Angel Investors Funding Franchises

Written on the 8 March 2011 by Theo Afkoudias

So the bank has politely declined your request to finance your franchise purchase- but they’ll keep your mortgage for the moment off course! 

Before you abandon your dream of owning a franchise, it may be time to consider the other funding alternative – angel investors.  To be clear, this involves exchanging a degree of ownership in your franchise business in exchange for part or all of the money you need to make the acquisition.

You see, the elements that make a franchise attractive to you are the same as those that make a franchise attractive to an angel investor; well known brands, proven and established operational models, business sites that have been operating successfully, etc.

So how does a prospective franchisee attract an angel investor, or investor funding in general. 

One of the major challenges of attracting angel investors is already taken care for you by virtue of your interest in a franchise – there is a high probability that the investor already knows the franchise brand and understands the business model. They understand the value of paying for a reputable franchise brand so as a potential franchisee, you don’t have to sell the angel investor on the business concept. 

The other challenge in attracting an angel investor is selling them on the fact that you are the best person to own and run the franchise. Often, this is what you need to do for the franchisor as well. They usually have a set of criteria they look for in their potential franchisees. Your background, experience, willingness to learn, etc all play a big part here.  So, in fact, you’re probably already well versed in ‘selling yourself’ to the franchisor so doing this for angel investors should come very naturally.

Looked at this way, by default, you’ve satisfied a great degree of what angel investors look for. So how does one find an angel investor or attract investor funding in generally?

Angel investment, investors funding, or equity funding as it’s sometimes referred to, is governed by ASIC – the Australian corporate watchdog.  To protect the Australian public, ASIC have rules and regulations about investor funding activities; who may be approached and under what conditions, how much may be asked for and they also govern the nature of services that match people with angel investors, etc. It’s important to ensure you stay within the law.

Like anything, preparation and presentation is key. How you present the opportunity and the type of documentation you present to an angel investor is critical to your overall success.  

The amount of money you are seeking and the percentage of the business you are willing to give away are two important variables that require your consideration. Having said this, one of the beauties of angel investors is that everything is up for negotiation- there are no fixed rules. It is just two parties discussing the franchise business and its future as they both see it including the financial upside, the risks and then coming up with an agreement that suit both parties. The last thing an angel investor wants is for you to be de-motivated and disinterested in running the business. There are no firm rules here and often angel investors use tools such as future KPIs to help determine a level of ownership that may change in the future. The angel investor may be thinking, 

“You’re confident that you can make $X sales /profit within Y months/years – prove that to me and we’ll adjust my ownership (up or down) depending on your results.“

To present an opportunity to an angel investor, often a well structured investor brief is required. A succinct outline of the business opportunity and financial projections, the proprietor’s background, overall business risks and the investment opportunity will suffice by way of documentation. A well regarded angel investor matching service then put you in touch with willing angels. This typically works well for those seeking funds in the range of low $hundred thousands.

For those seeking $millions to buy their perfect franchise, often a prospectus may be needed by way of documentation. This is a document that is registered with ASIC and allows the targeting of unlimited investors. The benefit here is the amount sought per investor is broken down to what may be a few thousand dollars each.  A client of mine, Azzurro Finance Limited offers such an example of people who are doing just his to raise $5m in investor funding  with the main purpose  being to purchase a Mortgage Choice franchise.

Angel investors and investor funding is often overlooked as a viable way to finance a franchise purchase but well worth your consideration – especially when the bank says no.

For assistance with Angel investors and investor funding in general  contact 
Theo Afkoudias – 0412 800440
www.projectprospectus.com.au