CrowdFranchise combines two industries to create a solution to funding new neighborhood businesses: franchising and crowdfunding. We are advocates of enhancing both of these industries to better our communities and economy.

Franchising


What is a franchise?

A franchise is the agreement or license between two legally independent parties which gives a person or group of people (franchisee) the right to market a product or service using the trade name and operating methods of another business (franchisor). The word “franchise” goes back to Anglo-French, meaning freedom and liberty. Check out this franchising video from the International Franchise Association.


What good does franchising do?

“Owning a franchise allows you to go into business for yourself, but not by yourself.”

Franchises are proven business models. After 10 years, only 16 percent of existing startups are still in businesses. With franchises, it’s 90 percent.* Whether it’s a single-unit, area development agreement or master license, franchises provide franchisees with a confident level of independence while providing an established product our service.


The franchising community represents: **

  • More than 825,000 franchise business
  • Nearly 18 million U.S. jobs
  • $2.1 trillion of economic output for the U.S. economy

*According to www.frannet.com **According to www.franchise.org


What expenses should be planned for in the crowdfunding goal?

The funding needs for every franchise is different, but just about all our listings will include the following:

  • Legal Fees: Prospective franchisees should seek advice from an experienced franchise attorney to understand the legal issues and to protect them from making costly mistakes.
  • Franchise Fee: The up-front cost for a franchisee to join a franchise system and use the trademark or trade name of a franchisor.
  • Real Estate/Development Fees: Includes the costs of a lease, store build-out and equipment needed to build a franchise location.
  • Training Fees: Franchisees will be required to pay for training from the franchisor on how to operate their franchise.

What ongoing payments are required from operating a franchise?

The payment requirements for every franchise is different, but the industry standards typically include these ongoing payments:

  • Royalties: Franchisors will require a weekly or monthly percentage of gross income from the unit for the right to use the franchisor’s name.
  • Marketing/Advertising: A marketing or advertising fund is collected from the franchisor for national advertising and promotion of the brand.

Crowdfunding


What is crowdfunding?

Crowdfunding is a method used to raise funds for a project or business by seeking small amounts from a large number people.

There are four general types of crowdfunding campaigns: donation, rewards, debt and equity. Each of these types of crowdfunding are defined by what the crowd expects in return after contributing to the campaign.


How does equity and debt crowdfunding work?

Equity-based crowdfunding is one of the four types of crowdfunding campaigns where investors from the crowd can expect to receive partial ownership in the company which is raising funds. In debt-based crowdfunding, investors lend money to a crowdfunding campaign and expect to have their money repaid at a set interest rate.

Over the past two years, drastic changes have taken place in federal legislations allowing for more freedom in crowdfunding. By simplifying the process of acquiring startup funds online, more small businesses and jobs can be created to positively impact our economy. Check out this equity crowdfunding video from CNBC.


How does convertible debt work?

Convertible debt is the most popular form of investing in new businesses because of its history, simplicity and affordability. In convertible debt offerings, convertible notes are rewarded in return of investments.

All campaigns on CrowdFranchise are convertible debt offerings. The first 50 percent of the investment will be paid back to investors as a loan monthly for three years (for a total of 36 payments). After the first three years, the investor has the option to continue getting their debt paid back, or convert the remaining 50 percent of the investment into equity with a predetermined conversion rate.


Terms to know

Accredited Investor: A person who can bear the economic risk of investing in unregistered securities as defined by federal securities laws. An accredited investor has:

  • Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, or
  • A net worth of over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

See more on the SEC’s definition for accredited investors.

JOBS Act Title II (effective Sept. 23, 2013): Component of the JOBS Act which allows private startups and small businesses to raise investment funds from accredited investors to raise investment funds from accredited investors through general solicitation. With Title II rules in place, using sites life Facebook or Twitter and taking in investments online via equity crowdfunding sites is possible to help propel the funding stages of new businesses.

See the SEC’s fact sheet on Title II.

JOBS Act Title III (proposed Oct. 23, 2013): Component of the JOBS Act which, once passed, will let non-accredited investors participate and invest online into private companies in small increments ($1,000 - $5,000).

See the SEC’s FAQ on the JOBS Act Title III crowdfunding rules here.

Rule 506(c): An amendment to the Securities Act of 1993 which permits the use of general solicitation in securities offerings provided that all purchasers in the offering are accredited investors and the issuer takes reasonable steps to verify such status.

See more from the SEC on Regulation D Rule 506(c)