FULL TRANSCRIPT
Slava (00:00)
In this episode, we talk with Kenny Rose, who's founder and CEO of FranShares the franchise investment platform. He explains to us how franchises are actually a solid business during recession and how it's actually 5 % of all GDP. So an interesting opportunity that most people don't know about. He has predictions about the future investment landscape. And of course, he gives us his perspective on three years out.
Hello and welcome to the latest episode of Smart Humans. I am super excited for today's guest. We have somebody covering a topic we haven't discussed before, which is franchises and how to invest into franchises. So here we have Kenny Rose, founder and CEO of FranShares Welcome.
Kenny Rose (02:02)
Thank you so much for having me. Excited to talk.
Slava (02:04)
Absolutely, so we always start in the beginning. How did you even get into alternative investments at all? Where did it all start? Take me back as far back as you like.
Kenny Rose (02:12)
Yeah.
You know, I'd say there's ⁓ really three different avenues that got me into it. One was early on. I'm a son of an entrepreneur, so I always learned about owning your own business, which is really its own type of alternative asset on its own. And I started my first business when I was 12 years old selling dollar cups of coffee to the campgrounds at a music festival. And ⁓ then there was my first professional drop into it, which was after college, I became a financial advisor at Merrill Lynch.
and so had a lot of like the top grade products out there. And then there was the major pivot, which was into the franchise space. You know, I was working at Merrill and I was doing it in San Francisco and I saw robo advisors coming. So I wanted to get out of the way of that train. And I, someone asked me what I knew about franchises and I'm like McDonald's and Subway. That's I found out they franchise everything, not just food. There's hair care, automotive fitness too.
people who clean your home to business services. ⁓ If you think of an industry, there are franchises for it. And so I got into the space as what's called a franchise broker. And so I basically work with people who were interested in franchise ownership, recommend specific brands for based on their budget, their skill set and their goals, and then coach them through that whole research and purchase process. And so yeah, I've always I'm an alternative guy. And there's always been alternative assets around it.
Slava (03:35)
love it. is it because your dad was an entrepreneur that you think you became the 12 year old selling the dollar coffee cups or do you say it's for some other reason?
Kenny Rose (03:46)
You know, I have to assume that was it. You know, I always watched him working for himself and there was always just something else you could be doing. And, you know, then they kind of naturally came up where, you know, I was talking with some friends or some kids and we'd see the campground started to go up and I was drinking coffee too young of an age. And I was like, when do they get coffee in the morning? And so we decided we'd be the ones that would do it and just started brewing, you know, a couple of pots at a time, fill it up into those big orange Gatorade coolers that you had when you were playing soccer.
And ⁓ yeah, just kind of sprouted from there.
Slava (04:18)
And what was that first conversation of becoming a franchise broker? Why did you enter into that space?
Kenny Rose (04:26)
You know, I like being. Yes, yes, this is what eventually spawned the idea for franchisees. And I've always liked being the big fish in a little pond. And I came across franchising and realized, you I was a college educated, well versed financial professional. But yet here I'm being told about this nearly trillion dollar industry and realizing I don't know that much about it. And so most people don't. And so, you know, honestly,
Slava (04:27)
This is before FranShares, right? This is...
Kenny Rose (04:52)
I lived in a small town in Colorado for five years that didn't even allow franchises there because it was like a really small community and they didn't want any big name. Like when they first got a Starbucks, the townspeople lost their minds. so like franchising was extra off my radar. But you know, I learned that it was about having systems in place that could help reduce the failure rate and increase your success, which was, you know, I'd seen my dad be successful and fail in businesses. And so I realized that this franchise model
Slava (04:59)
wow.
Kenny Rose (05:22)
really gave you all those blueprints that you needed to be successful in it.
Slava (05:26)
What kind of entrepreneur was your dad?
Kenny Rose (05:28)
So always in home sales, when we grew up in Arizona, was like home remodeling and residing. ⁓ Then eventually owned a window replacement business. And then we moved out to California and he got into the solar space. so he was one of the, well, he was a pioneer in the eighties for solar. And then it was just too expensive back then. And then the tax credits started rolling around and especially in California. so.
He, yeah, I watched him start grinding it up from scratch where he was put, you hanging up door hangers about getting residential solar. And then eventually got picked up and put on Fox News. And then he just realized that like media was really his niche to expand the business. And he grew to a 20 or 30 million year business there and was sponsoring the Chargers and the Padres. And, you know, it was ⁓ really great to see like how something can grow from literally nothing and be built up.
Slava (06:23)
That's amazing. How long were you a broker before you decided to create FranShares
Kenny Rose (06:29)
Well, in total, I was a broker for about 10 years, but I was probably a broker for about five years before when I decided to start FranShares. I'd heard about ⁓ the early platforms into alternative assets that were democratizing it like Fundrise. They just raised their Series A and venture funding. And I came across it and realized this is how I can fix the franchise industry.
