Forums: Discussions for entrepreneurs and small business.

can you share some thoughts as to the ideal profile of investors for franchise expansion?

for example, is there any pattern or historical info you have about the kinds of people who`ve invested in the past? armed with that information, we may be able to draw some people into the dialogue.

thanks for posting at StartupNation.com!

rich

Rich,

The more financially sophisticated franchisees have found investors who inject liquidity in return for, say, a 30% cut of the corporation.

I`m picturing a mezzanine investor. The banks typically are conservative in these new markets and lend 70%, the existing franchisee usually has 10%...if I could find a mezz investor who wants to put in 20% it would allow some of these experienced operators to expand.

Thanks, Keith

keith,

would it involve a bunch of smaller individual deals or a larger one-off type of deal? can you give me a dollar range? just so i can confirm in my mind the investor candidates?

Rich, both small deals and large, here are a few examples:

Scenario 1: Existing franchisee in New England. We sell him 27 existing stores in New York for $27M. He finds an investor who injects $6.5M and gets a 30% share of the new corporation. Commercial lender finances the remainder.

Scenario 2: Existing franchisee in upstate New York. We sell him a Store Development Agreement for 31 (new) stores in the Carolinas. He finds an investor who puts $3M liquid and $6M equity into the deal and gets 55% of the ownership of the new corporation. Commercial lender finances the remander.

Scenario 3: Existing franchisee in New England. We sell him a Store Development Agreement for 5 (new) stores in Atlanta. We require the franchisee to have $750K liquidity to enter the agreement; he has $250K. Need an investor to inject $500K.

Keith

FRich - A quick question just to get my hands around what you`re proposing. Would the franchisee own the land under the development as well? Or would that be dependent upon each franchisee`s negotiated deal?

Rich C. - They will typically NOT own the dirt. If a franchisee takes on a 10-store agreement, they may have one or two marquee stand-alone locations. The others would be a combination of end-caps in a strip mall and atypicals (like in a sporting arena or large store).

Keith