Alternative Assets Club podcast interview with Kenny Rose, CEO of FranShares
Podcast Transcription
Introduction:
Welcome to the Alternative Assets Podcast with Stefan and Wyatt. This is not another podcast about stocks or venture capital. This is about the wide world of investment opportunities that aren’t discussed as much. Our website and newsletter is at alternassets.club, where you can find a transcript of this episode and many more unique investment ideas worth exploring. Now let’s dive in.
Stefan Von Imhof:
All right. Hello and welcome everyone. So here at Alternative Assets, we talk a lot about different alternative asset classes, but it’s rare that we talk to someone who has created an entirely new asset class from scratch, and our guest today, Kenny Rose has done exactly that. Kenny is the founder and CEO of FranShares. It’s a company that lets everyday investors buy fractional shares of franchise businesses. And with FranShares, Kenny has essentially created a new investible asset class, a new opportunity, really an entirely new market. I’m super excited to speak with him about all of this today. So, welcome Kenny.
Kenny Rose:
Hey, Thank you so much for having me on. I’m really excited to chat with you.
Stefan Von Imhof:
All right. So let’s get started, but before we talk about FranShares, before we talk about any of that, I have a question that’s far more important. And-
Kenny Rose:
Oh, okay.
Stefan Von Imhof:
… you may know where I’m going with this, but the question is, you were on the Price is Right. Is that correct?
Kenny Rose:
Oh, you do your research. Yes, I was.
Stefan Von Imhof:
Can you tell us a little bit about that? That’s super cool.
Kenny Rose:
Oh yeah. It was honestly just a lifelong dream come true and then turn into a horrible nightmare at the same time. So I went there with a group of guys from college. I went to San Diego state. So it’s a quick drive up to LA. We sit in the audience, they interview everyone before you go up there. And I’d actually tried out there multiple times before, I went with another student organization group and the girl next to me was a Flamingo dancer, so I assumed she’d get picked and I was right there. So went there with my own friends, got to go up super excited, but I didn’t get to go until like one of the last people to get called up, and I had to bid first. Managed to get it because everyone else went over, and then totally lost my game. I won an $800 desk and then lost the game. And then I go to spin the wheel. I have to spin first and I to 45, which is just-
Stefan Von Imhof:
Oh man.
Kenny Rose:
So I spin again and hit another 45. Get to the showcase, showdown. I’m flabbergasted. It’s dream come true, go to the showcase, showdown unreal. And then as I get up there, I start chatting with the other contestant while we’re in between cuts and stuff. And I said, “Oh, so are you the trip guy or the card guy?” He said, “I just drove here from New York in my old car and it is completely destroyed. I need a car.” And I’m like, “Well, I guess that was my dream then.”
Kenny Rose:
So then the first one comes up and it’s like a ski trip to Canada with like fur coats and skis and snowboards and ski snowmobiles, just a group of things I don’t know how to price. So I throw my bid in and then the other guy gets his thing. It’s like brand new TV, a convertible sports car, all this great stuff. And then he’s like going to bid and all his friends are telling him, “30, 30.” It was like, “Go a little under.” He did like 29,5.
Stefan Von Imhof:
Uh-huh (affirmative).
Kenny Rose:
And it was 29,9. So if he listened to his friends, he would’ve gone over.
Stefan Von Imhof:
Oh.
Kenny Rose:
Yeah. And I was like, “Oh my God, that was just an extra knife in the wound.
Stefan Von Imhof:
Oh man. How’d you do on yours? You do all right?
Kenny Rose:
Oh no, it wasn’t pretty. I was probably like seven grand off.
Stefan Von Imhof:
Oh, that’s amazing. What a great story though. So, all right. So no showcase, showdown winner, but you had a great time and you still win stuff even if you don’t win the showcase showdown, right? I mean, you walked home with something, right?
Kenny Rose:
I think they give everyone something if you like lose everything. But I won the initial bid for, it was a $800 desk, but my rule of thumb for game shows is always take the cash, is the suckers bet to take anything they give you.
Stefan Von Imhof:
Cool. Well, you got a great story. That’s what matters, man. That’s super cool.
Kenny Rose:
There we go. Life memories. It’s hard to watch the prices right now though.
Stefan Von Imhof:
All right. Now let’s talk FranShares. So I want to know what spurred you to start FranShares? The first time I heard of FranShares, I had two thoughts. Number one. Well, this is super cool. This is amazing. And number two, how has this actually not been done before? And I looked into it and I’m like, “Wow, it hasn’t.” I’m like, “This guy, Kenny, he’s onto something. Really look forward to chatting with him.” Tell us about your story, because you have franchising in your background, your history, is that correct?
