Franchisor funding and venture capitalist backing.

Is franchise funding with venture capital a logical option?

Inquiry from a prospective franchisor: Should I look for venture capital to franchise my business?

Hello,

I ‘m interested in franchising my successful full-service restaurant concept. I’ve done 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. If you’ve done enough reading and research, you know that process of franchising a business is both demanding and complicated. Taking it slow and examining all the pieces is the right path including financing the project.

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 venture capital 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 venture capital or VC money may be found involves professional developers with a proven track record in bringing new concepts to market. In either case, the number would be a very small percentage of start-ups. Now, even if VC money is offered ‘after’ a successful launch, why give up ownership?

Always ask this question: Does franchising a business demand outside funding?

In most cases, the answer is ‘No.’ Misinformation is common in franchising. Prospective franchisors often have the opinion that the project will cost hundreds of thousands of dollars to 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. Strongly consider ‘not’ franchising until you’re satisfied that the bulk of start-up issues have been analyzed. That includes a proper feasibility study.

The cost of franchising a business, while not low, should not be beyond the internal reach of a successful business owner.