FranShares offers an intriguing opportunity for those interested in investing in fractional franchise ownership. This comprehensive guide explores how FranShares works, associated costs, due diligence tips, profitability outlook, risks and drawbacks, whether it’s a viable investment, and alternatives to consider.
(Disclaimer: This article is for informational and educational purposes only. It does not constitute business or financial advice. Please conduct your own due diligence before making any investments.)
Table of Contents
What is FranShares?
FranShares is an online investment marketplace that allows buyers to purchase fractional franchise ownership shares. Investors can diversify into multiple franchises starting at minimums like $500 instead of the typical $100,000+ requirement to buy full franchises.
FranShares handles vetting opportunities, deal negotiation, legal structuring, and ongoing management on behalf of fractional investors. The platform focuses exclusively on established franchise brands.
How Does FranShares Work?
The FranShares fractional franchise investment model involves:
- Browsing and selecting from available franchise offerings on the platform
- FranShares provides due diligence documentation like FDDs to review
- Investing in fractional shares of franchise locations priced from $500 minimum
- FranShares structures a Limited Partnership entity that holds the franchise rights
- Investors receive pro-rata quarterly distributions from unit profits
- Diversification achieved with smaller capital versus entire units
- FranShares handles day-to-day management and operations
The model allows passive exposure to curated franchise opportunities. But substantial due diligence remains imperative before investing.
Why Invest in Franchises via FranShares?
Reasons investors may find the FranShares opportunity attractive:
- Access to popular major franchises with lower capital
- Potential for passive income from franchise royalties
- Professional vetting and structuring by FranShares
- Built-in diversification across franchise brands and locations
- Eliminates demands of operating units directly
- FranShares alignment incentivizing performance
- Ability for accredited and non-accredited investors
Fractional franchising opens the asset class to more investors. But due diligence remains critical.
What Diligence Should You Perform on Opportunities?
When analyzing individual offerings, vet:
- Financial performance data – audited if possible
- Management capabilities and ownership structure
- Unit and franchisor level economics
- Growth track record and outlook potential
- Brand strength and loyalty
- Competitive threats – barriers to entry
- Macroeconomic risks to the model
- Actual finalized legal documents before investing
Look beyond the pitch deck – substantial independent research remains critical before investing.
What are the Risks of Fractional Franchise Ownership?
While intriguing, concept risks include:
- Illiquidity of the investment once committed
- Reliance on FranShares vetting and ongoing management
- Potential conflicts among fractional owners
- Variable and unpredictable cash distributions
- No voting rights or operational control
- Capital locked up long term
- Guaranteed returns or exit horizon
- Still substantial investment minimums despite “fractional” billing
Thorough due diligence on specific offerings helps mitigate downside risks.
What are the Best Franchise Types for FranShares Investing?
Look for franchise opportunities that:
- Boast strong long-term brand equity and loyalty
- Have predictable recurring revenue that smoothes volatility
- Are EASY to operate with simple models and systematic operations
- Benefit greatly from scale and consolidated purchasing power
- Feature prime locations with high foot traffic
- Cater to broad demographics with universal appeal
- Require limited hands-on ownership involvement
Thoughtful asset allocation based on deal specifics balances risks and upside.
Alternative Franchise Investment Strategies to Consider
Other options investors have to gain franchise exposure include:
- Directly buying your own franchise location
- Working within a franchise before investing to learn operations firsthand
- Investing in reputable franchise focused private equity funds with institutional expertise
- Buying stock in reputable publicly traded franchisors
- Lending capital to franchisees via direct peer-to-peer loans or crowdfunded deals
- Wholesaling real estate or supply inventory to franchise businesses
Diversified approaches beyond fractional ownership may warrant exploration depending on preferences.
Is FranShares a Good Franchise Investment?
Before investing via FranShares:
- Very carefully review all documentation and disclosures
- Independently vet opportunities – don’t rely solely on FranShares diligence
- Speak directly with existing franchisees in their network
- Understand liquidity restrictions and exit horizon expectations
- Analyze projected returns net of all fees
- Diversify across at least 5+ offerings to mitigate singular risk
If comfortable with the model after thorough diligence, fractional franchising offers intriguing exposure worth considering by informed investors.
The FranShares fractional franchise investment model provides innovative exposure to popular franchise brands. However, investors must still conduct meticulous due diligence on each deal as they would any private business investment. Blindly relying on FranShares vetting alone to determine allocation merits remains ill-advised despite the platform’s aligned incentives. If willing to research offerings extensively yourself, FranShares fractional investments offer an appealing way to diversify into franchising without full unit purchase minimums. But proceed with caution – substantial homework on the specifics of each deal is mandatory to determine prudence.
Frequently Asked Questions
Is FranShares a public company?
No, FranShares is currently a private company. It was founded by Kenny Rose.
Is FranShares accredited investor only?
No, both accredited and non-accredited investors can create an account on FranShares to review and invest in fractional franchise offerings. The minimum investment is $10,000.
What does a FranShare cost?
FranShares investments range from around $500 to $50,000+ minimum per fractional share purchase depending on the offering. Typical buy-in minimums are $25k to $35k.
How long are FranShares investments?
Given the operating business nature and illiquidity of fractional franchises, investors should expect long 10+ year time horizons. Investments are essentially illiquid following the initial purchase.
What are the risks of investing with FranShares?
Risks include illiquidity given the operating business nature, reliance on FranShares vetting and management, unpredictable income distributions, lack of voting rights or control, and the need to trust sponsors’ interests will remain aligned with investors over the long-term.
Can you lose money investing with FranShares?
Yes, it is possible to lose your entire investment if the underlying franchises were to go under, as with any private operating business investment. Conducting thorough due diligence on offerings before investing helps mitigate downside risks.
Is FranShares safe?
All investments carry risks, so extensive due diligence remains imperative. FranShares notes they vet all opportunities including auditing financials and operations. But investors should still independently review offering documents and research opportunities before investing.