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Marrying Franchisees With Investors

    • 4 posts
    June 28, 2006 10:34 AM EDT

    Hello, I am a finance manager for Dunkin` Brands (www.dunkinbrands.com). I am looking for investors who want to fund existing franchisees as they expand into new markets. I have very experienced franchisees who are excellent operators and our franchising teams want them to expand into new markets such as Nashville or Atlanta. Problem is, they don`t have the financial connections to obtain funding and traditional commercial lenders are reluctant to go into new markets. So, I am trying to marry these existing franchisees with investors to foster expansion.

    Does anyone know of any investors who might be interested in this opportunity?

    Thank you.

    • 4 posts
    June 30, 2006 3:54 AM EDT

    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

    • 4 posts
    June 30, 2006 8:17 AM EDT

    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

    • 4 posts
    July 20, 2006 12:17 PM EDT

    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

    • 335 posts
    June 29, 2006 7:35 AM EDT

    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

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    Rich Sloan , Co-Founder, Chief Startupologist, StartupNation

    • 335 posts
    June 30, 2006 6:08 AM EDT

    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?

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    Rich Sloan , Co-Founder, Chief Startupologist, StartupNation