Franchise Business Network Convention
Kenny Rose:
Yeah, so I actually spent about 10 years in the franchise world before founding FranShares. I was on the brokerage side and experienced a lot the same things you guys do, where you have people come to you who don’t have the liquidity in order to own a franchise. Maybe they don’t have the time, they don’t want to do it all, or they don’t have the right skill set. So, we created FranShares as a platform for any investor to actually get franchise ownership, whether it’s they want to invest 500 bucks or five million.
And so we created this platform to really create this marketplace for people to get into this investment, an investment that they typically don’t have access to. And so we started this we’re doing a Reg D for our first offering. We launched a $25 million dollar franchise portfolio. And we’re actually about to announce it today. After about a month, we’ve already got 500 in orders and we’re doing 55 locations, between two very different brands. Actually one of them is located in Denver, and I saw their CEO here. Is Michael Haith still here?
Of course he’s not here. Well, Teriyaki Madness is based in Denver with 350 locations, so we’ve had a lot of great experience seeking investors who really want to own franchises, but they can’t for one reason or another. And so, with this stuff… Our next one will be open to non-credit investors due to the Reg A plus process. And once we open that up, we actually have over 37,000 people on our wait list. So there’s definitely demand for people who want to get into this asset class. There just have been restrictions in the past. And this ability to fractionally invest into new asset classes is something that they’re really getting used to. Now you can fractionally invest in commercial real estate, art work, collectibles, wine, Airbnbs. And so really it’s about making sure you tap that user base and see what they’re working for. Which, they want to diversify, they want passive income, and they want to hedge against inflation. Which, franchises are really between where the consumers are paying the increase and where the producers are raising prices. So we’ve been seeing a lot of interest in franchise investing.
Moderator:
Franchisor. What are the ingredients that they share? What is the orientation to be successful inside a company?
Kenny Rose:
Well, for one, another startup crowder I talked to said, “You talked to 50 customers, you’re going to get MBA in what they want out of your company.” And I took that as, “Well I want a doctorate.” So out of the 37,000 on the wait list, I’ve spoken with 600 individuals since January. And what they want is access to things that they couldn’t afford, and that’s part of why you saw cryptocurrency rise. It’s something new, it’s something exciting. And in the past, on the brokerage side, I used to kind of shy aware from the word “franchise” – you know, the F-word. People hear it and they have bad connotations with it. But then, when it’s [inaudible 00:02:58], they’re like, “Oh yeah, I’ve heard of a franchise! Wait, I can even own part of it?” So you’re really opening this up to people who wanted access to different types of investments, but also with the stability that they know a franchise offers.
And as far as what franchisors should… Honestly, every franchisor should. You think about why you franchise. It’s capital, operations, and that person in the community. And when you do crowdfunding, you not only get access to more capital, that’s what people are typically thinking of. But look at what happened with Reddit versus Wall Street last year. You saw that, when people can actually have an influence, they care about it. So if you can have an influence in something in your local community, it changes the game.
So instead of one franchisee who’s going around and saying “Hey, come to my local location”, you have hundreds or thousands of investors who are owners. And they’re going to be a built-in customer base, they’re going to be built-in advocates. They will tell every single person they know to go to your location at some point, probably in the month, if not the week. They’ll tell everyone. Because they know they’re going to make more money. They’ve got that pride of ownership. So, honestly, every franchisor should be thinking about this. And that’s what I’ve realized, that everyone wants access to the investments, so they want that pride of ownership.
Moderator:
Okay, if you’re a franchisor, you might be very concerned that your franchisees try to use crowdfunding. How’s that going to impact your brand?
I’ll just make a point that most… We’ve looked through many, many franchise agreements. Almost no franchise agreements address this issue of franchisees raising money through public offerings. They generally relate to private offerings and transfers, but not to public offerings. That’s something you want to think about in terms of making possible changes to your franchise agreement. But should franchisors be afraid of franchisees raising money through crowdfunding?
Kenny Rose:
How many franchisors do we have in the room? All right. So try to help me here. Does everyone with a check to afford it get a franchise?
Never. There are bad apples out there. So just like you have to bet any franchisee… The source of the money’s not the problem, but the thing is, you have to figure out who they are first. And they’re not going to go raise money unless you approve them, that wouldn’t make any sense, like, we put down deposits on franchise fees before we did this. And they can be a great salesperson, and they can go convince people to invest in their opportunity. But are they going to be a good franchisee? We’re going to be two of the largest franchisees in both these franchises that we’re in, and it wasn’t just “Hey, I’ve got a check for you.” They want to know who I was, and they want to know how I was going to run this. And they wanted to see how this was actually going to help build their greater brand.
So I don’t think it changes how you look at them. You have to make sure you vet them just like everyone else. But it is a great funding ability for those who might not have had the check before, that would have been great operators, but just don’t have a chance. That’s why Chick-fil-A has expanded so much. $10,000 for a franchise. It’s easier to get into Harvard than to get a Chick-fil-A award. And that’s because they’ve made opportunity for these amazing operators. And so, it can be amazing for you, but just like anyone else, you have to vet who they are as an operator, as well as the finances.
Moderator:
Okay. Any final thoughts, I give you 30 seconds each. Kenny, you had one more final thought?
Kenny Rose:
I might also touch on the misconception part of it too, because I think when people hear the word “crowdfunding”, some get a negative connotation, just like some do with “franchise”. And they do that because they’re use to Kickstarter, it’s, “Oh, maybe this idea will work. We’ll try and watch a profit.” And I think that’s how people initially did the crowdfunding for new companies. People thought, “Oh, I don’t know if it’s going to work, it’s a risky investment.”
But that’s why all these alternative investment platforms have really taken off. Like Fundrise is for real estate, because that’s a tangible asset. Same thing with Masterworks for art. They can see understanding. And the franchise, they know there are systems in place, and they know that there’s security in that. And so you’re going to see a lot more people start tipping over toward, “I want to invest in a franchise because there’s stability there.” The same reason people have always invested in franchises.
So if you’re not familiar with this space, it’s definitely something to explore. Like I said, we’ve got a ton of traction from people who are interested in investing in this space. So if you’re not checking it out, you’re missing out.
