Inquiry from a prospective franchisor:
I ‘m interested in franchising my successful full-service restaurant concept. I’ve completed a fair amount of research on the process, but one of the issues I’d like to resolve is the possibility of gaining funding through investors. Do you have an opinion on franchise funding using venture capital?
Franchise funding with venture capital: Is it worth the back end cost?
Congratulations on having built a business that might be taken to the next level via franchising. By now you know the process of franchising a business is both demanding and complicated if done correctly, but taking it slow and examining all the pieces of the puzzle is the right path.
Here’s our opinion regarding franchise funding with venture capital and other key development issues. For the most part, venture capitalists would not be interested in a start-up franchise system because there are too many unknowns concerning the future of the concept in the franchising space. In those cases where there is outside (VC) interest, the model or prototype would have to carry tremendous recognition and success to the point where franchise success would be viewed as most likely inevitable. The other scenario in which VC money may be found involves professional developers with a proven track record in bringing new concepts to market. In either case, the total would be a very small percentage of start-ups. Now, even if VC money is offered ‘after’ a successful launch, why give up ownership? That said, consider the following as perhaps a more appropriate question.
Does franchising a business demand outside funding?
A more interesting issue may be the franchisor’s need for start-up capital. Misinformation is common in the world of franchising and it’s not unusual for us to hear from a prospective franchisor who has been led to believe that hundreds of thousands of dollars are required for a launch. That’s a falsehood. Get the real facts on franchising costs before you dismiss the idea of self-funding. If you have a successful, profitable concept, you may find that franchising is well within your means. And, even in those cases where self-funding is not within reach for the initial consulting, legal services, set-up and launch, there are options to overcome this problem. (You can inquire further if that’s the case.) Remember that the greatest gamble is the set-up and launch period of a franchise, but that is where expert guidance is most important. Above all else, know that proper franchising is not a do it yourself project. Therefore, strongly consider not franchising as opposed to nasty errors that will appear down the road. Send email if you desire a factual feasibility study to discuss alternatives for financing the set-up and launch of a new franchise concept.