Kenny Rose:
Yeah. Yeah. Well actually originally I was in finance. I was a advisor at Merrill Lynch and this is back when Greece’s economy starts spitting out of control. And even though it doesn’t really affect our economy, the headlines of it still affect your portfolio. So my introduction to the finance world was, “Hey, you know what? Tweets and headlines can just destroy your net worth anyway.” And so I was like between that and robo-advisors, I’m going to see what else is out there. And I got introduced to the world to franchising through a friend and was basically told or introduced to a couple of franchise brokers. Now, most people have never heard of a franchise broker, but it’s basically like being a realtor for the world of franchising. So I’d help executives who were trying to get out of the corporate world, want little predictability, but start their own business. Or sometimes they just onto the great investment on the side.
Kenny Rose:
So I started off doing business development forum and eventually took over the LA area forum. And then eventually decided, “Hey, I know this industry very well. It’s time to go start my own.” And so I created my first company. It’s a brokerage called Semfia. And Semfia really specialized in what are called semi-absentee franchises. So you think about a company like Supercuts, when you walk in the owner’s never there, they have a manager and the owner probably has a full-time job and they just manage a manager. So I specialized in that and big emphasis on educational content, because when most people hear franchising, they go straight to McDonald’s, Subway.
Stefan Von Imhof:
Arby’s, right. Yeah.
Kenny Rose:
And honestly, I tend to avoid fast food because it’s the highest startup cost, the finished margins and the most competition. And when you’re like, “Oh, I should go startup as safe business.” That’s none of the things you want to hear for it.
Stefan Von Imhof:
Yeah. Because people absolutely just think of Chick-fil-A has some success stories around franchising and McDonald’s is the most famous, but it sounds like just from an economic standpoint, it’s actually probably one of the worst types of businesses you can own or at least franchise.
Kenny Rose:
Well, I mean, it does very well for the top tier food franchises like having the brand name recognition, like that’s what a lot of people equate franchising to, is just that part. But a lot of it’s also just business systems in place and that go to market strategy. Franchising is a good way of skipping the first five or 10 years of figuring out business ownership, and so they franchise everything. The guy introduced me to franchising was the CEO of a company that coaches CEOs, but never told me it was a franchise until that conversation. And that was my instant like, “Whoa, I apparently didn’t know all this.” But everything from commercial cleaning, window washing, they have custom tailored suit franchises, they have trash franchises. I mean, pretty much any business can be and has been franchised.
Stefan Von Imhof:
That’s something I would assume that a lot of people don’t know. I didn’t realize just how big franchising is until kind of like researching before this podcast. And there’s so many service businesses that are franchised. You wouldn’t even think about it. You think it’s mostly food and that sort of thing, but it sounds like there’s a lot of just “boring businesses,” HVAC or cleaning or dry cleaning or laundromats and stuff like that. Is that fair to say?
Kenny Rose:
Oh yeah, a ton of them. I called them the unsexy businesses. And whenever I was in the brokerage side, I’d always ask them, “Does it have to be a sexy business?” And they usually say, “Oh no, no, no.” I’m like, “I’ll test you on that.” They have franchises for everything. I can make you uncomfortable with the different types of franchises out there. I mean, Adam Eve is a franchise. You ever talk to a client about, “Hey, you want to buy a sex shop?” That’s a new one.
Stefan Von Imhof:
Wow.
Kenny Rose:
Yeah. So putting all this educational content out there was just important to me because they know about franchising. They don’t know much about it. And so, because I was pushing that out, I became the number one writer worldwide on core of the franchising. I managed to get into ABC Forbes. And actually about two months ago, I had a whole business insider article on me.
Kenny Rose:
So, with or without any ads spend, I had a market reach of 300 million people. So people want to know about franchising. So that was part of this like, hey, you know what? People are interested in it. They’re always looking for new investments, but it’s really unattainable for most people. They’ve six figure cash requirements. You got to have time to manage a manager or go run it full time and you got to have the right skillset. So then I thought, why can’t you own franchises like you do shares of stocks in the market? And I’ve been watching the fractional investing community grow. This has only been legal for the last five years or so.
Stefan Von Imhof:
Right.
Kenny Rose:
And really when it became legal through the jobs act real estate was the first thing people thought of-
Stefan Von Imhof:
Oh yeah.
Kenny Rose:
… because it’s the most commonly known alternative asset.
Stefan Von Imhof:
A hundred percent.
Kenny Rose:
Yeah. And so that area just absolutely forced. So now you’ve got things like Collectable. Oh, there’s Masterworks for art, Vinovest for wine. And my problem all these new ones is that they don’t actually give you any income. And as an investor, you got to diversify in a lot of ways and part of it’s you need income producing investments. So franchising gives you that income. It gives you equity appreciation and its something that I think invest… I mean, they already have been very interested so far, so it’s exciting to get this out to the rest of the country.
