#130 FranShares: Invest in Franchises

Clapper: The pitch, day 2, part 6

People love investing in alternative assets. Crypto, for one. But now there are platforms where you can invest in… just about anything – wine, fine art, farmland, even luxury watches, aka timepieces for all you collectors out there. Regular ol’ salt of the earth folks are investing billions in alternatives.

Today’s founder, Kenny Rose, thinks franchises will be the next big alternative asset class. That’s right, you could own a piece of a local fast food joint, a medspa, even a car wash on his platform, Franshares.

But franchises sound more like small fries than big tech. Can Kenny get the VCs to see gold in deez arches? Or will they not be able to think outside the bun?

I’m Josh Muccio, welcome to The Pitch. Where real founders pitch real investors for real money. Let’s meet the investors.

Jillian Manus with Structure Capital

Jillian: Literally he sat down, and I was like, I'm in. 

Mac Conwell with Rare Breed Ventures

Mac: As a unicorn hunter, I want to see every unicorn. 

And Beck Bamberger with Bad Ideas Group

Beck: [slaps table] I gotta start my muffin business.

Real quick, if you’re not following the show already, hit that subscribe button and turn on notifications. The pitch for Franshares is coming up after this!

[break]

Quick note up top: A franchisee is the small business owner running the franchise. Franchisor is the company franchising their stores. Got it? Franchisee, you and me. Franchisor, it’s the store.

Beck: Oh hello!

Jillian: Hello. Hi. And who do we have here?

Kenny: My name's Kenny Rose. I'm the founder and CEO of FranShares 

Jillian: FranShares.

Kenny: Like shares of franchises.

Jillian: Yeah. 

Kenny: Perfect. So like I said, my name's Kenny Rose. I'm the founder and CEO of FranShares, based in Chicago, Illinois. You've heard of franchising. Does over 800 billion dollars domestically every year. You've probably heard that word and you've thought of McDonald's and Subway, but franchising covers hundreds of different industries, from hair care and automotive, to fitness and even things like waste management. And it employs 8 and a half million people in the US. And I spent a decade in this space as a franchise broker, basically working with people who were interested in franchise ownership, recommending them specific brands, coaching them through that whole research and purchase process. In total, I've worked with over 600 different brands. And throughout this time, I realized a very big problem: most people who want to be franchisees and can afford it, they don't want to work in it. They want it as an investment. And then you also have great entrepreneurs, who would love to be franchisees but they're not worth a million dollars, and they could have all of the best experience in the world. So that's why we created FranShares. FranShares is the first investment marketplace where people can invest in franchises. Investing in franchises provides outsized returns compared to the stock market, while providing passive income, a hedge against inflation, and diversification from market volatility. We launched last year and had the largest launch ever for an alternative investing platform, with over 18 million in investments, and we have 42,000 sign ups for our upcoming offerings. We're raising a $4 million seed round of which we already have 2.475 already committed and wired over. And we're looking to facilitate all the supply and demand that we've built up and make franchising not just an asset class but an investment you can actually understand and trust. 

Mac: So let's say I was an employee of up-and-coming fast casual restaurant, they start franchising, I want to run one. I don't have any capital. Could you help me make that happen?

Kenny: That's what - that's what we're doing. You know, the biggest problem in franchising is employee turnover, and it makes sense because there's no upward mobility and there's no benefits. But at FranShares, we're solving that, because we want people to start working all the way from the bottom and work their way up to manager, because that's the person who should be the franchisee - the person who knows the business inside-out.

Jillian: Yeah.

Kenny: Not someone who came off Wall Street because their check clears. 

Mac: So it sounds like you have three customers. You have the franchises that you gotta get on the platform, you got the people who want to be franchisees, who don't have the capital, and then you got the investors, who are like, I need some more alternatives. So how do you manage, as a marketplace, those three things at once?

Kenny: Yep. So when it comes to investors, we've got everything from retail, non-accredited and accredited, all the way to institutional, like, private equity and family office. Because frankly, none of these people have access to this as an asset class. But then from the franchise world side, we're actually removing the biggest barrier to their growth, because even McDonald's, their biggest barrier to growth for new franchisees, they have to already be wealthy. Then they have to be wealthy and want to run a McDonald's. And McDonald's does not allow outside investors. So, you know, all these brands, they want owner-operators, but they need owner-operators who have capital. So the brands, they come in immediately. They already know this is a huge need; this makes all the sense in the world to them. They've had a problem for decades, which is when people apply to be a franchisee, they skip past what their experience is and go straight to their net worth and liquidity statement. So we're removing that so they can actually, instead, give out franchises based on merit and what their previous experience was. 