The problem being that most people have a million bucks laying around. If they do have a million bucks laying around, they don't want to go run the business. They want someone else to run it. Then you've got the vast majority of other people who don't have a million bucks who would love to be an owner in that. At the time, I was in my early mid-20s and it like, hey, it's too early to get this big idea going, both myself as a professional and founder, but then also the alternatives market as a whole was like,
it had been around but being democratized, it was still in its infancy. And so I decided to go and I was working for a international franchise brokerage at the time, decided to go start my own and have an emphasis on really becoming a thought leader in the space. And so while I was building my brokerage, I would
reach out to journalists, write online wherever I could. ⁓ eventually a Quora article I write gets picked up by 50 million people. And then I get into Forbes on ABC. And so I built this media reach of over 300 million people without a penny in ad spend. And so I sat on the idea for FranShares for, like I said, about five or six years. And then the pandemic hit. And I read an article that people were gambling in the stock market because sports weren't on. And that was just like,
Slava (07:50)
Amazing.
Kenny Rose (08:11)
My next aha moment of like, okay, finance doesn't make sense. People need something that makes sense to be able to invest in. And so I shut my business down and got FranShares incorporated and then started raising the venture back and forth to get going.
Slava (08:23)
I love it. We'll double click on that in just a second. You say you're an alternatives guy. You're trying to get into all these different things. How do you think about your own personal net worth and how you invest? So what portion of your net worth would you say you put into alternative investments? And when I say alternative investments, I'm not referring to your ownership in your company, which obviously is probably significant. And obviously it's not your own home or public equities or bonds. So what do you like to put into things like pre IPO venture that's not your company?
Kenny Rose (08:43)
Mm-hmm.
Slava (08:53)
know, crypto, art, collectibles, real estate, that's not your own home or private credit.
Kenny Rose (08:59)
Yeah, you know, I really love what the BlackRock CEO said lately, which was that, you know, the 6040 is dead. It's about the 50, 30, 20. You know, I've always thought of myself as willing to take on higher risk for higher reward. And so I'd say that's maybe more of like a 50, 10, 40 for me instead. And so, yeah, I definitely put a good emphasis on to diversifying within a larger alternative slice. You know, and there's definitely times where I want that.
Slava (09:24)
amazing.
Kenny Rose (09:27)
part in the stocks to be less just because I there's a lot of problems out there with public trading.
Slava (09:33)
Yeah, give me an example. What problem do you not like?
Kenny Rose (09:36)
Twitter or X, you know, it doesn't matter what a company's fundamentals are. Something starts making headlines on social media and it will drastically decrease or increase the value of it. But it's like people's retirement can be destroyed because of even a joke these days that gets taken wrong. And, you know, it's just a lot of people that are preying on these publicly traded businesses to influence the cost of the shares and
You know, just a lot things that may not have like a direct bearing on what the business does, whether that's like international policy or something domestically and how that's going to fluctuate it when it's like, Hey, that wasn't their fault. That's not something that directly influences them, but people get scared and the fear can impact your net worth.
Slava (10:24)
Absolutely. So it's pretty amazing that as much as we want to believe that the public markets are efficient and it's all fundamentals, it's definitely not all fundamentals, right? There's a lot of sentiment that gets into it. And in the world of us all being so connected, it's crazy how quickly, you know, one word or one social tweet can, you know, push the price in the near term, in the near term. ⁓
Kenny Rose (10:44)
Yeah, efficiency
works both ways. It can be to make things really great, but it can also make things really bad. It's like the Internet as a whole, you know, I think email, it's like it made communication efficient, but then eventually scammers start coming in. And so like when there's something's really efficient, people will learn how to use that tool negatively.
Slava (11:03)
Exactly. So you said that the 60 40s day you're more 50 10 40s or 40 in the alternatives. How would you split that 40 across 100 % if you have the six major asset classes that we mentioned, which is pre IPO venture, crypto, real estate, private credit, art and collectibles.
Kenny Rose (11:20)
Well, I mean, you left out franchising, man, so I'm not sure. ⁓
Slava (11:24)
You can include
that, I mean, I would imagine that more in like the private credit space ⁓ in terms of the way I think about the return, but you could correct me. We categorize all of it in those six buckets, but where would you put franchising? Would it be like a private credit return or that type of return? Or you think about it differently or like real estate return?
Kenny Rose (11:42)
You know,
I really like to think it's its own new bucket. ⁓ You know, there's a lot of similarities.
Slava (11:47)
All right, give me, no, go for it. What are the similarities
and differences and tell me how you would split those seven buckets.