Stefan Von Imhof:
That’s awesome. Yeah. You’re absolutely right. I mean, it’s much rarer to have a fractional platform that also does dividends. Absolutely. They are out there. There are some for sure, but yeah, it’s much rarer and I think you’re spot on with one of the problems there. So let’s talk about getting set up, what were some of the struggles that you faced and challenges you faced in just getting this business set up? Right? Like the job act changed everything five years ago. We know that. But still, I mean, after talking to folks at like Collectable, I mean, other companies, I’ve come to realize just how much work, were talking about like over a year of work to get set up financially, legally. Did you face those kind of challenges as well, financial and legal challenges? And tell us a little bit about that.
Kenny Rose:
I’ve had some great advisors since I started this. I got to give a shout out to Cody Barbo with Trust & Will. It’s basically TurboTax for trust and wills and he’s done amazing things. That company, they just finished their series B at the end of last year for an extra 15 million. And so when I was getting ready to go up with FranShares, I’ve been chatting with him for years about this idea. And so, “Okay, you need to go talk to my lawyers at DLA Piper.” Which is one of the largest law firms in the country. And so, they were able to help me out from the ground up and really work with me. Being a founder, they wanted to help me in that regard. And so I got set up legally the best structure possible.
Kenny Rose:
And then financially, I started reaching out to my network and angel investors, VCs. And honestly, I got a lot of the same questions that you asked before. “Why has no one done this?” Again, people typically think about the food in industry when it comes to franchising and those are really tight margins. So if you’re looking at fractionalizing an investment and then you start evaluating a lot of these like the war for penny in franchises, you’re like, “Oh, that’s a really tough thing to split amongst a bunch of people.” But then you’ll get these service businesses that require no inventory and a lot of ’em don’t even need a storefront. And so you have much higher margins by working on these service franchises with fewer employees and they’re easier to manage. And so you really needed someone who has a franchise insight like I do.
Kenny Rose:
And at the same time have to be young enough and have a good enough like background in finance to know that you could take in this direction. I’m probably the world’s expert in franchising under 40. I used to under 30, but I finally passed that marker. But yeah, so I think it’s good timing in the market and I was just the right person to do it, which is especially getting funding, I think that was something that all my investors really saw was just, I was the guy to do it. I mean, the best investors, they say, “Don’t give me the deck, let’s hop on a call.” Or hop on a zoom. They just want to get to know you. And they’re like, “Who are you? Why should I trust you with my money?”
Stefan Von Imhof:
Your background’s perfect for this, especially the Price is Right of course. I think that you’re also writing the coattails of two huge trends at the moment. One is the fractionalized everything trend, right? Which we’re seeing, we cover alternative assets tremendously. And then the other is the unsexy businesses trend, so to speak. They’re getting sexier and people are looking for yield in different new places.
Kenny Rose:
Uh-huh (affirmative).
Stefan Von Imhof:
This is just the fusion of those two ideas.
Kenny Rose:
Oh yeah. And honestly, I think it’s the beginning of a longer trend where… Franchising is not seen as sexy right now. I think it’s going to have a massive comeback in the future because over the last 20 years it’s been all about startup culture and startup life and software businesses, but nowadays it’s for one, most software things have been done. There’ll always be new ideas, but it’s not wild west anymore where you can just throw anything up there. But also it’s that startup cultures become very toxic in a lot of companies and this is coming out more and more in the news lately. And so a lot of people are saying, “I want to be entrepreneurial, but I just want to have a fun company and like talk to people and I make a good income.”
Kenny Rose:
And so what I see in the future is in the tech world, like tech sales especially, once you’re like 35, 40, you’re aged out of the industry. So I see in the future you’re going to have great flux of sales people who are used to making good six figure incomes who are entrepreneurial, maybe don’t have an idea of their own. Is literally a perfect franchisee for so many concepts. And so I think there’ll be a huge way for people to say like, “Yeah, I don’t want to deal with that horrible tech culture. I just want to own a great local company, make a good income.” So I think we’ll be seeing a big transition to rising tide of franchising.
Stefan Von Imhof:
I agree. I think it’s awesome, man. So what I would love to do is understand a little bit about the mechanics of how it works. With other fractional platforms, the most common way that companies do this is with each investible asset, they basically create an LLC for each asset and then sell shares of that asset. Is that similar to franchise’s approach? I mean, if not, can you take us through how a franchise gets fractionalized?