Beck: So is there a nice loop here where, for example, McDonald’s can say, hey, guess what everybody? Or hey star employees who have been here for the last 10 years working their way up, there is now this vehicle that you could go to that we're just letting you know of -

Jillian: Potentially, it could be -

Beck: Potentially - or is that a conflict of interest or something like that?

Kenny: Nope, that's exactly -

Beck: That's just the good loop.

Kenny: That's exactly what they want. Yeah. People are what make franchises run. The American dream is you should work hard and be able to get it. Just, frankly, it's harder to find people who can do startups. Franchises, there are a ton of them, they just don't have the capital for it.

Beck: It's a capital miss. We worked with um AcreTrader, which is now a later stage company; they're based in Arkansas and it's great because the play there was farm land and alternative investment opportunity where how else would you get your hands on 200 acres, selling blackberries, you know.

Kenny: Yep.

Beck: So, hm. I see the space. 

Mac: So walk me through this a little bit.

Kenny: Yeah.

Mac: I don't know if I completely understand the franchisee side of the house, but let me try - let me understand some more about the investor side of the house. Do I see a list of franchises or franchisees that I want to invest with?

Kenny: So right now it's like franchisees, the opportunities. Hey, this person wants to go build three stores in this market.

Mac: And so how do I vet them on your platform? If I see like a list of all these people who want to own franchises, well, I want to own a franchise too. Great. How does your platform help me vet them?

Kenny: Yep. So I spent - well, some back story. Franchising's regulated by the Federal Trade Commission. As part of that, every franchise has to put out what's called a franchise disclosure document. And this is everything about the franchise, from the leadership team, company financials, cost to build locations broken down by line item, how much they make. So there is actually a ton of transparency in the franchise world, and that's one thing people love about it, as compared to, you know, I mean, look how big the crypto market got and people didn't understand how it worked. This is something where you get to understand, like, you know, what you're buying into because you can see what the costs are. It's not something that we're making up.. 

Mac: But then like - so what things do you show me on your platform to help me make that decision, right? Is it just the operator's background, they've helped operate a store that's generated X amount of rev - like, what are the things that I'm going to be looking for? 

Kenny: - a lot - good way to see is kind of like an AngelList for franchises, in that you're showing both the franchisor, which, again, public information just put into one place. You're showing the franchisee and their background, so even like, you know, we'd have them record a video because it's all about investing in people.

Beck: Yeah.

Kenny: And then also everything about their background. So what they've done in the past and specifically what they've done in franchising. You know, a great example is a system called Teriyaki Madness, which is the largest competitor to Panda Express, we found that these -

Beck: I'm familiar.

Jillian: Good to know.

Kenny: We reached out to them and immediately they're like, yep, these are the franchisees you should talk to, because they know who the best operators are. And this is a husband-wife team, they met while working at Buffalo Wild Wings together. They opened 150 locations between them. Experts. But they work for corporate. They don't have a million dollars laying around. And so they put everything together to buy what was a failing location and immediately turned it around, huge winner. They wanted to expand, but again, they weren't already millionaires. We funded their second location. It hit profitability in the second month, which is -

Beck: Amazing.

Kenny: - pretty unheard of in franchising, and they just won franchisee of the year in that system.

Jillian: Oh.

Kenny: Yeah. So you want to fund the actual operators.

Mac: Oh so - 

Mac: Oh go ahead

Beck: So you said 800 billion is what this market is a year? And hundreds of businesses are actually franchised businesses?

Kenny: Thousands.

Beck: Thousands and thousands. Okay.

Kenny: There are more brands franchised than there are stocks on the Nasdaq.

Beck: Oh.

Kenny: It is a huge industry. 

Mac: So you mentioned the 18 million in investment last year. What is your take rate?

Kenny: Very similar to a Fundrise or a Masterworks. It's one or two percent every year on the investor. And then for the franchisees, you know, we didn't want to take 5 or 10% of the raise up front; we find that would hinder their ability to grow. So instead, just like the franchisors, we do a royalty model. It's one or two percent to start, and eventually as we bring in more benefits to the franchisees, we can eventually scale that up to 5 to 7%. 

Mac: So, you're raising a 4 million dollar priced round. What's your timeline for your final close on this round?

Kenny: Um - prefer six to eight weeks. As fun as fundraising is, I just want to get back to work.