Kenny Rose (11:53)
Yeah, mean, similarities is that, you know, they are private businesses. are helping to fund growth. you know, it's also like, honestly, a lot of people view it more closely related to real estate, where it's like there's an income producing side of things, there is the equity growth. It's not backed on the land, but is instead back on the actual producing business itself. And so, you know, again, there's
similarities and differences between private credit real estate and franchising, which is why I think it makes up its own bucket. mean, the franchise industry does nearly 5 % of the US GDP. And to me, that's a big enough, that's a big enough section to have its own bucket. And, ⁓ you know, I am a big advocate of, you know, creating these like different income streams so that whether it's to help your retirement and maintain that lifestyle or whether it's like, I mean, in the past, it's like when you
Slava (12:34)
Totally.
Kenny Rose (12:49)
especially in the broker days, it's like you're not sure when your income is going to come. And so you want to be able to have some consistency throughout time. So, you know, I would definitely say if I had to split it across those seven, I'm a little more bearish on crypto, to be honest. I'd probably put that at like five percent. ⁓ And then franchising, I'm obviously a lot more bullish. I'd probably put that around 30 or 40 percent. ⁓ Real estate, I think, is a very good asset class, but I think it's a very overpriced one.
And so I'd say that's going to be, you know, smaller portion, maybe 10 to 15%. And I know my buckets are going to look very different than most people's just based on my own life experiences. Yeah. And then private credit again, with the similarities of franchising, I'd put that at like the 15 % pre IPO. Probably again, you don't want to get too deep into that, but probably 10 % there.
Slava (13:27)
No, no, no, these are just your buckets.
Kenny Rose (13:44)
think I'm at 80 now. And where did I leave out there?
Slava (13:47)
Art and Collectibles and yeah, you're at about 85.
Kenny Rose (13:51)
Yeah, and I'd split the rest between those two pretty evenly because again, it's a different side of the alternatives thing where you're more focused on that long term appreciation. And just like stocks, there's ones that are income producing that you focus on, but you also want those long term staples that are going to be consistent there.
Slava (14:10)
Awesome. Just a couple, double click on a couple of things you mentioned. You said I'm not so bullish on crypto, so 5 % and I think real estate's a little expensive. Can you just give me those two perspectives?
Kenny Rose (14:20)
Yeah. So when it comes to the real estate side of things, it is well known and accessible. You said accessible can kind of go both ways and it's gone down into different levels that's never been seen before. Like, you we, I mentioned BlackRock CEO, they're going down. It's funny. I used to say, ⁓ not just all the, buying everything up, but now they're going down to residential homes. And then someone corrected me and said, no, now they're building the residential homes. And so.
I think when you have so many people trading on these things so early on, there's not a whole lot of Delta that can be found in there. I mean, you're really going against the people who are the best in the business and so you're probably going to be overpaying afterwards. And again, everyone out there is a real estate expert. And so I think there's just so much competition because it is, you even though it's an alternative asset class, it is the most known of the asset classes. then with the crypto side of things, you know,
Slava (15:12)
Correct.
Kenny Rose (15:16)
I know a lot of people say they've made a lot of money in it. And I remember back when I was at Merrill, is ⁓ almost 15 years ago, probably 15 years ago. ⁓ someone brought up crypto then. so it's 2012, I believe. yeah, it would have been a great year to start. ⁓ we're in what we call the fishbowl, the glass room where it's just all the people smiling and dialing and guys.
Slava (15:33)
That's a good year. That would be a good year to start.
Kenny Rose (15:46)
talk shop in there and someone brought up crypto and we all laughed our butts off at him and said, yeah, right. Good luck. And I remember seeing a post on LinkedIn. This is probably 2017, 2018 is like one of the big spikes was happening. And he said like, man, they talked me out of it and I would have been worth X amount. And I'm like, hey, guilty. That was me. I'm sorry. But also like I got to say, there's a lot of times like that where you are right. And it would have been just a waste of money.
And so, but with crypto, think a lot of it is just based on hype in my eyes. Like I understand underlying technology and why it is a good store of value. But the actual vehicles that that technology is being used towards are things that are, in my opinion, often based on hype. You know, it's like someone again is tweeting about or actually about different cryptos and that can drive the value. It's like, well, that's not fundamentals. That's popularity.
And we've heard for a long time that like it's ⁓ diversified from the market. But yet as the market becomes worse, crypto tends to take a fall with it. And as markets go up, crypto tends to rise with it. So I don't think it's ⁓ more correlated than people ⁓ lead it on to believe.
Slava (17:02)
All right, great. ⁓ Big question here, open-ended, take it wherever you'd like. What is Kenny Rose's view on the economy and the market? So, layer in everything we discussed or that's out there. There's tariffs, there's inflation, there's jobs, there's, you know, who knows what's going on in the macro, there's ⁓ all the different asset classes that are moving, there's the public markets, there's, so give me your thoughts, what's happening right now, how do you look at today's economy and market?
Kenny Rose (17:14)
again.