Kenny Rose:
Yeah. So we’re actually… Especially to make it more affordable while also being diversified, we’re putting a whole portfolio together that you’d be able to invest in. And so instead of like, “Hey, we’re going to buy one single location. It’s a portfolio of 50 to a hundred locations. And so you can be diversified both across different geographies, across different industries and just a lot of verticals here. So you’ll be able to invest in things like healthcare, auto, and fitness. And especially in the long term, I want these portfolios to be more on the local level. So I’m based in Chicago, and I got to say there’s something special about walking around town and being like, “Oh yeah, I own part of that place. I own part of that place. I get oil changed at that place I own.” And so it’s investing in your community as I see something, a huge advantage. So to bring it back to your question, it’s one entire vehicle that’ll be carrying a bunch of different franchises.
Stefan Von Imhof:
To be clear though, do investors, they have to spread the risk across different investment vehicles or they can choose to, or how much control does the investor have over what they’re investing in? Are they investing in themes? Are they investing in the entire bucket as a whole? How does that work?
Kenny Rose:
So in the short term, it’s more of a you get like a mutual fund of franchises. And so you invest in the portfolio as a whole. Down the road, especially as we scale up more, we’re going to do thematic ones. We’ll do even specific lines and especially because people create new businesses and they want to franchise it. This is something that we’d be able to help them bring to market very quickly if it’s a very good concept with a great founding team, and they just need the operations and capital to go. I mean, we’d be able to create a hundred location brand overnight.
Stefan Von Imhof:
Got it. Okay. Interesting. So let’s talk about the fees required. So how does this work? How are you actually able to do this without charging fees at all?
Kenny Rose:
Yeah. So when I was putting together FranShares, I did my research and I looked at every single other fractional investing platform, and specifically what people didn’t like about them. Number one by far was the fees. And so I looked into it and a lot of companies don’t always own the assets that they’re listing on there. They’re more just brokers for people. So I looked at it and I said, “Well, how can I get rid of the fees? How can I do something?” I want to be an asset of the people really. And so we make money in three different ways. The first is actually a reflection of my background in the brokerage industry, because we actually get a brokerage fee from the franchise themselves, not our investors for the portfolio. So if you think of it like if you were a realtor and you bought a bunch of investment properties and it came from the investment as a commission, that’s what we do. The second way is that we actually supply the working capital for the franchise.
Kenny Rose:
So about 80% of the cost is startup funds. Then that lasts 20% of the investment is working capital. So we buy into the fund with the working capital to partner with our investors. So as the franchises make money, we take 20% of the returns because we own 20% of it.
Stefan Von Imhof:
Got it.
Kenny Rose:
And then finally, private equity loves franchises. If you have 10 or more locations, they will come scoop them up for you as soon as you make their phone ring. And so we’ll have different types of funds. Like ideally every five to seven years we’ll be selling off the funds, gets a good cash windfall to all the investors as well as ourselves. But we’ll also have ones that are more income focused that we don’t plan on selling the funds down the road. So just like you have different goals and investment strategies in the stock market, you’ll be able to do with FranShare as well in the franchise market.
Stefan Von Imhof:
That’s really, really cool. And you see a lot of parallels with that right now with fractional real estate investing. There’s all sorts of different approaches you can take, but there’s some approaches that allow you to buy into funds that are very aggressive with development, but don’t have a lot of reserves for maintenance and emergencies and stuff like that. And then there’s others that play it very safe and are looking for long term income and dividends and not a lot of flipping opportunities. And so that’s really cool that you’re able to kind of invest in the theme and the style that you’re you’re comfortable with. And yeah, seeing that applied to franchises makes total sense. That’s really, really cool.
Kenny Rose:
Thank you. I’m excited for everything. And I just thought the golden rule if you charge fees, you lose. And look at Robin Hood, the industry’s already going that way. And I know that people are going to come. They’ll coming after me. I won’t be the only one for franchise investing in the forever, but it’s going to be very hard without someone with my background as well as you can’t beat us by undercutting fees, and DiversyFund is a good example of that. They’re in the real estate investing space and they do the same type of approach. And I found them when I was looking up how to craft my strategy together and I saw that I wasn’t the first to do it. I’m like, great. Validation.
Stefan Von Imhof:
Awesome. Yeah, absolutely. Now you mentioned on the site, you talk about 401(k) eligibility. That’s really interesting. Can you tell us a little bit about how that works?
Kenny Rose:
Yeah. So, there’s one way that will work and one way that we’re working on. The first is that you’re able to use a solo 401(k). So something outside of your employer and something that you can get from a Alto IRA or a-
Stefan Von Imhof:
Like a checkbook IRA, basically like self-directed IRA.