Beck: Yeah. Hm 

Jillian: And what are the terms on that 

Kenny: It's a priced round with preferred equity at a 19 million post-money valuation -

[oof sounds]

Kenny: - and it's being led by Chicago Ventures. 

Jillian: When did you start raising that?

Kenny: About a year ago, to be honest. It's one of the worst times to fundraise right now, and - also, we definitely put a pause on it to go build some more, cos that's just too much time, and kicked it back up - 

Jillian: And do you not think that the valuation is a little frothy?

Kenny: You know, we got caught in between times. You know, it was between the fiery market and the market now.

Jillian: Oh.

Kenny: Comparables for this -

Beck: 2021?

Kenny: Uhh I know a wine and investing one that went for over 6x gross investment value. I also know real estate ones that went for over 30x and there's a lot of real estate ones. Masterworks went for 4x their gross investment volume, and we're looking for a little over one. 

There is a lot of froth in that valuation. But with over half the round already wired, it’s not changing. Will the VCs be able to get past the $19M pricetag? That’s coming up, after this.

[break]

Welcome back. Kenny Rose is raising 4M dollars for his franchise investment platform, Franshares. The investors were visibly displeased by his $19M valuation. Can Kenny convince them that his startup is worth it? Here’s Beck.

Beck: What are you gonna do with that money? Tell us more.

Kenny: So we've done all this with five people. And so we'd like to grow out the team a little bit. We'd also like to continue to invest in investor acquisition. Once they come on, you know, people reinvest and we don't plan on continuing paid acquisition for a long time because we've already been talking to groups like Franklin Templeton, Fifth Thirds Bank, First Trust - because they want to offer their clients new alternative investments, because right now they're all going into real estate. They need an alternative they understand and that's what this is. 

Jillian: So tell me about you.

Kenny: Yeah. 

Jillian: What's your background? You're obviously a franchise owner at some point.

Kenny: Yeah. I was part of a - so they franchise everything. It was a franchise brokerage once. That's how I got my start in franchising.

Jillian: Okay.

Kenny: And I was running a big territory but I couldn't actually buy it unless I wanted to go move to, I think it was Idaho they had available territory. And also, I wasn't worth a million bucks. I've suffered this exact same problem. And I'm the son of an entrepreneur. I watched my dad build and lose everything multiple times, uh including in the - owning a restaurant at one point. Because frankly just because you have money doesn't mean you know how to run a restaurant.

Beck: Oh true.

Kenny: And that's the same thing in the franchise world. So you can have all the money in the world, but if you don't have the right experience or the right business plan, you're just lighting it on fire. And so, you know, I really love - I mean, I grew up five years in a town that didn't allow franchises in it. So I was very like removed from it, and then got introduced to it and I thought it was all fast food. And then I realized that it was just solving so many problems that I had myself. It's like, I'm entrepreneurial, but I didn't have an idea for the next Facebook, but I'm a hard worker, I've got drive and motivation. And so I saw the value of what franchising is. And also like you see people who are going to college and then just working at a Starbucks. But the thing is like this is like how you solve future entrepreneurship. Like, some people - I mean, I see a vision in the future where people are like, hey, I don't want to spend a hundred thousand on college. I'd rather get a job, work my way up, and then own my own business, because I see a path to ownership here. 

Jillian: What is sort of the biggest growth category in franchises?

Kenny: Oh, there's so many of them.

Jillian: Well, because is fast food shrinking? Is that holding its own? 

Kenny: So there are just so many industries out there. I mean, we're - ah we're getting into the med spa space right now -

Jillian: Yes!

Kenny: I mean, new industries that are coming about -

Jillian: Yes. 

Kenny: - they're getting franchised. So that's the thing. As new industries evolve, they eventually get franchised and consolidated.

Beck: Sure.

Kenny: Food, I'm not the biggest fan of, to be honest. I'm actually a co-author on an Amazon bestseller called More Than Just French Fries. Frankly, it's a war for pennies, and it's not a war I like to play. But frankly, service businesses are where I see the most opportunity. You know, things like, again, the hair care and automotive space where you're not having to constantly get inventory. You are - you're doing a markup for a service, and the profit margins are a lot higher. Like, we're in a waste management franchise.

Jillian: Yeah.

Kenny: And you know, that's got 70% profit margins. So you know, the more we grow and the more people understand franchising, the more they'll be okay with all these different industries. 

Beck: Mhm. You mentioned the returns on this are better than the stock market. So what are the returns 

Jillian: Yeah

Kenny: So I will say, it varies greatly, because -

Beck: Yes. Of course.

