With stock prices plummeting and recession fears resurfacing, Chicago startup FranShares hopes to offer an entirely new asset class to everyday investors.
Founder Kenny Rose created the platform to give anyone the option to invest in franchise ownership, whether with $500 or millions.
“It’s a good hedge against inflation and [ensures] diversification of your portfolio,” he told the Chicago Business Journal.
The startup raised $1.4 million in a round led by Chicago Ventures last year and Rose admits getting the initial funding had its challenges.
"I did things a little bit backwards," he admitted. "I reached out to like 300 or 400 venture capital funds and got like three responses, and that showed me that I was a little early and needed to go out and prove that there is demand. So I went out to angel investors and set my own terms. In about three weeks, I raised about $600,000."
Rose then reached back out to the venture capital funds, which were much more receptive once he had a little "cash in the bank."
"The hard part was finding VCs that understood the franchise world at all," he said.
FranShares officially launched about two months ago with a $25 million portfolio that’s diversified across a few different brands and industries.
“We’re about $16 million into it right now, which is pretty exciting for a crowdfunding platform,” Rose said. "We're about to close out this fund in the next month or so and then we're going out for our seed round, which we are really excited for."
While the first round is for accredited investors only — with the average investment of about $33,000 per investor and target returns of 16% to 21% initial rate of return — the next one will be open to non-accredited investors.
With the company's wait list growing every day, Rose is confident there's demand for this asset.
Chicago Ventures General Partner Stuart Larkins said Kenny’s unique model is what stood out to him from an investment standpoint.
“The first thing that really attracted me to it was the way he was getting people into asset classes they typically couldn’t get into,” he told the Chicago Business Journal.
He added that FranShares offers an opportunity that historically is very difficult for an everyday investor who's not accredited or doesn't have a ton of cash.
“We do feel pretty optimistic about alternative investments in a down economy,” he added.