Kenny Rose:
Just self-directed IRA. Yeah. You already are able to invest in different fractional opportunities through that. So we’re taking that approach as well. The other is I’m trying to do something that’s legally never been done before. So, in franchising actually like when you do normal franchise ownership, one of the most common ways to fund them is actually through retirement assets. You’re able to do a tax free and penalty free rollover to fund your franchise. It’s again, done every day, plenty of times. And so what we are trying to see if we can combine that with the Regulation A+, which is the fractional ownership strategy. It’s never been done before, because it’s never been done for franchising. So we’re trying to work on it and we’re hoping that SEC be kind to us.
Stefan Von Imhof:
Another one of the themes that you’re writing the coattails of I’m realizing now is just this idea of buying your next job, right? Or buying your final job. So to speak, if you’re getting towards retirement. That’s something that we see a lot at flippa.com, is people basically just buying their next income stream. It sounds like this is really similar and along those same lines, super exciting. Can people use an SBA loan to purchase shares of a franchise?
Kenny Rose:
They Can, but not with the franchise route. Because SBA loan is meant for… If it’s going to be all of your business, we could do an SBA loan as a portfolio. But as far as like if you’re going to go out and buy your own franchise, yeah, usually it’s you pair a 401(k) rollover with an SBA loan. That’s probably 90% of franchise financing right there.
Stefan Von Imhof:
Got it. Okay. Yeah. I thought that might be too good to be true. I was wondering if that was the case.
Kenny Rose:
I would agree.
Stefan Von Imhof:
That would be pretty cool though. It’s been an interesting year for all businesses, but especially for franchises. How has the pandemic affected the traditional franchisee corporate relationship and how has it affected franchise?
Kenny Rose:
There are over a hundred different industries and over 4,000 brands of franchises. So I can’t really do a sweeping statement on how it’s affected everyone because for some things like if you have a home services franchise, amazing relationship, everyone’s stuck at home. And so their business has been as good as it’s ever been. A lot of the traditional food ones are doing great too, because delivery is hotter than ever. And people don’t always want to cook at home, they want other experiences coming in. But it really comes down to what the franchise order was like before, were they supportive before all of this? There’s some that are like for example, Subways, one of those ones that has a huge, huge brand name. But when you look at corporate, there’s a lot of demons and skeletons in that closet.
Kenny Rose:
Most people think because it’s the big name you’re always going to do great. It’s a very cheap franchise. But those things like this is what I coach people on for years is that they don’t have territory restrictions. So if you’ve ever seen one where they open up like seemingly across the street from each other, well that’s because they do that because they’ll let anyone open anywhere. Because if one fails, they still got twice as much exposure. And one of them is going to be a very profitable one. And so people who had bad relationships before like that, got even worse during the pandemic. Good franchisors who were good before the pandemic, they were shifting before. Like good example is a great up and coming food one, I worked with Teriyaki Madness. They’d already invested in technology, their franchisor, the founder, Michael Haith.
Kenny Rose:
He had started Doc Popcorn, which got acquired by Dippin’ Dots. He started Maui Wowie Sandwiches, got acquired by Private Equity, very experienced, great franchisor. So when he started this, he already had great support for his franchisees. He was investing in the right technology. And so they actually, I think they went up so something like 15% year over year for their same source sales. And so like that’s the great example, like some are great relationships like that. Others not so much because when the franchisor wasn’t good before, that was a test that shows their true colors. And then as far as for FranShares itself, honestly my biggest kicking the ass moment was actually in the middle of the pandemic when I read an article or maybe saw in the news that people were betting on the stock market because there weren’t sports.
Kenny Rose:
That was like the, “Oh my God, how did I not get this going already? I’d probably be a billionaire by now.”
Stefan Von Imhof:
Wishful thinking.
Kenny Rose:
Wishful thinking, but like a good alternative when the market’s crazy like that. And like you got Reddit versus Wall Street. It would’ve been a perfect time for franchises who have already been there. And so I think it’s actually shown just even more reason why an asset class like this is needed because people need to diversify off Wall Street. They need to diversify from real estate. And just like it’s always been is that you need to diversify. Any financial advisor will tell you should have about 20% of your portfolio into alternative assets. It’s to diversify to decrease your risk, but also increase your upside. And so in the past only accredited investors could invest in most of these things.
Kenny Rose:
But then with the jobs act a few years ago and the rise of fractional investing, this allowed retail level investors to gain access to all of these. Now that this is an accessible part of your portfolio, I think you’re going to see more and more people reach that 20% and because they need to diversify, I don’t see anyone in the fractional space as a competitor. We’re all good friends because people should have a little bit of everything. It’s definitely the way it should be. So, I think it’s nothing but great improved the market for FranShares.
