging.com
General Inquiries: Please contact us here
