What is FranShares and how does it work?
FranShares is a platform designed to simplify the process of investing in franchises.
The approach to franchise investing with the platform involves several key steps:
1. Identification of Deals: FranShares reviews hundreds of franchise opportunities, selecting less than 1% that align with its stringent investment criteria. These criteria focus on identifying franchises within recession-resistant industries and with a proven track record of success.
2. Securing Optimal Valuations: By engaging in strategic bulk purchasing of franchises, FranShares leverages its buying power to lock in the best possible deals. This method enables the platform to save significantly on franchise fees, ensuring better value for its investors.
3. Conducting Thorough Due Diligence: Each potential franchise investment undergoes a rigorous due diligence process. This involves a detailed analysis of various factors such as industry growth, competitive landscape, macroeconomic trends, franchise leadership, potential risks, and estimated returns on investment.
The company evaluates franchise opportunities based on several key metrics, including potential return on investment, growth prospects, availability, leadership quality, sustainability, competitive advantage, manageability, and resilience. They prioritize franchises that demonstrate net profits in their financial disclosures, aiming to maximize returns for investors by focusing on opportunities with lower buildout costs, employee headcounts, and inventory requirements.
Furthermore, FranShares employs a strategic approach to franchise management, drawing from best practices in private equity. Depending on the specific fund, management is either outsourced to experienced companies like Restaurant Sherpas or handled internally by hiring an in-house team. This ensures the franchises under FranShares' umbrella are managed efficiently to optimize returns on investment.
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How risky is FranShares?
4/5— High Risk
Investing through FranShares comes with its own set of inherent risks, similar to any investment platform. These risks include, but are not limited to, market volatility, economic fluctuations, and specific challenges related to the franchises in which investments are made. While FranShares aims to mitigate these risks through careful selection and management of franchise investments, and by offering a diversified portfolio, it's important for investors to acknowledge that there are no guarantees in investment returns.
The platform's development of a secondary trading market aims to provide some degree of liquidity, yet this does not eliminate the risk associated with long-term investment horizons and the potential inability to sell shares quickly or at desired prices.
Furthermore, as with any investment platform, there's the risk tied to the financial health of FranShares itself. While efforts are made to separate investor funds and assets from the company's operational liabilities, the effectiveness of these protective measures has not been judicially tested. In the event of financial difficulties or bankruptcy, there's uncertainty regarding the protection of investor assets and the potential impact on investments.
How liquid is FranShares?
1/5— Minimum Liquidity
Franchise ownership through FranShares is primarily viewed as a long-term investment strategy, and while liquidity is not guaranteed, FranShares is developing a secondary trading platform to potentially provide some liquidity to investors.
Generally, investors should be prepared for a minimum holding period of five years to fully benefit from their investment in this asset class.
How volatile is FranShares?
3/5— Moderate Volatility
The assets available on FranShares, primarily franchises, can experience volatility similar to other investment types. This volatility is influenced by a range of factors including economic conditions, industry trends, and operational performance of the specific franchises.
While franchises in certain industries may offer some resilience against market downturns, they are not immune to the broader economic environment and could see fluctuations in value.
Investors should be aware that the value of their investments can decrease in adverse market conditions, making it important to consider the long-term nature of franchise investments and the potential for value shifts over time.
What is the average rate of return for FranShares?
20 %— Moderate Return
FranShares' main fund, TNT Franchise Fund Inc., comprises a diversified portfolio with 55 locations across 2 brands in 10 major U.S. metros.
Historically, the platform has reported generating returns of 20 to 28% EBITDA per location after 16-18 months of operation.
These returns reflect the earnings before interest, taxes, depreciation, and amortization, indicating the operational profitability from these franchise investments.
What is the minimum investment amount for FranShares?
The minimum investment amount required to participate in FranShares' offerings is $500.
Investors can fund their investments through ACH transactions or wire transfers from a bank account, which can be linked either by directly inputting the routing and account numbers or by using online banking credentials.