Stefan Von Imhof:
That’s such a good point. I look at our landscape with Alternative Assets Club and I kind of take the same approach. I see us all in this together, right? Like we may be competing here, We may be competing there, but really we all have a vested interest in growing alts. Right?
Kenny Rose:
Mm-hmm (affirmative).
Stefan Von Imhof:
And growing especially the fractional opportunities for everyone. So yeah, we are all friends. It’s just one big happy family here. I love it. So one thing I wanted to ask about is you talked a lot about the different types of franchise businesses and how some are thriving during the pandemic, services, businesses, some of the boring unsexy stuff like HVAC, I’m assuming, and home services and stuff like that, not to mention food delivery.
Kenny Rose:
Mm-hmm (affirmative).
Stefan Von Imhof:
But your investors are investing in the entire pool at this stage. Right? So, how has that affected which franchises you look to partner with, right? Like have you focusing on specific themes? Where are you focused right now in terms of which opportunities you want to bring to the investors? Do you have favorites? Do you have favorite kind of themes? Tell us a little bit about your sourcing.
Kenny Rose:
I mean, I definitely have favorites, but I can’t give them all out because I’ll give them out when it’s available for everyone, but as far as like how my sourcing tends to be go, like I’ve worked with over 500 different franchises over the years, so know a little bit about everything. And so I try and look for things that are not necessarily fad driven, things that are typically needed sources. Whether it’s from anything around the home to people got to eat. It’s a little bit of everything that’s required out there. So I want to look at things that have high margins because their service businesses have a real need in person’s day to day lives and have a really good management team. So like the franchise is a very proven background. And a great thing about franchising that most people don’t know is that we’re actually regulated by the Federal Trade Commission.
Kenny Rose:
So, part of that regulation is that every franchise has to file a franchise disclosure document or FDD. And FDD, it can be hundreds of pages long, but it describes everything about the franchise, from who the leadership team is, how they got started, operations and training, also included is the full investment cost. So not just like, “Here’s a ballpark figure.” It’s, “Here’s a line by line cost and a range.” Because it costs different amounts to open something in New York City versus North Dakota. And even a lot of them are allowed to have earnings claims. And so I want to look at ones that have a good earnings coming. That’s the one optional part, but I try and make it necessary in what I do because you got to have a good idea of what you’re walking into. And so I try and so find people who check all these boxes and at the end of the day, it’s also a bit of a sniff test like, “Does this make sense?” Because-
Stefan Von Imhof:
Yeah.
Kenny Rose:
… everyone’s got a new business idea. It’s like, “Which one just makes sense?” And so that’s why I love when I talk to clients about things, they’re like, “Huh, that makes sense.” And it’s how I wanted FranShares to be, it’s just like it’s just got to be fundamental. It’s got to make sense.
Stefan Von Imhof:
Well, that makes sense. I like it a lot. Exactly. So it’s great that you don’t have fees with FranShares. Investors don’t have fees. That’s awesome. And that’s definitely where the market’s going. Robin Hood has paved the way and basically everyone’s copied since then and it’s great for everyone, but you do have a $500 minimum investible purchase amount. Can you tell us a little bit about that minimum and why that exists?
Kenny Rose:
So I wanted to make it first off, more accessible to just about everyone. I mean, we already have family offices and institutional money really interested in investing along with our retail investors, but what was funny is I was talking to angel investors getting the start. They said, “Well, why go for retail? Why not just go with the higher money?” And I said, if you decide to pass on the general market, someone will go after them and then they’ll be known as the Fundrise for that industry. So I wanted to make it accessible to everyone. For that one it’s really sure you invest with the big dollars not just as a comparison to, and then also when things are done on a local level especially, I want people to be able to invest in their community. I want things that the guy who might be working in the Supercuts is also invested in the Supercuts that he works in.
Kenny Rose:
And so it’s something that is owned by the community and produces money in the community. And it’s just really like keeping dollars back home. And then as far as like, “Why 500? Couldn’t I go lower?” It’s because these are long term investments. I don’t want anyone thinking like, “Oh, I’ll throw them 50 bucks and if I need to come get it next week, I’ll give them a call.” We will be offering liquidity through trading, but we do want to make sure that we’re able to make sure it’s a significant enough amount that people know, “Hey, this is a long term investment. We’re packing it away for a rainy day.”
Stefan Von Imhof:
Got it. Okay, cool. Yeah. I love the community aspect. That’s a really cool piece here. And once you have the ability to invest in specific themes in the future, you can really extend that and in a really, really cool way. So I think that’s really awesome. What you said about the long term nature of this type of investment, you do have plans in the future to open up trading windows or secondary markets or even something like what LexShares does, which is basically always on trading. Right?
Kenny Rose:
Mm-hmm (affirmative).