Kenny: - so many different industries. Our targets are - like, we're trying to go for around the 20% plus IRR. And that's about a split, almost half way between income, which is paid quarterly, and then equity growth.

Beck: Mhm. K. So super attractive.

Mac: What's the minimum investment somebody can make on this platform?

Kenny: $500. The idea is to democratize for everyone, not to hold it away.

Jillian: Oh! 

Kenny: And the thing is, as compared to like a Fundrise or an Acretrader or a Masterworks -

Beck: Yes.

Kenny: - you're not investing in something thousands of miles away. You're investing in something in your community.

Beck: Down the street.

Kenny: And so that tangible effect is also going to drive returns to it. The people who invest $500, that's the Reddit v Wall Street crowd. Those are people who are going to shout it from the rooftop. Go order more delivery. They're gonna go get their -

Beck: They're gonna go see Billy down the street -

Kenny: Yeah. Yeah. Like, why do you recommend something? Usually it's because you have a great service or you're incentivized. And if you own a piece of it, you're very incentivized. 

Jillian: What's the biggest challenge here?

Kenny: Um - raising venture capital, because I use the 'f' word. Franchising. [laughs] um No, honestly, um I think it'll be - I mean, we have a really big goal of like getting more family offices and private equity involved for larger checks. A lot of times, they want more control than typically more passive investing. And frankly, like, one of the reasons the franchisors like us is that we're not private equity. We don't want all the control. We want to invest in entrepreneurs, not hold them back, but give them opportunity. 

Beck: And of these three buckets. You know, you're getting the operator, you're getting the franchise, you're getting the investors. Like, where's the gap? Where's the smallest bucket that needs more attention. 

Kenny: Um - I mean, I'd say the franchisors. But again, this is something that like really - it solves their biggest problem.

Beck: Yeah.

Kenny: You know, great example is we've been talking to Bojangles for a while. They got almost a thousand locations. But they're stuck in the southeast, primarily.

Beck: Yeah.

Kenny: And so, you know, I asked them like what's your target market you'd want to go to, and they say Phoenix. Great. How many corporate stores you have? They have 200. So it's like great. Those aren't corporate stores anymore - those are franchisee farms. Because you're training up GMs to run these things -

Beck: Yeah.

Kenny: Already have them.

Beck: Yeah.

Kenny: Pick your five favorite GMs. We're gonna give them the opportunity of a lifetime. Would you like to move to Phoenix and we'll give you a three to five store development plan? Who says no to that? And so now they've got the best possible people operating it from the franchise side -

Beck: Sure.

Jillian: Yes.

Kenny: From investors, you're investing in the best possible people.

Beck: Yeah. So you're happy with that.

Kenny: And then in penetrating a new market, you know, the hardest thing is getting market awareness. You gotta spend a lot on marketing. But if you prioritize those local investors first, they're there for the grand openings. They're bringing people to the grand openings. So again, we don't get a lot of pushback, other than from the venture side. 

Jillian: My one other question is anybody else doing this? Who else is doing this? Why aren't they doing it? 

Kenny: Nobody and I'll tell you why. Real estate, there's 30 or 40 different ones. I could probably throw a rock outside and find an expert in real estate. I made a rash decision when I was 23 years old and I got into the franchise world. And it's very tough to find people who have experience working in different franchise industries.

Jillian: Yeah, that's interesting.

Kenny: So really, the two groups that you could find that could do anything like this are franchise brokers and investment bankers. Investment bankers make too much to make a leap, and brokers, I'm the youngest in the industry by 20 or 30 years. The franchise industry is extremely small. You know, I get calls from VCs all the time, any time someone uses the word 'franchise', because they're like, hey, will this work? And my question's always: are they from the franchise industry? Because frankly, if they're not, the franchise industry won't welcome them.

Jillian: Okay.

Kenny: It's like the oldest CRM - sorry, the most widely used CRM in franchising is - I'm not going to trash up here, but it's not great. It's over 20 years old. 

Jillian: Okay.

Kenny: I mean, there's clearly new and better CRMs, but the thing is is that they're not in with the club. And so I've spent a decade and I've - I like to think I've made a lot of great relationships with a lot of people, and so, you know, again, we've been waiting to finish this round so we could go scale it up. 

Jillian: I think your valuation is a problem. I'll be really honest with you. So much of me wants to come in. I really am grappling with this 19. 