I think we are in shaky times that are going to get shakier. know, ⁓ a lot of policy is changing and we just got started and it's not going to be winding down anytime soon. And whether you think things will work or things won't, that's still instability. That's unsure. And so I think we're at pretty shaky times. again, I'm clearly biased because I've dived into this world so much, but like
I like to both be very different, but also have a good upside. you know, I think as people are worried about tariffs and where the economy is going to go, they're still going to go get a cheap haircut or get a cheap value meal or go work out, get their oil change because they're not going to buy a new car. And so I think it's like really investing in these small businesses that have guardrails and predictability is where people should be going, at least like part of their portfolio, because you're unsure, add some insurance to it. And that's
really the core of diversification, I think especially within this space, it's something that, you know, more franchises are started during recessionary times than any other time. And yeah, and you can see a lot of people losing jobs and they want to go be their own boss. Some of them should be, some of them shouldn't be. And, you know, it's the opportunity where they can go start a business for themselves, but not by themselves. And again, and things where people know what they're going to get. And it's just a lower risk of failure.
Slava (18:35)
All right.
Kenny Rose (18:56)
And so that's, you know, again, I'm biased and I'm deep in the space, but I think it's one that people will become more familiar with over time as they get more of an education. Cause the thing is it's been completely inaccessible before. And that's what we're aiming to do is to like get education around it and then get opportunity to it. And so, you know, where I see great in that industry, you know, in that sector, um, you know, I see traditional is just going to keep getting rocked. What, you know,
up and down, it is not going to be consistent. And I think most people could agree on that. ⁓
Slava (19:32)
Do
you think we're gonna go into recession?
Kenny Rose (19:33)
Man, at this point, it's a coin toss in my mind. I want to say yes, but I also feel like the way social media is really has changed a lot of things. know, first it was like earlier on and Twitter's had a big impact on the economy. like now with TikTok and Instagram, it's you know, things can be going wrong, but then you'll still be hearing people about like able to invest in while prices are lower. And so like
I think more knowledge is out there to keep funding investments. ⁓ But if I had to lean one way or another, I'd say probably we will. And I'm also biased there as well because I know that's going to be great for what we do. ⁓ But yeah, I think when there's just this much instability and it's not a pandemic, it's going to go one way the other. And we don't have a lot of things. feel like that are ⁓ the wind in our sails to get us above it right now.
Slava (20:33)
So if recession is ahead of us, ⁓ where do you see ⁓ Fed rates or inflation going?
Kenny Rose (20:41)
⁓ I mean, I want to say they're both going to go up. I said that first, I think realistically, Fed rates will come down. ⁓ think inflation will go up. ⁓ Again, there's just so much in change in policy and who's making all these decisions that we don't know what the norm is going forward. And we don't know like
Slava (20:48)
Meaning you, sorry, you Fed rates are gonna go up?
Kenny Rose (21:10)
There's how markets have typically reacted. And then there's different people and different social platforms and different tools out there that are changing how these things move throughout the economy. So it's going to be really interesting to see. A terrifying, but interesting for sure.
Slava (21:27)
A little terrifying, but interesting. Awesome. So what year did you start FranShares?
Kenny Rose (21:32)
We were officially founded in 2020, but went and did some venture backing for it. I knew it's big business to build and you got to go raise some funds to do it right. And this is not, it was not an easy company to raise for because, you know, alternative assets can be very hit or miss with different venture firms. Some are wholeheartedly behind it. Others want to stay away from it because they're not sure like how adoption will be over time.
But then I've got this nasty F word that I'm pushing around franchising. You know, it's a, it's one that doesn't sound sexy to VCs, especially when they're looking for like unicorn type growth. They don't really see, they don't think of that in the franchise world. Yet there are unicorns that are franchisees and franchisors and, ⁓ but you need someone, they want to be comfortable in what they're investing in.
And so even if they're like good with like marketplaces or alternative investing, then you're still throwing franchising in. so eventually I got lucky and came across Chicago ventures, which ⁓ I'm based in Chicago. So it's great to have them in my backyard, but their founding partner had invested in a KFC roll up. Like a franchisee was put putting together a whole much more locations under one roof. And he made a ton of money on it and realized and said like, yeah, I know it's a good investment and I know this isn't available to everyone.
And so, you know, that was a process. mean, that took almost a year to go raise my first round and then spent a year or two to like build the team and platform. And so we launched, ⁓ really launched in 22. And yeah, and then had a great launch, had to go raise another round. ⁓ And so now we're just really at the scale up phase, which is really exciting. ⁓ yeah, it's been five long years, but five great years.
Slava (23:21)
So ⁓ for anybody who doesn't know, ⁓ who's listening, what is FranShares? What exactly do you offer?
Kenny Rose (23:28)
That's a great question. So FranShares is the first platform that lets you invest into franchising as part of your portfolio. So think of it as like a franchisee is raising from friends and family, but you get to become one of their friends and invest in existing locations, new locations, remodels, acquisitions, and really just create this whole slice of your alternative portfolio in the franchise space. That's income producing and equity growth.
