Passive income historically revolved around real estate investments, particularly rental properties.
FranShares, a Chicago-based startup, aims to provide another avenue for passive income by enabling investors to invest in franchises for as little as $500.
For those unfamiliar, a franchisor owns and licenses a franchise business model, such as McDonald’s, while a franchisee purchases a license to operate one or more franchise locations. However, the high costs associated with franchises have been a significant barrier for many potential franchisees, with quality franchises typically requiring a minimum investment of $100,000 or more.
FranShares acts as a marketplace that connects franchise operators with investors seeking a share in a business without the burdens and expenses of traditional ownership. This model provides franchise operators with access to capital for expansion without relying on bank loans or private equity, while investors gain fractional ownership and potential profits from franchise locations.
With over 43,000 investors, including millennials and Gen Z individuals, FranShares has attracted a diverse range of investors looking to diversify their portfolios. The platform offers investments in various industries, such as food, kids’ fitness, and waste management, encompassing brands like Teriyaki Madness, Smash My Trash, and Hawaiian Bros.
To ensure investor protection, franchisors must disclose financials, backgrounds of executives, and any litigation, adhering to regulations set by the Federal Trade Commission (FTC) and SEC. FranShares has recently secured $4.2 million in seed funding to fuel its growth, with the support of notable investors and founders from Furnished Finder.
The franchise sector generated approximately $859 billion in revenue in the U.S. in 2023, highlighting the vast potential within the industry for both investors and operators.
FranShares envisions a future where individuals can invest in franchise expansion directly from the storefront, creating more accessible opportunities for ownership and investment.
Opening up access
Founded in 2020, FranShares was established by Kenny Rose, leveraging his extensive experience in the franchising industry. The platform originally focused on enabling investments in franchise locations and franchisees, but has since expanded to offer opportunities to invest in franchisors like Kidokinetics.
Investors can now participate in capital raises for franchisors, opening up new avenues for investment in businesses like Kidokinetics and BraveHart/Hawaiian Bros. FranShares aims to offer investment opportunities to both accredited and non-accredited investors in the future.
Operating on a subscription-based model, FranShares charges franchisees and franchisors for investor relations management, while investors pay annual platform fees and acquisition fees for investment opportunities.
Looking ahead, FranShares plans to diversify its offerings by adding real estate investments and expanding into various industries beyond fast food, making franchising accessible across different sectors. The platform aims to provide a comprehensive investment experience for investors seeking to diversify their portfolios.
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