You may have tried investing in stocks, cryptocurrency or even sneakers to generate some money on the side, but why not make money by investing in your neighborhood McDonald’s?
Chicago startup FranShares launched last year to give anyone the chance to make money by investing in franchises. On Wednesday, FranShares announced that it raised $1.42 million in a pre-seed funding round led by Chicago Ventures.
“FranShares allows you to invest in a portfolio [of franchises] that goes across different industries and different geographic locations. And at the same time, it allows you to invest in something that you can see working in the real world,” FranShares CEO and founder Kenny Rose told Built In.
If you live in America, you’re probably surrounded by franchises. Your favorite Burger King, 7-Eleven and Ace Hardware are probably all franchises. But what, exactly, is a franchise? Ronald McDonald doesn’t own and operate every McDonald’s location himself, instead more than 90 percent of McDonald’s locations are run by franchisees.
Franchisees are entrepreneurs who put down a sum of money to buy the rights to use an existing brand’s trademarks, products and proprietary knowledge to run a specific franchise location as their own business. Typically, people decide to own a franchise because it allows them to manage their own business, make consistent revenue and leverage an existing brand with a national reputation. If Phil from Schaumburg wants to operate his own gym, he can put down a sum of money to own a Planet Fitness location instead of starting from scratch.
You can tell franchising is popular by the sheer number of franchise locations out there. There are more than 750,000 franchise locations in the U.S. and over 4,000 different franchise brands. Despite this, franchising is usually reserved for the wealthy because it often involves a single person putting tens or hundreds of thousands of dollars in upfront costs. What makes FranShares so special is that it allows anyone to invest in a franchise with as little as $500.
“I’m a former financial advisor, and a big thing we teach people is to diversify — not just through different types of stocks, but different asset classes too,” Rose said. “In the past, you had to be an accredited investor with a million dollar net worth or a combined family income of $300,000 a year to invest in franchising. But new legislation now allows people to get involved with whatever they can afford — making this alternative investment now accessible everyone else.”
People who invest with FranShares essentially invest in a portfolio of franchises picked out by the company, whether that’s a portfolio of fitness franchises, kid-related franchises, haircare and salon franchises or franchises across multiple industries. FranShares does the due diligence of picking out franchises with viable business models, and then creates a communal fund where FranShares users can pool their money. After a set holding period, FranShares then pays out monthly or quarterly dividends to investors, so they can start generating a passive stream of income. Want to get access to your money after you invest? Rose also talked about eventually integrating a trading platform within FranShares, so investors can get access to liquidity.
On top of that, investing with FranShares is free. The company makes money from the franchise organizations and by participating in its own portfolios.
“What’s great about franchising is you’re not in business by yourself, you’re in business for yourself,” Rose told Built In.
And while all investing comes with inherent risks, franchises are regulated by the Federal Trade Commission, and FranShares itself is working with the SEC in order to follow proper legal protocol. Rose said that a significant portion of the company’s new funding will go toward paying the best lawyers to make sure the company is in compliance with all the current regulations. Once the company does that, it plans to launch its first official fund and get people investing on the platform.
Rose also says that he’s growing the FranShares team by hiring for a few key roles. This includes a director of growth marketing, national general manager and a financial operations director. These new hires will help get FranShares ready for its official launch.
Investors interested in using FranShares can join the waitlist to be notified at launch. Right now, Rose says that over 1,500 people have signed up.
“The power of a crowd can move markets, and I love watching out for it,” Rose told Built In. “When we have our geographic-based funds set up, you’ll be able to invest in where you go get your hair cut, where you go get your oil changed or where you go workout — these can be things that you actually co-own. So why wouldn’t you want to invest in the things that you use, and also support the things you invest in?”
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