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FranShares Review -- Invest in income-generating franchises for $500

FranShares offers low-cost fractional investments in US-based business franchises, providing passive income and appreciation potential open to any investor, with a minimum investment of just $500.

FranShares

  • Founded: 2020
  • Investment Types: Main Street Business and Business Franchises
  • Minimum Investment: $500
  • Open to all investors
 Pros
  • Low minimum investment ($500)
  • Open to all investors
  • Regular cash flow
  • No fees for investors
 Cons
  • Short track record (first fund launching February 2022)
  • Ongoing pandemic-related risk for key franchise sectors like restaurants
  • Long hold times (5+ years) with minimal liquidity

Overview

This FranShares Review will help you learn more about FranShares's investment offerings, including how the alternative investments on FranShares are structured, and what your potential returns might be. You can read more about the criteria we use to review investment platforms here.

FranShares was founded in 2020 by Kenny Rose, a former Merrill Lynch financial advisor who then worked for FranNet, a franchise broker (a franchise broker helps match franchise buyers with franchise opportunities). In 2017, Rose founded his own franchise brokerage, Semfia, where he remains CEO.

Rose says he was inspired to start FranShares as a way to offer access to franchises as an investment class with much lower commitments of money (and time) compared with traditional franchise investment, which have startup costs well in excess of $100K, as well as the ongoing work (and expense) of managing the business, staff, etc.

FranShares is a new entrant to the investment crowdfunding ecosystem, and plans to open for investment in February 2022 (though you can join their waitlist right now). FranShares offers their investments through SEC Reg A+, open to all investors.

Types of investments FranShares offers

FranShares offers fractional investments in a fund that will own and operate US franchise business locations. The FTC-regulated franchise industry is worth more than $750B in the US, with more than 4,000 brands currently operating nearly 800,000 franchise locations.

According to the offering circular filed with the SEC, the initial fund plans to purchase and operate (or outsource management of) franchise locations for two specific brands: 35 locations of waste-removal company Smash My Trash and 32 locations of asian fast-casual restaurant Teriyaki Madness. Other sectors FransShares intends to invest in with this or future funds are home improvement, automotive service, and quick-service restaurants.

Similar to real estate investments, investors can expect ongoing cash flow (after the first 12 months), as well as potential appreciation when the franchise location is sold.

What do you get when investing with FranShares?

Investors in FranShares receive Class B non-voting common stock in a Delaware corporation, at an initial offering price of $1 per share. The minimum investment is $500 (for 500 shares) and FranShares intends to raise a total of $20M in their initial fund offering.

The parent fund will in turn form a subsidiary holding company for each franchise brand 100% owned by the parent fund (and each subsidiary will in turn have its own wholly-owned subsidiary companies for each franchise location).

How does FranShares make money?

FranShares does not charge any fees directly to investors, and at least for their first fund, will not charge any asset management or other fees.

FranShares will have “skin in the game” by purchasing 5,000 shares of Class A voting stock (for $5M) once the full $20M is raised in their public offering, giving them 20% of the total shares (and a corresponding pro-rata share of the income and appreciation of the franchise locations).

FranShares will also earn brokerage commissions when a franchise location is sold.

Potential returns and cashflow

There will not be any distributions to investors for the first year, but after that FranShares will pay out monthly dividends to investors representing their pro-rata share of the net income from the owned franchise locations.

Actual returns will vary by franchise brand and location, but can be 20% or more.

If and when a franchise location is re-sold, investors will receive a share of the proceeds from the sale, assuming the value of the location appreciates.

FranShares says they intend to offer a secondary market for selling shares, but investors should be prepared to hold their investment for at least 5 years.

Breadth of offerings on FranShares

FranShares plans to formally launch their offering in February 2022, and will initially have only one fund option. FranShares plans to add additional fund options (for example, one targeting growth or another targeting income).

Regulatory framework and due diligence expectations

Investments through FranShares are offered through SEC Regulation A+, “Tier 1”. Reg A+ offerings must be registered with the SEC, including detailed offering circulars, and offering firms are subject to a number of financial disclosure requirements.

In addition, franchises are regulated by the FTC (Federal Trade Commission) which requires standardized reporting for each franchise, showing full startup costs and expected financial performance.

This review was first published on 05 January 2022.


Our Rating

Excellent

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