Mac: I got a story for you Jillian. So you know I have an advisor -

Jillian: Lay it on me. 

Mac: Who likes to tell the story of how he met this company with this really unique founder. Really loved the company, loved what they were doing, but the valuation was 600 million. And he felt like that was just too high. So he passed. That company happened to be Uber. 

Beck: Yeah.

Jillian: I was in Uber [inaudible] 

Mac: And if I had put 100k in at 600 million, I would've been a very happy man.

Kenny: Yeah.

Mac: So 9, 19 post, it's not the end of the world. It's below 25. Still in range. I'm in for 100. I like alternative assets a lot.

Kenny: I appreciate you.

Mac: Some of the best companies in our portfolio are in alternatives. It is a space that does really well I’m in.

Kenny: Awesome. Hey, I appreciate it. Look forward to having you on board.

Mac: How about you, Beck?

Beck: I'm out. And too expensive and just not my space enough. So that's the why.

Kenny: I respect it.

Jillian: This is the most bizarre thing because I literally read about franchises. I pick up every magazine that has franchises -

Mac: [whispers] You know you want to do it.

Jillian: I could - it's the most -

Mac: [loud whisper] You know you want it, Jillian. Come on!

Jillian: It's the most bizarre thing, is when you sat down -

Mac: Come on!

Jillian: - FranShares, I'm like, I'm in. 

[laughter]

Jillian: No, literally. No, that's the first thing I said. I said, Jillian, don't seem so anxious. Listen to everything. I have such a problem with this valuation. You know, nothing above 15 is kind of my thing. Um - drat. 

Kenny: If it helps, it's 15 pre.

Jillian: Yeah. I know. I know. I know. I [laughter] - 

Kenny: You said it was about 15! I’m working with you!

Jillian: You're the devil and you are the angel. You've got the devil and you've got angel and you're like Jillian, you never go higher than this. Blah blah blah. Um. Okay. I love fintech too. But I love franchises and I have no idea why. Maybe in my last life. So I'm for 100. 

Kenny: Looking forward to working with you both -

Jillian: Cos I actually - I love franchise and I find this fascinating. Many years ago I invested in mini storage. Self storage. And everybody was like, I don't understand. And I'm like, there's very little overhead. But it was so fragmented and they are so tiny and there's all these mom and pops and they don't know how - and it turned out to be for me a very big winner. But I got into it 30 years ago. And so I think that franchises have that same fragmentation, right, and it's just a matter of how you can create that connectivity, the connective tissue to them and to each other. and I - I like alternative asset classes too.

Kenny: I appreciate that. And honestly, just this ability to create like true owner-operator entrepreneurs, like, this is how franchising was built. Just the problem is, the cost of real estate, and the cost of build outs rose, but wages didn't.

Jillian: Yep.

Kenny: So you priced out the actual hard working person from doing it. We're here to bring it back.

Jillian: Okay. Well, then bring it back.

Kenny: All right.

Jillian: Thank you so much, Kenny Rose.

Kenny: Looking forward to -

Mac: Yes. 

[thank yous and nice to meet yous]

Jillian: That was so crazy because literally he sat down, and I was like, I'm in. And then I kept thinking to myself - why shouldn't I be in? Because I love franchises. The guy knows his stuff.

Mac: So -

Beck: He does know his stuff.

Mac: He knows his stuff. Funny story: a good friend of mine - tried to create this and couldn't, because he couldn't break into that -

Beck: See.

Mac: - community.

Josh: Oh, interesting.

Jillian: It has - it's a trusted community. 

Josh: I keep talking to these fund managers who are like, I usually invest under this amount. But actually the best deal I've done, funny enough, was the one exception I made to my valuation cap -

Jillian: I know which is kind of where I'm - 

Josh: Why is that?

[crosstalk]

Beck: Because it's your rule and you think you're gonna play by your rule and -

Josh: Yeah.

Jillian: Yeah, yeah, yeah. You don't like to break your own rules.

Beck: I don’t want to break it.

Mac: My rule is diversification.

Beck: Yeah. That's good.

Mac: If it's a good company, diversify.

Jillian: Yeah, yeah. 

[laughter]

Josh: Although 20's my ceiling.

Mac: Well, 10% of the fund's for off-thesis investment, so if it's too high I put it in the off-thesis bucket.

Josh: Oh, there you go. It's your play money.

Beck: You have to -

Jillian: Yes, I do.

Mac: You got to go?

Beck: She's got to go.

Jillian: That's it.

[crosstalk]

Jillian: Thank you so much.

