What Franchisees and Franchisors Should Consider when Crowdfunding

by | Wednesday December 29, 2021
What Franchisees and Franchisors Should Consider when Crowdfunding

With franchisees and franchisors looking to secure capital, a growing trend is using Regulation CF to raise capital from accredited and nonaccredited investors. Since RegCF’s expansion to $5M in early 2021, the updated limit provides even more potential for franchises to raise the money they need to fund operations and expansions. 

 

Here are some things franchisees and franchisors should consider:

 

Anyone Can Invest

 

Regardless of income, anyone can invest in a RegCF offering. This means that both wealthy accredited investors and everyday investors can also become shareholders. With this in mind, the pool of potential investors increases substantially compared to traditional private investments. 

 

Fees and Compliance

 

When conducting a RegCF offering, franchisees and franchisors should be prepared to pay portal fees, potential broker-dealer fees, and legal fees to prepare the offering documents, for example. There will also be a cost to engage with an investor acquisition firm to market the offering to potential investors. 

 

Building the Franchise 

 

While one of the most obvious advantages of a crowdfunding campaign is securing funding to grow, there are other benefits. For example, some investors may become franchisees while others are incentivized to become loyal customers. A successful RegCF campaign can also be useful for brand marketing. 

 

Alternative Financing

 

For some franchisees, getting a traditional bank loan is not possible. Some banks have requirements for how long a franchise has been open when applying, so this option is not feasible for newer franchises. Instead, crowdfunding can provide the necessary funding to open or expand to new locations. 

 

More Favorable Terms

 

Sometimes, offers from private investors like venture capital or private equity firms can be unattractive to franchisors. The investor may request too much control over the company that the owner would not want to give up, making the deal impossible. Instead, crowdfunding allows companies to dictate the deal and retain control over the company. 

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Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.

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