Stefan Von Imhof:
Is that fair to say? Is that something you’re driving towards?
Kenny Rose:
Yeah. So I told you the number one complaint I heard from investors was high fees, the number two was illiquidity. So I wanted to look into, “How do I solve this?” And so talking with a lot of different people, you got to really navigate your way through the industry to see who’s up and coming, who’s producing what. I came across company called a Pipex, and Pipex is an alternative asset trading platform. And coming up very soon, they’re going to be doing Regulation A+ trading. So shares just like any of these other types of fractional companies will be able to be traded on it.
Kenny Rose:
And so that way it allows investors to get liquidity, not by us, but by trading to other investors. Because that’s typically the problem, is that people can’t do liquidity because if I wanted to sell that’s well, then we have to go raise more money to be able to pay people out. Versus if it’s a trading out on that platform, instead, it gives people the option to go get liquidity because people are looking for that. I want to give them what they want and companies like Fundrise. They’re going to have to try and walk back five to 10 years of people saying, “Oh, I love it, but no liquidity.”
Stefan Von Imhof:
Right.
Kenny Rose:
Versus when we come right out saying that we have no fees and you can trade it. I think it’s going to, again, really set us far apart from a lot of these other fractional investments.
Stefan Von Imhof:
If you have perfect liquidity in a perfect market, you’re essentially the equivalent of like a rate, right? I mean, you’re essentially like a… What is it? I guess it would be a franchise investment trust. Right?
Kenny Rose:
We-
Stefan Von Imhof:
Yeah.
Kenny Rose:
We’ve tried that for the SEO for Fit, is not that good. So we’re weird.
Stefan Von Imhof:
I’m not saying this is a wise idea, but see that’s the thinking, right?
Kenny Rose:
Yeah.
Stefan Von Imhof:
That sounds really cool. I mean, you’re basically, you’re a management team that’s managing a pool of franchise assets that people can buy and sell and trade as if it were an ETF or a publicly traded stock.
Kenny Rose:
Yeah.
Stefan Von Imhof:
That’s a compelling vision.
Kenny Rose:
The original idea was a franchise REIT and then it just really built on from there. And I just, I typically refrain from using the term REIT because you’re obviously a very savvy investor. A lot of people don’t know what a REIT is if they’re not that into finance. And so I’ve just learned to get it out of my vocabulary for now.
Stefan Von Imhof:
Yeah. It’s definitely one of those terms that people probably understand the concept more than the acronym.
Kenny Rose:
Oh yeah.
Stefan Von Imhof:
Well, this is great. Couple final questions for you. What are your plans for 2021? I mean, you had a huge year last year and this year’s off to a great start. What are you thinking for the remainder of this year?
Kenny Rose:
Well, we’re launching our initial fund. We’ve got over a thousand people on our wait list right now. So we’re really excited to bring this new asset class to the market. I know everyone’s really excited for it. Believe me, me more than anyone. Shortly after we work on fund two, fund three, just keep going from there. So it’s the start of a new dynasty in my opinion. I’m just super excited to get running with it. It’s been a long time in the making. It’s a lot of prep work coming to fruition. It’s like people say, “Overnight success started 10 years ago.”
Stefan Von Imhof:
I hear you, man. I think it’s coming together beautifully. The big question for everyone’s mind is, how open are you right now? How can people invest? You say you’re excited more than anyone else, but I’ll tell you, I’m up there, man. I’m on the wait list and I’m excited, but how can people invest with FranShares, go to the site, join the wait list.
Kenny Rose:
Yeah. That’s the only way right now. We’re still going through registration with the SEC. So when we’re able to, you’ll be the first to know if you’re on that wait list and we do have to limit the funds because when you do a fund like this, you can’t just like endlessly take money. You have to have a plan for it. And so, we have our plan out there. And so we want to make sure that we fill that. So the wait list is going to be important down the road. Especially as it scales up a lot more, there will be people that have to wait down the road for another fund to come out. So that’s why we’re encouraging people to hop on now. A lot of people say like, “Oh yeah, don’t worry. We’ll invest.” I’m like, “No, you do have to get on the wait list. I promise you.”
Stefan Von Imhof:
The eligibility is this. You don’t have to be an accredited investor. Do you have to be a US citizen or are there international opportunities?
Kenny Rose:
Yes. You can invest internationally as well. Another thing that we’re trying to work on this… Again, we’re trying to create a lot of new things that have not been done before, but there’s actually a lot of visas that you can get from being a international franchise investor. So we’re trying to see if there’s a way that we can combine the FranShares model with those visas to create citizenship opportunities. So-
Stefan Von Imhof:
Wow.