Josh: Was it a good day?

Beck: That was so fun.

Jillian: Such a fascinating day.

Beck: It was a great one. 

Mac: We had an amazing day.

Jillian: And it's super [inaudible] all of you. 

Mac: Yes.

[background talk]

Jillian: There's something there.

Beck: There is something there. I love like - 

Kenny got the VCs past his valuation. But will he be able to get past their diligence? That’s coming up.

[break]

Welcome back. Kenny secured two commitments in the pitch room, despite his supersized valuation.

Two months after the show, we caught up with Kenny to hear how it all went down.

Josh: Today on the podcast, I'm excited to invite the coauthor of the Amazon bestseller, more than just French fries. Kenny Rose, welcome to the program

Kenny: Man. That is the first time I've been led with an introduction via that. [laughs] 

Josh: So in the room, Mac and Jillian both committed a hundred thousand dollars to your round. Let's talk about Mac first. What happened after the show? 

Kenny: Mac is just the greatest person. I love Mac. 

Josh: Me too

Kenny: Such a character, such a nice guy, shared vision, everything. You know, what happened was we hopped on a call and he said, basically, you know, round’s too expensive. We're not going to be able to get that ownership stake that we try and target. So it's not going to be a fit 

Josh: Huh? That's odd. Cause he would have known that on the show. 

Kenny: Yeah, yeah, yeah. A little curve ball for me. 

Josh: Huh.

Kenny: I mean - yeah…

Josh: Okay. That's a little different than what he said on the show. He said, we've got an off thesis part of the fund. He's like, if something's too expensive or off thesis, I just put it in the off thesis bucket and that's how I can get away with it. 

Kenny: Yeah It was a missed opportunity, but we'll definitely stay in touch. Like he's a great guy. 

Josh: Well, that is surprising. I did not expect that. All right. Let's talk about Jillian. So two weeks after the show, you had your first diligence call with Jillian. Tell me what happened on that call. 

Kenny: Well, Honestly, I, that first call I messaged my leadership team in the first five minutes and said, this isn't happening, she's out. 

Jillian: So, I have a lot of questions because I just don't know about this space at all. and well the big question is, to be blunt I'm not quite sure how we, the investor in Franshare, are going to make any money. Correct me if I'm wrong, we're not investing into the, we, I, and wouldn't be investing into the franchise. I'd be investing into a fund that you will then raise from other institutional investors and Retail investors. So can you just clarify first the structure of this? 

Kenny: Yeah. Yeah. Yeah. So, um, it's not investing into any direct franchise. This is for investing into Franshares the platform itself.

Jillian: Okay. So you are a fund. So this is a fund to fund, basically. 

Kenny: No, no, no. We're the platform that, uh, really creates the asset class. So franchises are getting funded by investors on the platform. So it's not fund to funds. It's just -

Jillian: Yeah, actually, Kenny, it is a fund to fund because it's, because you're taking a management fee from what I understand from the deck. So you're managing our money and investing it into franchises That qualify, which is exactly what a venture capitalist does. So explain to me how this is different. 

Lisa: Franshares doesn't invest in the franchises. 

Kenny: Those are customers that invest on the platform. 

Jillian: All right. And so, tell me how I make money 

Lisa: Are you, I'm, I'm confused, Jillian. Are you asking that like person who's investing on the platform, or how you Jillian makes money?

Jillian: No, me, Jillian, like the investors in Franshare. 

Lisa: Okay 

Jillian: How do we make money? 

Kenny: Yeah yeah yeah, so, um, uh, I feel like I guess I can go for the long term exit type thing. I mean, going public is a obvious great route for us

Jillian: Sure

Kenny: but we're also an acquisition target for anything from other alternative investing platforms because even a company like Fundrise, they don't have franchise investors like their, their demographic is very different, but they'd like to bring people who could be as well. So, but then honestly, I think the more likely scenario is a bank or wealth management firm. 

Jillian: Got it. Ok. that makes sense. 

Jillian: Um, good to go, alright, thank you Kenny

Kenny: Awesome 

Kenny: I was, uh, I felt like I was in the shark tank just getting, uh, all over the place, you know, swimming for my life and she was definitely trying to throw me through the ringer and mission accomplished. she even said afterwards in a follow up email, I try and rattle the cage with founders to see how they react. And she's like, you're the real deal. You handled everything right. That being said, not enjoy - Well, not the way my calls usually go with VCs, I’ll tell you that

Josh: Yeah. Huh. 

