Is it possible to find funding for a startup that will grow into multiple franchise units?

QUESTION:

I am looking to start a company that I vision will grow into operating multiple franchise units. Is it possible that I can find startup funding?  If so, where?

ANSWER:

Naomi Kokubo

Naomi Kokubo

by Naomi Kokubo, Cofounder of Founders Space

The answer is yes.  Venture firms do fund companies they feel will grow into successful franchises.  If they’re convinced you’ll become the next Crispy Cream Donuts or Starbucks, you won’t have trouble getting financing from VCs.   That said, you need to prove that you have the winning formula and vision.

To do this you need to hit several milestones, which include having at least one store up and running, so that you can demonstrate how you’re different and how profitable you can be.  Without some sort of proof of concept, such as a flagship store, it’s very hard to obtain venture funding — unless, of course, you have a solid track record building franchises in the past.

A more practical source of funding in the early stage is an angel investor.  But to get angel money you still need to show that you can execute on your vision.   Is there a way to start off very small?   If so, that would be the way to go.  Get a micro-store up and running and prove out the basic premise of your business, and then use this to raise money from angels, and later VCs.

Other sources of funding tend to be family and friends.  Banks still aren’t loaning money to most businesses — especially those who aren’t cash-flow positive.   You can take out a second mortgage on your house, but that’s risky.   What you really need to do is figure out how you can bootstrap your business until it gets to the point where you can show potential investors exactly how they’ll make money.

I can’t emphasize enough the benefits of thinking small.   Everyone has a big vision, but you need to break it down to something you can tackle with the resources available, and then build upon that.  Some of the biggest, most successful companies in the world started off on a shoestring budget and worked their way up.

I hope this helps!

Comments & Advice:
  1. Budha Has says:

    Get a few franchises, make some money. Then look for funding? VCs want to ride on busses. They really dont want to fund making of the bus. Get your bus going, funding will come.

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