Kenny Rose:
… we’ll let you know on that one. Yeah. Because that would be just another game changer. So, we’re trying to see what boundaries we can push because the idea with those visas is that if you are investing to create jobs in the US, you should be able to stay here. And so I want-
Stefan Von Imhof:
Right.
Kenny Rose:
… to be able to help facilitate that.
Stefan Von Imhof:
Well, especially because franchises are so intertwined with the immigrant experience. I mean, so many immigrants come to the United States and start businesses and many of those are franchises. So that’s a running theme that goes back decades, I would imagine. So it seems like the perfect future next step, doing something like that would be tremendous.
Kenny Rose:
It’s interesting because back then, especially franchises were a lot more affordable. It’s a lot of rents, costs of things have gone up, things that were more affordable back in the day. And so now what we’re trying to do is we’re actually trying to make this way for people to start creating generational wealth. If you think about someone who traditionally works in like a hair care business or fast food place, it’s just a clock in clock out job and they don’t really see a long term opportunity there. So we want to apply the Chick-fil-A model to it. When I say that, do you know how much a Chick-fil-A franchise cost?
Stefan Von Imhof:
I used to. I-
Kenny Rose:
Take a stab.
Stefan Von Imhof:
I want to say a million dollars.
Kenny Rose:
That’s a very good guess. If you were to do everything outright, it would be about a million dollars, maybe 1.3, but it actually only costs $10,000 to be a Chick-fil-A franchisee.
Stefan Von Imhof:
That’s right. Chick-fil-A is the one that they… It’s usually a million dollars for a lot of a fast food but Chick-fil-A said, “No, no, no, we’re going to bring that way down.” Is that right?
Kenny Rose:
Yeah. Yeah. If you read that article in The Hustle, I was actually their source on that. And we got on the phone, he’s like, “This is too funny. I have your answer on Cora up for this. You’re like the guy I want on.” I’m like, “I love when that happens.”
Stefan Von Imhof:
Yeah.
Kenny Rose:
But the reason behind it is that Chick-fil-A realized that people who worked their way up and have gone through everything. They are really the best people to operate. Not someone who came from a fortune 500 background, who’s got cash and just says, “Okay, I’ll do. This is the next step.” So what they said was-
Stefan Von Imhof:
Right.
Kenny Rose:
… “Let’s get these best we can.” And-
Stefan Von Imhof:
They’ve got the drive, they’ve got the hunger, they’re the ones you want running the show. Yeah.
Kenny Rose:
Exactly. And they’re in the news all the time for such happy franchisees, customers love them. Like, it’s just a great company. So I thought of it as, “Well, if we’re pulling together funds and we need great people running it on every level, why not bring the Chick-fil-A model to every franchise? And so, especially with so much going on is that I want to think about how I could do my part and especially with like social equality and I thought, “Hey, a lot of times there’s minorities who have no trajectory from like starting at this job in a fast food place.” So if you can show them a row of like, “Hey, work your way up and you can run a location, run multiple locations, run a fund, you got for ranchers corporate after that.” And so it’s really creating just a great way for people to build their way up for future generations after them.
Stefan Von Imhof:
While diversifying and spreading the risk, right?
Kenny Rose:
Yeah. Yeah.
Stefan Von Imhof:
Which is a huge part of it. I love that the Chick-fil-A as a company, I think they’re really a fantastic company. They have high values. And what always amazed me about Chick-fil-A was with so much pressure to deliver bottom line results year after year, the idea that a company of their size would willingly just close one day a week, every Sunday they’re closed for the sake of principle-
Kenny Rose:
Oh yeah.
Stefan Von Imhof:
… and the sake of rest-
Kenny Rose:
I know.
Stefan Von Imhof:
… is really compelling and really awesome. There’s not a lot of companies that service fast food companies that do that.
Kenny Rose:
It is awesome. But after a long Saturday night, I can’t tell you how many times I’ve wanted that. Chick-fil-A to be open on Sunday.
Stefan Von Imhof:
Yeah. Yeah. Oh, as a consumer. I absolutely hate it. Don’t get me wrong. Yeah.
Kenny Rose:
Cool.
Stefan Von Imhof:
Well, this is awesome, Kenny. Man, I just want to say thank you for this podcast. You are onto something so special and the sky’s the limit with FranShares. I cannot tell you how excited I am to watch how your company unfolds and most of all, get to the top of that wait list. So I can invest myself, whatever you can do to help me out after this podcast. That’d be great. Wink wink. But Kenny, thank you. Thank you once again. This has been tremendous. We wish you the best of luck and we hope to check in with you on the future and see how things have unfolded.
Kenny Rose:
Thank you so much. It was great chatting with you. I’m looking forward to the next time.
Stefan Von Imhof:
All right. Take care, bud.
Introduction:
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