Slava (23:55)
Amazing. So can you give me a sense of your scale? Like how much investment has gone through the platform or how many investments have been made or how many investors are there? Like whatever numbers you feel comfortable with.
Kenny Rose (24:06)
Yeah, yeah. So, mean, I'll say we've had ⁓ eight figures in commitments. So that's been diversified, deployed across different industries from, sorry, obviously food to waste management to kids services. We've gotten over 70,000 investors that have signed up and you know, lot of our offerings have just been accredited, available to accredited investors to start. you know, we've got a good amount of them in, but definitely looking for ⁓
excited to scale that. now we're getting started, we worked with some smaller brands, really proved the concept. so, you know, it's a it's a grind to get people interested in these smaller brands, even though they're successful, if they're not like a household name, it becomes a bit more of a lift to, you know, understand and have that comfort level, which is why we align ourselves with really good operators of those brands. But you know, now coming out, we're launching with Pizza Hut.
Dunkin Donuts, Comfort Inn, Meineke And so, yeah, we're excited to have like a lot of big scale coming up here ⁓ and just ability to diversify your portfolio into all these different industries and operators.
Slava (25:07)
Amazing.
Let's talk tactical. Let's say I want to be the investor. So you're the best sales person out there. You're the CEO. I'm trying to get involved. So do I have to be accredited or can I just be retail or do I have to be a qualified purchaser?
Kenny Rose (25:28)
So right now accredited, but in the next month or so, it'll be available for non accredited. And ⁓ yeah.
Slava (25:34)
Great. And then
what's my minimum investment that I can make?
Kenny Rose (25:37)
So right now it's 10,000 for an accredited investor, but shortly it'll be 500 for non-accredited investors. The idea is really to democratize this asset class to everyone. And, you know, I know different alternative investing platforms. Some have the theory of, hey, this is a new asset class. Let's just get big investors. And other ones say, hey, this is an old alternative asset. Let's bring it out to more people. But FranShares is really unique where the model works best having both types of investors.
because you want the accredited investors for the large size and scale of franchising, but the smaller investors, that's the Reddit versus Wall Street crowd. Like we want local investors to invest in local franchises. You know, cause if you invest 500 bucks in Dunkin's in your area, you don't go to Starbucks ever again. And you're making sure your friends don't either. And yeah, it's one of the reasons companies franchise is that they want not just access to capital, but access to community.
and normally it's one pair of boots on the ground, that's the franchisee. But then you can change that map to hundreds or thousands of people that are now active, passive owners, and they are customers and evangelists in that community.
Slava (26:49)
So going back to me investing my $10,000, sorry, let's make it $50,000 just so we can talk about a bigger number. Do I pick one franchise investment at a time? So I pick the Dunkin' and the Pizza Hut and the Comfort Inn and the local haircut place and I put five separate $10,000 investments or can I just roll all 50 into a fun product?
or should I put all 50 into one investment? How do I have those options?
Kenny Rose (27:20)
Great question. So right now it's build your own portfolio. So you'd be deploying that 10,000 across five different opportunities. And in each opportunity, you get to learn about the brand, the operator and the investment opportunity. hopefully later this year, if not early next year, we'll be rolling out a portfolio so you can invest in diversify. ⁓ Part of that is ⁓ becoming like a broker dealer and RIA. And part of it's also just like building out
our track record further and having a great opportunity that people will be confident in because it's not just like give me access to the franchise industry. It's like, well, yes, I'd want to access, what do you have within it that I'm getting access to?
Slava (28:02)
So when I pick that one investment for 10K, what are my fees on that? And ⁓ after, what's my fees on my liquidity?
Kenny Rose (28:09)
Great question. right now the idea is as low as fees as possible. So it's typically one annual upfront fee that's five or 600 bucks. And then an annual fee that's about a hundred, maybe 200, depending on the opportunity. And we take that out of dividends that come along eventually too. you know, it's not hurting your principle. It's something that like we want, we want your investment to succeed. So we succeed as well.
We also do charge typically on the franchise side. we're, instead of taking five or 10 % of the raise, we find that that would really hurt their ability to be successful as franchisees. So instead we are another service provider, ranges from a couple hundred to a couple thousand a month where we're their investor relations arm. And so we're managing everyone on the cap table. And so instead of taking that big chunk early, that hurts the business and doesn't keep us incentivized to make sure they're successful.
it's we want to be aligned with their growth for the long term.
Slava (29:07)
So if I invest $50,000 into one haircut place, what are the fees you're taking out of that? Is five to 600 annual and then the 200 on top of that or how does that work?
Kenny Rose (29:19)
5
to 600 one time and then 100 to 200 annuals. you right now it's we want to keep fees as ⁓ not ⁓ we don't want fees to be deterrent for coming in. Like we want people to get in, get comfortable and then keep coming for more. This is a very high volume business at the end of the day. And so like we want people to come for many different types of investments over many years.
