Franchises make nearly $788 billion annual revenue in the U.S., and one Chicago startup wants to make those dollars a little more accessible for the average person.
FranShares, a Chicago startup that aims to make investing in franchises as easy as investing in stocks and mutual funds, announced $4.1 million in seed funding on Tuesday that will be used to further build out the platform.
The round was led by Chicago Ventures, a local venture capital firm that led the startup's $1.4 million funding round in August 2021. The oversubscribed seed round brings FranShares' total capital raised to $5.8 million.
"When we raised our pre-seed round, the goal was always to prove out our minimum-value product and show that there's real interest in investing in franchising as an asset class," Kenny Rose, who founded the company in 2020, told Chicago Inno. "The goal was to scale the company up, and we've got the platform to 40,000 signups."
Rose sees franchising as a "Goldilocks type of investment" as it offers passive income and equity growth, but is not a crazy "Wild West" investment either.
FranShares offers individual and institutional investors access to that passive income with low minimums and annual fees and has seen interest in the platform spike amid high inflation and economic uncertainty. The startup now has more than 43,000 people signed up for upcoming offerings.
FranShares has four brands on board so far: Smash My Trash, Teriyaki Madness, Kidokinetics and Hawaiian Bros. Rose hopes to double that number by the end of the year.
Rose said he's engaging with companies like McDonald's and Dunkin' and sees a lot of potential for big brands to grow and involve new franchisees that typically would not have the opportunity to do so.
"McDonald's, like a lot of brands, [has] a diversity initiative and [has] set aside about $250 million to fund minority franchises. The problem is that they can't directly invest into their franchises," Rose said. "If you spent 10 years working in a McDonald's, you probably don't have a couple million bucks to go start one, yet that person who has all the in-store experience would be a great owner/operator. It's the chicken and the egg — we want owner/operators but they can't get funded."
Rose said the No. 1 restriction to growth for brands like McDonald's is that only a fraction of the population could be franchisees, and even then, most of them don't want to work in the store.
"That's the franchise industry right now, and that's what we're changing," he said.
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