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Why This Company Could Reshape Franchise Funding ApplePie Capital serves up a fresh financing model.

By Jason Daley

This story appears in the August 2015 issue of Entrepreneur. Subscribe »


The Great Recession was a catalyst for significant change in the franchise world. When banks stopped authorizing loans, potential franchisees began looking at alternative sources of startup money, including crowdfunding and accessing their 401(k) accounts.

While the availability of credit for small businesses has improved, alternative methods of financing are now firmly part of the funding landscape. One of those comes courtesy of San Francisco-based ApplePie Capital, a franchise loan marketplace that turns crowdsourcing on its head.

Launched in January by Denise Thomas, a tech and finance veteran, ApplePie has the potential to radically reshape the way franchisees get funded.

"I've always cared about access to capital for underserved markets, and I'm interested in disruptive technology," Thomas says. "A few years ago I was looking for an application in the small-business world. I realized there was a pretty consistent hole in franchise finance, especially for first-time owners or multi-unit operators in the one- to five-unit range."

Franchisees who receive a loan through ApplePie are guaranteed a full amount from $100,000 to $1 million. The company then sells fractional shares of those loans to qualified investors. ApplePie has made deals with 14 franchise brands, including Tropical Smoothie Café and Wetzel's Pretzels, to let their franchisees use the marketplace. Thomas, CEO, says she plans to serve 40 brands by the end of 2015.

In April the company closed a $6 million Series A financing round led by Signia Venture Partners; Freestyle Capital, QED Investors and Ron Suber, president of peer-to-peer investing site Prosper, also participated. Additionally, Thomas says, ApplePie has raised $28 million in debt capital and has issued dozens of loans.

We sat down with Thomas to learn how her company is helping franchisees get a slice of the financing pie.

Why is a marketplace better than crowdfunding or bank loans?

Crowdfunding usually doesn't involve a crowd; funding usually comes from people the franchisee knows. If the crowd invests only $2,500, and you need $25,000 to get started, how do you sign a lease and franchise agreements?

Banks don't give franchisees a line of credit that says they'll fund their next three units; it's one at a time. Franchisees have to go through that long process over and over again, and there's no guarantee they'll be approved. With ApplePie, there's a two-day prequalification and a five-day term sheet, and franchisees are funded within 30 days. It's a no-brainer. The franchisees are going to have money when they need it, not on the bank's timeline.

How do people invest in ApplePie?

People can invest in franchises one by one if they like. They might look at the profile of an entrepreneur and decide they like and want to invest in him or her. The other way is through a passive investment in a pool of franchisees. Investors then get a fixed-income return from the loans, and eventually larger institutions will be able to buy whole loans.

How do you decide which brands you'll lend to?

We do a lot of due diligence on these brands. We do in-depth interviews with the franchisor and look at their growth metrics, closure rates, the franchisee support they provide and average months to steady-state revenue. Some have never had a unit closure. We try to work with brands that have a closure rate of less than 2 percent and have shown over time they know what they're doing.

Most brands we've approached were pretty readily interested. We've signed up Capriotti's Sandwich Shop, Marco's Pizza and Einstein Bros. Bagels, and have lots of other major franchisors we're talking to.

Why are you called ApplePie?

You know, it's really hard to find URLs these days. We wanted a name that was accessible and friendly. I asked my team over for dinner. I told them they could have all the food and drink they wanted, but they couldn't leave until we came up with a name. We got to dessert, and we still didn't have a URL. Then I served my famous apple pie, and that was it. We couldn't believe that no one had already taken ApplePie Capital.

Jason Daley lives and writes in Madison, Wisconsin. His work regularly appears in Popular Science, Outside and other magazines.

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