Slava (29:37)
Got it.
And it doesn't matter if I put in 10K or 50K, those fees are the same. Okay, great. And then you have like almost like a SaaS business on the other side where you're charging them like monthly to be able to have investor relations on behalf of the franchise. So I imagine that works lot better with the smaller franchises because they kind of want to almost outsource that ability to you guys.
Kenny Rose (30:02)
Exactly. Yeah. And plus, like I said, it's not taking a big chunk of what they raise right out of it. And so, you know, again, that's just going to hurt their ability to start and grow. And we don't want that. ⁓ And yeah, so it's a South side for the franchises and something that will expand more on in the future. You know, besides just like managing their investors, like there's a lot of great technology out there that's available for franchises that they often don't know about because they're really focused on running their business. And so
We've actually put together a lot of like group discounts for things from like accounting and HR to insurance and tax. And so they're able to basically get like these big group rates ⁓ as a whether it's a small or large scale franchisee.
Slava (30:43)
So you used to be a broker and now you have an incredible startup. So you're as smart as it gets. So let's say I don't know much about franchises, which I don't. And I told you right now that I'm ready to commit on this podcast, $50,000. I don't know what to choose. I want to use your platform. I want you to make the choices for me. I want to make a good amount of money. I'm higher risk. I want to try to get my money out after at least three years, but I'm willing to let it ride after that.
⁓ So I don't want to be locked up for let's call it 10 years without an option. So I'm willing to be locked up for three years. ⁓ so Kenny, where do you put my 50K?
Kenny Rose (31:13)
Mm-hmm.
Yeah, so again, I'd say diversified across the different offerings that we have out there. So you have exposure to different industries, different geographies and different operators. ⁓ You you'll find ones that are specific to your time horizon. So we have some that are longer and people are looking for like more long term growth. Others. Yeah.
Slava (31:39)
But let's say I'm being very specific. We're talking about me, 50,000
of those parameters, I want answers.
Kenny Rose (31:45)
⁓ awesome. yeah, we've got some we got some small cap and some large cap type franchises there ⁓ on the smaller side. There's two different operators there. One might be a bit long for your time horizon, but I really like what they're doing. ⁓ These guys are their multi unit, multi brand franchisees for choice hotels like comfort and sleep inn quality inn
I'd have been a top producer there. ⁓ They were also a Verizon store franchisees and they were developer of the year with that brand. And then they got into Scooter's Coffee, which ⁓ if you're not familiar with it, it's because you live in a densely populated city. ⁓ But they're basically the anti Starbucks for the suburbs, you know, very quick, simpler orders, get in, get out. And their second largest coffee franchise behind Dunkin and they were developer of the year twice for that brand. And they set the record for
fastest store to a million dollars, then broke that record by 60 days.
Slava (32:42)
⁓ So would you put all 50 of mine into that or just 10k out of the 50 into that?
Kenny Rose (32:46)
Just 10k. I haven't gotten to what they're actually doing there. Now they're in a brand called Hawaiian Bros, which is just sky rock. mean, they got 300 locations open or in development right now, which puts them in very elite company. There's more brands out there in franchising than there are stocks on the NASDAQ and only about 10 or 15.
Slava (33:03)
So how should
I think about the returns on that 10K? Am I gonna get an annual dividend? how much should I expect for this specific opportunity?
Kenny Rose (33:12)
Yeah, so it's annual dividends as well as that equity growth side of things there. And so when you're looking at like, you know, which one's going to or sorry, the split between that's going to be different on each of them, because some are more income focused. Some are. ⁓ yeah. So the target net cash yield or what's typically dividends, you know, takes time to ramp up, but on average, it'll be 15 to 16 percent a year.
Slava (33:28)
But for this, for the one you're pitching right now, the one that you're saying.
Kenny Rose (33:40)
And then ⁓ total target net IRR is going to be 23 to 24 % because they are scaling multiple locations and there's equity growth in those locations.
Slava (33:50)
What year do I start getting the dividends? That type of number, the 50, 60.
Kenny Rose (33:54)
For that
one, I think it's about two and a half years, a bit longer of a ramp up because they're building out the entire state of Iowa for this brand. Then there's other ones like Everbowl, which is they were actually just on Shark Tank not long ago. That one, those locations are cash flowing in six months and paying dividends. And their target net cash is a little over 12 % annually. And then their total net IRR is looking a little over 19%.
Slava (34:21)
Got it. And so my risk here is they're not going to execute the way they expect. So they're not going be able to give me the dividend that I hope they were going to give and potentially they're going to fail. So I lose the equity value. Is that right? Great. And, ⁓ are you just the broker here or are you taking any underwriting risk as franchisees? Like, are you actually diligencing this and putting in your own money or is it just saying, Hey, we're matchmaking. Here's an opportunity here. You're the investor.