Each offering by FranShares has a set hard cap, limiting the amount that can be invested until it is reached, after which no further investments can be made directly into that offering.
What is the investment time horizon for FranShares?
For income-focused portfolios, the target holding period is between 10 to 15 years.
For growth-oriented funds, the objective is to maintain investments for at least five years, with an aim to sell within a 5 to 7-year period, pending approval from the franchisor.
Who can invest in FranShares?
The platform primarily targets offerings accessible to non-accredited investors but also presents opportunities exclusively for accredited investors at certain times.
Accreditation for individuals can be verified through net worth, income, or by holding specific securities licenses. Businesses and trusts must either demonstrate sufficient assets or have each owner or grantor verified as accredited investors.
FranShares accepts investments from most countries outside the U.S., with specific eligibility depending on each offering.
Is FranShares regulated or audited?
FranShares utilizes a range of SEC offering types, including Regulation A+, D, and CF, to tailor investment opportunities according to the specific requirements of each project. The company structures its offerings through a primary investment vehicle along with one or more subsidiaries for each franchise brand, which may include further subdivisions for individual locations or groups of locations.
FranShares oversees the management and operations of its offerings, opting to either partner with professional management teams known for their strong performance history or collaborate with experienced operators who have demonstrated success within their specific industry and brand. This operational model mirrors that of a standard private equity fund, where the fund owns and manages multiple franchises, thus providing a strategic and comprehensive investment approach.
Is FranShares insured?
FranShares likely holds insurance policies to cover physical damages or losses related to the franchises it invests in, similar to how investment platforms insure real estate properties.
However, this insurance does not extend to cover market volatility, economic downturns, or issues like fraud that could impact the financial performance of the franchises.
Additionally, the coverage limits of these insurance policies may not match the franchises' full market values.
Does FranShares distribute payouts?
FranShares plans to distribute excess cash flow to investors typically 12 to 18 months after closing each offering, with an expectation of quarterly distributions thereafter.
The frequency of distributions—whether quarterly, semi-annual, or annual—will depend on the specifics of each offering. These are automatically deposited into investors' brokerage accounts, and the amount is based on the investor's allocation and the profits generated during the relevant period.
What are the annual fees for FranShares?
FranShares typically charges an annual management fee ranging from 1% to 3%, and may include a performance-based fee for certain offerings. These fees are detailed on the specific offering page. Additionally, some offerings may involve a listing fee or royalty paid by the originator, assessed on a case-by-case basis.
For the initial offering, "TNT Franchise Inc.," FranShares is not imposing any management fees.
Furthermore, FranShares earns a brokerage commission from the franchisor, which does not impact the returns of investors.
How do I handle my investments in FranShares?
Investors in FranShares essentially invest in franchise businesses and do not directly manage the assets. FranShares and its partners handle the selection, acquisition, and operational oversight of the franchises.
Investors can monitor their investments and potentially sell their shares through FranShares' planned secondary market.
How does FranShares get taxed?
Investors in FranShares offerings will need to address capital gains taxes on any profits made from selling shares.
Additionally, dividends or distributions received from investments will be classified as either ordinary or qualified dividends, depending on the investor's holding period and individual tax circumstances.
How many investors are on FranShares?
As of the latest information available, FranShares has a waitlist of 41,974 individuals interested in its franchise investment opportunities.
Who is the CEO of FranShares?
Kenny Rose is the Founder and CEO of FranShares. His extensive background includes working with over 600 franchise brands across more than 100 industries, where he has developed a keen expertise in franchise evaluation. This expertise enables him to strategically invest in franchises to optimize returns on investment and operations.
He embarked on his professional career at Merrill Lynch as a financial advisor, where he obtained his FINRA Series 7 and Series 66 licenses. During his tenure at Merrill Lynch, he specialized in assisting high-net-worth individuals in expanding and safeguarding their wealth.