FranShares: Democratizing Franchise Investment for Passive Income

For many, passive income has long been synonymous with real estate investments such as rental properties.

However, FranShares, a Chicago-based startup, is introducing a novel approach by allowing individuals to invest in franchises with as little as $500.

Understanding the Franchise Model

In the franchise business model, a franchisor owns and licenses the business concept, such as McDonald’s. A franchisee, often a local entrepreneur, purchases this license to operate one or more franchise locations.

While many aspire to become franchisees, the significant upfront costs, which can start at $100,000 and escalate to millions, present a substantial barrier.

FranShares’ platform aims to bridge this gap by connecting investors with franchise operators. This model allows investors to own a fraction of a franchise without the operational challenges and costs of full ownership.

For franchise operators, this approach provides a source of investment and funds for expansion without relying on bank loans or private equity, according to CEO and founder Kenny Rose. Investors, in turn, gain fractional ownership and the opportunity to receive profits as distributions.

Building a Diverse Investor Community

FranShares has cultivated a community of approximately 43,000 investors, with nearly half being millennials or Gen Z. This diverse group includes retail investors, accredited investors, family offices, and private equity firms seeking to diversify their portfolios.

Investors have already placed funds in franchises across various industries, such as food, children’s fitness, and waste management. Notable brands include Teriyaki Madness, Smash My Trash, and Hawaiian Bros.

To ensure investor protection, FranShares mandates franchisors to disclose financial information, executive backgrounds, and any litigation, all regulated by the Federal Trade Commission (FTC). Additionally, FranShares’ offerings are subject to Securities and Exchange Commission (SEC) regulations.

Funding and Future Prospects

FranShares has raised $4.2 million in seed funding, led by Chicago Ventures, with participation from The Pitch Fund, Litquidity Ventures (Lit Ventures), and Furnished Finder founders Aaron Hashim and Brian Payne. This follows a $1.57 million pre-seed round in 2021.

The potential for franchise investment is vast, with franchises generating approximately $859 billion in revenue in the U.S. alone in 2023. Rose envisions a future where everyday interactions with franchises could lead to investment opportunities, such as scanning a QR code at a Jimmy John’s to invest in its expansion.

Opening Doors to Ownership

Kenny Rose founded FranShares in 2020, drawing on his experience working with over 600 franchise brands across more than 100 industries. Prior to FranShares, he spent three years as a franchise consultant before founding Semfia, a franchise brokerage.

Rose is particularly passionate about removing ownership barriers for minority businesspeople who have spent their careers in franchises without the chance to become owners.

Initially, FranShares allowed investments only in franchise locations and franchisees.

However, in late June, the marketplace introduced the first opportunity to invest in a franchisor: Kidokinetics, a sports enrichment and physical education program for children. This offering allows investment in Kidokinetics’ latest capital raise, aimed at $600,000, to support its expansion across North America.

While the most recent investment opportunities are limited to accredited investors, FranShares has previously offered and plans to continue offering investments to non-accredited investors.

Monetization and Future Plans

FranShares generates revenue by charging franchisees and franchisors a monthly subscription fee for investor relations management. Investors are charged a flat annual platform fee and a small one-time acquisition fee for each investment participation.

Although franchising is often associated with fast food, Rose highlights that it spans hundreds of industries, including haircare and automotive services.

FranShares aims to make these diverse opportunities accessible to all investors. Future plans also include adding real estate investments to enable vertical integration for investors.

FranShares is revolutionizing passive income by democratizing access to franchise investments, providing a new avenue for individuals to diversify their portfolios and participate in the lucrative franchise industry.