Kenny Rose (34:30)
Yep, that's correct.
We are heavily vetting any opportunity that comes on the platform because it's our own name at the end of the day and it is how we make money. We accept less than 1 % of the opportunities that come across and that's saying it very nicely. I mean, I'll see a thousand opportunities a year. And I always say we're vetting on three things, the brand, the operator and the opportunity. Like the brand,
either has to be something that's very large and known and doing well, or something that's like a very high growth earlier brand, but it can't be what we call an emerging one because they're too young. But great thing about franchising is that it's actually regulated by the Federal Trade Commission. And so there's a lot of transparency that's found there from how much locations cost to start, how much the average location makes, is there litigation against the franchise, ⁓ the franchisors' financials. So we vet very heavily on that front first to see like, we even want to work
this brand. And then from the operator, we want someone that's got a demonstrated history of success. So either they are already franchisees of this brand performing really well, or they are someone who's been multi unit multi brand operators across other industries, and they're working on their next big thing. So and then the opportunity, you know, if we get someone that says like, Hey, I'll work with retail investors, but I'll give them 3 % interest. It's like, great, that sounds great for you. No one's gonna invest in that. And we have to find something that
It's a really good opportunity for them. But yeah, so there's a lot of underwriting that happens on multiple levels to make sure it's something that we want to put on the platform. I mean, if we were looking at anyone and everyone, like we could have a self-serve model, get yourself listed, but that would not be in the best interest of investors.
Slava (36:30)
I agree. So if I was trying to understand the fat part of the bell curve as to what kind of returns I should expect ⁓ as an investor into franchises, obviously you're going to say it depends on the unique opportunity, but directionally, how should I think of franchising as my risk reward in terms of the types of returns I should be expecting?
Kenny Rose (36:43)
Mm-hmm.
Yeah, so it's medium risk, medium high return. know, franchising already is a more established way of getting businesses launched with a reduced failure rate. You know, we've seen different numbers over the years, but the International Franchise Association, last I saw, they said after five years, a sp-
startup small business is like a 90 % failure rate versus a 90 % success rate in franchising. Now those numbers, again, there's like, there could be adverse selection there, by the way, it's like that there is a lot of systems in place to get you started. And you know, you're not trying to figure it out from scratch. And so you've already got that as your basis. And then we're underwriting based on who the brands and the operators are to reduce that risk even more.
But at the end of the day, never want to say anything's low risk, to be honest. It just nothing about that sounds right. And then I say medium high returns because, you know, it's not going to be like your crypto or ⁓ venture boom or bust, but it is going to be a very consistent hitter that gets you on base a whole lot. ⁓
Slava (38:01)
Is that
10, 12, 14 more?
Kenny Rose (38:03)
We try
and target 15 to 20 % IRR and that's a combination of the income dividends as well as the equity growth. sometimes you'll see that's less on the income side but higher on the growth side and vice versa.
Slava (38:18)
Okay, great. Anything else I should know as a franchise investor since you're the expert or that I need to know about franchise?
Kenny Rose (38:26)
Yeah, well, I'd start off by saying that you're not a franchise expert. And so you want to get educated. And we're very big on education first. So like when you sign up, there's an investor guide that you get. And I always recommend like, go read it, get educated, understand the franchise industry, the brands, the opportunities, why people do this. And then right now there's another reason why it's like a build your own portfolio model is that like, you should know who you're investing in. so like,
Don't think of it as like, yeah, I'll throw a couple bucks on this and see how it works. It's like, no, go understand who these people are that you're investing in. It's like venture investing and you're understanding their background, their drive, their plan, and just with a lot less risk because they're not trying to make the next Facebook, they're trying to extend something that's already out there.
Slava (39:12)
Awesome. You obviously have great perspective. You're reading a lot, you're watching a lot, you're learning a lot. What are the things that you recommend for our listeners that you like to read on a daily, monthly, weekly basis that you like to watch, that you like to listen to? What's the sort of content that makes Kenny Kenny?
Kenny Rose (39:28)
Yeah, you know, I like learning from people, especially not so much like the curated what's out there for the mass mass audience, but instead, like things like newsletters and LinkedIn, like what are people saying? ⁓ What are their thoughts on it? You finding people who have a good perspective, who can who are doing the work to properly digest all these things and ⁓ being able to make it something that you can understand, but while still like trying to pick up the little things. So like
I have newsletters for the franchise industry. have newsletters.
Slava (39:58)
Which one?
So give me two newsletters you recommend and two LinkedIn people you recommend.
Kenny Rose (40:03)
All right. The Wolf of Franchises is a great one. And ⁓ FranShares has its own newsletter that I obviously have to plug here. And we talk about both market news as well as offering news and you try and get like things from new technology to acquisitions that are happening out there. Like the franchise world is extremely active. And so you definitely want to stay on top of it. ⁓ You know, on the LinkedIn side, I honestly I try and keep it pretty broad. Like there's no one I'm getting notifications for on there. I let
Slava (40:06)
Great.