Kenny: Then by the end, I was surprised to hear that she was still in because honestly, everything from the first minute was just finding a reason to not be in. And just trying to poke holes in everything instead of like, ask me how we're going to build and what the future looks like. 

Josh: Yeah. How were you feeling after that call? 

Kenny: Uh, mixed emotions, terrible because it was brutal, but also great because / /it was one of those like, proving moments. I'm like, you can throw everything at me. I've been planning and educating myself for a long time to make this happen. This is my dream. I got into this industry to change it and I learned it from the inside out and found the biggest problem. Developed it over years and then launched it when the time was right. So like, this has been a long time coming. And so, uh, to try and get gotcha questions on like, ah, won’t work. I'm like, I know it will 

Josh: Yeah. So it felt like a really big test and you felt like you passed it.

Kenny: Oh yeah. I passed the test, but I don't want to be a test. 

Josh: Yeah. I get it. Um, okay. So after that call. Jillian followed up over email with a ton more questions. And then she asked for a product roadmap of the next couple of years 

Kenny: Mhm

Josh: which I understand you created one specifically for her,

Kenny: Mhm 

Josh: And you guys jumped on a second call. 

Kenny: Yep. 

Josh: What do you remember about that one? 

Kenny: I mean, it was a lot of why things won't work

Josh: ok 

Kenny: I mean, how things were titled were points of contention 

Josh: in your product roadmap?

Kenny: Yeah. And I didn't really understand that. Again, it just felt like trying to get out of the deal - like, it almost, it felt like something was already signed and it was trying to walk back afterwards. 

Josh: Hm

Kenny: Uh, again, it was, a long, diligent call. And, uh, at the end, she said she was out because of the valuation 

Josh: She said she was out because of the valuation?

Kenny: Yeah

Josh: [frustrated laughter] What? 

Kenny: Yeah. And, um, to be honest, that was, that, that was told on The Pitch.

Josh: Yeah

Kenny: That was known before the first call. Like, I don't know why I'm being thrown to the fire if there's no intention there.

Josh: Ugh. I'm sorry, Kenny. That's certainly not what we want to have our founders go through on the show. in fact, what we're trying to do is the opposite of shark tank. So I'm really sorry that that was your experience 

Kenny: Hey, you know what? I can dive through all the hoops you could possibly throw at me, but also usually they're hoops are being tossed because they're trying to get you somewhere. And that was just… seemed like for fun. [laughs]

Josh: Yeah. Um, well, those two investors aside, how's the rest of your round going? 

Kenny: Really good. Uh, we actually have a, uh, couple of syndicates going right now. one of them is the largest syndicate on AngelList. Shout out Redbeard Ventures. 

Josh: Red beard. Ooh! 

Kenny: Been in the franchise world a long time, met this guy 10 years ago and was just kind of like reaching out about the company. Cause I knew he was like, very influential in the franchise world. And he was like, this is game changing. I'm part of, this angel group. You should pitch it to them. I think they would love it. 

Josh: Yeah. So You have multiple syndicates. There's another one?

Kenny: Yeah, there's another one. It was, uh, actually a guy who's a customer of ours. And then, uh, we got a couple of VCs that are pretty close. And also, we've got, like, some, uh, it's like a big private equity group in the franchise world. 

Josh: It sounds like where you're finding success with VCs and the syndicates is people that come from the franchise world. 

Kenny: Yep. If you're in franchising, like you get this, this makes a ton of sense. The, the problem is a lot of people from franchising are not venture investors. 

Josh: So we had a great conversation with Stuart. Your lead investor at Chicago ventures. And it was cool to learn that he also has a franchise background, from the investor side. did you expect to find a fellow franchise enthusiast in the VC world? 

Kenny: I was hopeful, but I wasn't sure what to expect. It was a lot of searching. Like I - hundreds of no's and then, you know -

Josh: Wait, but it's, he's Chicago ventures, you're based in Chicago. Wouldn't he have been one of the first people you reached out to? 

Kenny: Honestly, I thought they were way too big for us. Like they had six or seven companies turned unicorn when they invested in us. So I was thinking we're small potatoes. So I just had a wrong assumption and eventually got, uh, introduced them and they were all about it. talking to him was the last call and he says that he was invested in franchises before. And I was like, Oh, you get this. We're done. 

Josh: That’s awesome If you were to boil it down, what is the thing about franchising that is so hard for VCs to understand? 

