FranShares, a Chicago-based fintech startup, has filed with the SEC to make fractional franchise ownership accessible to global retail investors with as little as $500. According to the FranShares website, there are over 770,000 franchise establishments in America. They’re spread across more than a hundred industries and represent over 4,300 franchise brands. Many of them are businesses we engage with every day, from fast-food chains like McDonald’s and Burger King to hardware stores, hair salons, and kids’ party venues. Typically, getting into investing requires being an accredited investor with a million-dollar net worth or holding a combined family income of $300,000 a year.
Founder and CEO Kenny Rose is a world-renowned franchise expert who started his career as a financial advisor for Merrill Lynch, where he advised clients on portfolio management and wealth preservation. But his entrepreneurial bent soon attracted him to the world of franchising. As a franchise broker, Rose guided clients through the process of identifying, evaluating, and purchasing franchises. He was so successful that he eventually opened his own franchise brokerage, Semfia. His opinions on franchising have been widely featured in media outlets such as Forbes, ABC, and Business Insider.
What Makes Franchises Attractive Investments?
Franchise brands attract customers and offer predictable revenue streams, while their established procedures simplify management and bulk-buying power reduces costs. Franchises are attractive to entrepreneurs because they can leverage an existing brand’s trademarks, products, and proprietary knowledge while still running their own business. But acquiring a franchise in a successful chain takes more than the purchase fee. Franchisors must protect their brand and maximize future revenue streams, so they demand operational expertise and significant personal commitment from franchisees.
At the same time, to protect franchisees from unscrupulous, predatory franchisors, the Federal Trade Commission (FTC) requires a franchise disclosure document containing complete disclosures on costs and performance representations and other essential franchise information. It’s a system of checks and balances that isn’t easily matched in other asset classes. Additionally, it’s easy for the layperson to do their due diligence. Franchise business concepts are simple, and trading premises are accessible—you can count the customers at your local Gloria Jean’s while you sip your morning cup of joe.
What Does FranShares Offer?
FranShares already has over 500 candidate franchise brands across the country. The selected businesses will be used to create a communal fund where FranShares investors can pool their money. After an initial holding period, they will see regular passive income streams of monthly or quarterly dividends, in addition to equity appreciation. Plus, Rose has plans to add a trading platform that will offer investors liquidity.
Rose says he and his team believe in SMART investing:
Strong Returns – This means avoiding high-cost franchises (they likely won’t be choosing restaurants)
Mitigating Risk – All franchise brands will undergo FranShares strict vetting procedures
Anti-Fees – FranShares’ new crowdfunding investment model means it partners directly with investors, so there are no fees
Recession Resistance – Portfolios will concentrate on “needs-based” industries
Transparency – The FTC will regulate all franchise transactions
It’s a philosophy that should increase investor confidence and allow retail investors to participate in the $787.5 billion market franchise industry without owning a whole franchise. Fractional ownership means they can diversify across different industries and different geographic locations. Additionally, franchise investing allows ethical investors to support local businesses they can see working in the real world.
A $1.42 million Pre-Seed Fundraise
In August, FranShares announced a pre-seed fundraise of $1.42 million led by Chicago Ventures, which previously backed the likes of M1 Finance and Sunbit. Stuart Larkins, founding partner of Chicago Ventures, has prior experience investing in the franchise industry and immediately understood the value in FranShares. The funds have helped the startup with its SEC filing, and Rose is expanding his team in preparation for FranShares’ official launch. New hires will include a financial operations director, a director of growth marketing, and a national general manager.
The investment landscape is rapidly changing with the introduction of new technology and changing legislation. Never have retail investors had access to such a broad spread of asset classes at such accessible entry points. New digital assets like Bitcoin may be overwhelming for some investors, but the innovations have also made traditional assets like real estate and collectibles more accessible.
With FranShares, people can participate in the franchise industry and capitalize on its attractive returns. As Rose points out, with 4,000 franchise brands, there are “more choices than there are stocks on the NASDAQ or the NYSE.” And it seems his audience is listening—before any news of its funding, FranShares already had a waitlist of more than 1,500 prospective investors.