Kenny Rose (40:32)
I will do my scroll in the morning and seeing what recurring themes are coming up from my people. I've got 30,000 plus followers, think, on there. You get stuff from all over the country, all over the world, all these different industries. You have to be well-versed in everything. By just pigeonholing yourself into a couple of influencers, you're going to hear those couple insights from their specific point of view versus I get to sample the world.
Slava (40:58)
Perfect. And our final question, which is putting you on the spot for three years out, give us one public markets investment and one private markets investment ⁓ with an actual thing that we can follow up to track. ⁓ What would be your investment suggestions for three years out? Obviously this is not investment advice. So first let's go with your public. What is your public investment for three years out?
Kenny Rose (41:20)
You know, public, ⁓ I'm going to keep it in the family here. got a brother that works at Qualcomm and I love hearing about the different things that I mean, they've had ups and downs over the years, but just hearing the things that are coming out there, especially for like, you know, there's the saying, when everyone's mining gold, ⁓ go sell shovels. And that's what I Qualcomm for is that they are really on the chip side and like, they're
not going to be like your AMD or Nvidia, but they are going to be like the big B2B partners that are doing things on a larger scale more consistently. so they may not have like the best of the best, but they are going to consolidate things and ⁓ be providing for Apple. you've got like what they refer to as the edge of like where you're getting your computing power for AI, it's going to be on your phone soon. And that's stuff that Qualcomm is working on. And so like
know, AMD could make the best chips, but Qualcomm, think, will sell it to more people. ⁓ again, I'm just supportive of the family there.
Slava (42:20)
All right,
and you're keeping it in San Diego, I believe, so that's awesome. ⁓ And then what's your private pick? It could be across any asset class, obviously, know, franchise is the best, but it just can't be your own company.
Kenny Rose (42:23)
Yep.
Gosh, you got me there. I realize it couldn't be my own company. It's a great question.
You know, I would if I had endless capital to do it with, I would probably look on the venture side because I like to think I've got a good eye and a good ear for like things that are realistic and things that are BS. And ⁓ I think there's a lot of change and growth that's happening out there. And so a lot of opportunity and, you know, outside of what I do that I can't say I am more focused on, you know, adding some growth along with the income.
And I think that's.
Slava (43:05)
but I'm
asking for specific things. What would be your specific choice, just like you picked Qualcomm? What would be your specific private markets choice?
Kenny Rose (43:13)
Hmm. Great question. I would, oh, I got one. It's another founder I know here in Chicago where I'm based and it's got a lot of traction super early, but I know they're going to kill it. It's a company called Levee L-E-V-E-E. And basically they are the frontline source of data points. So you think about like data is the source of all truth in business.
And AI is changing data. What they do is basically make it so your frontline workers think about like they're starting off in hotels. So like the housekeepers, they scan their phone around the room and pick up different data points of like all the things and how they're set up and making sure the rooms are turned over properly. So you now don't have to have a manager come down there and sign off. They're instantly getting data points uploaded to their clouds. They know when rooms are ready and what things are getting used the most.
Slava (43:58)
wow.
Kenny Rose (44:04)
And, you know, that's going to eventually, like, we're going to use that heavily in the franchise space, not just hotels, but like anything where there are frontline workers and repeated processes, they will get data points for and be able to optimize. And so that's going to make franchises more profitable. And I think it's just a great technology there.
Slava (44:21)
Perfect, amazing choice. So Kenny, we covered a lot of ground, starting out with your father was an entrepreneur and that led you to become a 12 year old doing your first dollar cup coffees, which is amazing and that's where your entrepreneur instinct kicked in. And then you came from your small town in Colorado where there wasn't even franchises. So that obviously now you whiplash to now you love franchises. You were able to create awesome content, 300 million media impressions without spending any marketing money.
In the alt world, you're not at 60-40. You think that's dead, like they say, and you're at 50-10-40, which, you know, 40 % into alt. You gave us a really interesting breakdown as to how you positioned across those seven buckets. You gave us the seventh, which is franchises. I love your feedback on recession and potentially franchises is a great, you know, play during recession, because a lot of great franchises happen. During recession, you actually said it was a coin toss, whether or not we would get to recession. So let's see what happens there. In 2020, you started Franchise. A couple of years later, you actually got to launch, and now you're at eight digit.
you know, transaction volume with 70,000 investors and crushing it. Obviously you have a $10,000 minimum now, but you're looking to go into retail. You really focus on the diligence and having the curated the best options, know, through brand opportunity and the operator. And then of course you gave us some good content, whether it's the Wolf of franchises, your franchise newsletter. And then I love the public and private pick, which keeping the family will call come. And then you gave us a really unique one with Levee. Thank you so much, Kenny.
Kenny Rose (45:41)
Thank you so much. We appreciate the time.