Kenny: That franchising is more than fast food. It covers hundreds of different industries. they probably drive past 20 of them every day. You go past any strip mall or just any business center. And if you know the franchise world, you just are pointing at franchises constantly 

Josh: Yeah.

Kenny: And you know, it's a massive part of the economy, employs almost over 9 million people. It's over 800,000 locations. It's just a major market that has not been shaken up in a long time. it can seem boring, but boring is good sometimes. You know it, some people just want to see where their money is at. It's not, hey, you know, I'm a tweet away from losing value in this stock and a bunch of my retirement. It's not guessing on where Bitcoin's going It's, I spent money at this Jimmy John's. I got sandwich

Josh: uh huh

Kenny: like that's, that's where my money's at. And it's something that's like local and tangible. Like, I wish they knew how big franchising was. 

Josh: Yeah Uh, Lisa and I, we don't come from a franchise background. But we as fund managers can't be experts on every company we invest in. So that means it's really important that we back the people who are. And from our diligence and everything we've seen from you and how you've performed even under Jillian's pressure tests, like all of this, like, I think you're the one to build this business and we trust you to build it in the way you think it should be built. 

Kenny: Thank you so much 

Josh: We would love to invest a hundred thousand if you'll have us.

Kenny: I would love to have you guys, you two are treats and I can't wait to keep talking more with you. And also really appreciate the support. Like you got to believe in the person that's getting it going and believe in where they're going. So thank you very much for the trust and confidence. I'm excited to take you there.

Josh: 100% 

Lisa: That’s awesome.

Josh: Thanks, Kenny. I'm excited. There's gonna be more franchise conversation in our lives, Lisa.

Kenny: So much more! 

Lisa: Yay! 

Lisa: If you were to invest in anything on franshares, what would you invest in, Kenny? 

Kenny: Oh, great question. Um, Oh, that's so tough. Um… 

Josh: You're asking him to pick, that's like picking a favorite child.

Kenny: I know, right?

Lisa: Everyone has one!

Kenny: Ahhhh. Honestly, I'm pretty excited about the car washes that are going to be coming on pretty soon. I've been asked about those for years and years. I honestly, we got a ton of children's services ones that are coming up soon. And pet services, and you either have a child child or a fur child, so like, those are very stable. 

Lisa: We have both! Both are expensive.

Kenny: And, you know, things you spend it on, you could be earning from, too. Welcome to Franshares.

One thing I’ve learned as the host of this show for all these years is - you can always find a reason not to invest in something. That’s easy.

But finding a reason TO invest in something, in someone. Now that’s hard! To have the conviction, to actually pull the trigger and wire funds to a founder you just met, in a company that needs your money to survive, now that takes moxy.

So while the $19M valuation on Kenny’s company is more expensive than we’re used to, here’s what I see. A founder with deep industry experience and a passion to solve problems he experienced first hand in a market in need of disruption but no one else is trying to solve it oh and btw that market? It’s huge!

Some deals are worth a higher pricetag. I think this is one of them.

Calling all angel investors and VCs - you’re invited to join us in San Francisco this June to record season 12 of the show. Past VIPs described it as “one of the coolest events I have ever done in my professional life,” and they loved being able to hang with VCs over the two day event. Plus you’ll get the earliest possible access to the pitch startups. 

We only have a few tickets available, so go right now to thepitchevent.com to secure your spot.

Next week on The Pitch… AI vs models

Vita: My cofounder and I have never been represented when shopping online. This lack of representation in ecommerce drives down conversion rate, leads to a higher return rate, and is a problem for both consumers and brands. This is where Flock comes in. 

Charles: I'm looking at lips - a lip product here. So it's got some up close pictures of lips in lipstick with different skin tones, different nose shapes. 

Beck: Is that AI-generated?

Vita: It's fully AI-generated. 

Beck: Got it 

Beck: Hmm, it's an existential question for modeling agencies. Because besides walking down a runway, what are you doing?

Elizabeth: Yeah, modeling might go away. 

Vita: There's just no other way to be able to do it in a scalable solution without using AI. 

Things get existential, next week on The Pitch. Subscribe now and be sure to turn on notifications so you don’t miss it.

This episode was made by me, Josh Muccio, Lisa Muccio, Anna Ladd, Enoch Kim, Jackie Paapanier and Alma Langshaw. With casting help from Peter Liu and John Alvarez.

Music in this episode is by Boxwood Orchestra, The Muse Maker, Base Collector, Donald McBell, BreakMaster Cylinder, FYRSTYX and Land of Legs.

The Pitch is made in partnership with the Vox Media Podcast Network.