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After years marked by scandals, historic lows, and harrowing tales of their peers putting their life savings into Ethereum, many Millennial investors are looking for alternatives to crypto.
The question is, where do they go from here? Even if they’ve been burned by Bitcoin, Millennials still don’t see traditional investments as the solution. Wealthy Millennials in particular don’t believe it’s possible to achieve above average from stocks and index funds alone. Evidence suggests they’re increasingly considering an investment vehicle so stable and old-school it might actually make their parents proud — Millennials are getting into franchises.
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Millennials discover franchising
It shouldn’t be surprising that the generation known for distrusting traditional financial systems would be interested in alternative asset ownership. Millennials watched their parents’ stock and bond investments tank during the financial crisis and dot-com crash. They may have learned the value of portfolio diversification and investing outside the public market then without fully realizing it.
Even still, the idea of a former crypto kid investing in a car wash or waste management business can seem a little unbelievable. But really, it’s just the latest development in the generational shift towards franchising.
In the U.S., the number of Millennials pursuing franchise investments grew from 18% in 2018 to 25% in 2021, even surpassing prospective Baby Boomer investors. The Canadian Franchising Association has also observed a surge in interest, reporting that Millennials accounted for 30% of prospective investors in 2018. In the U.K., the number of new franchise investors under 30 grew from 14% in 2011 to 27% in 2018.
There’s also no shortage of anecdotes to complete the story. Established chains, like the 100-year old A&W Restaurants, have launched training and scholarship programs to recruit Millennial investors. Millennial franchise owners and founders evangelize the long-term equity appreciation aspects of the model in effort to attract other young partners; examples include painting company Spray-Net, house detailing company Shack Shine, and numerous acai bowl restaurants. Celebrities have long invested in franchises, but Millennial celebrities Wiz Khalifa and MrBeast have innovated on the concept of franchising entirely by launching their virtual restaurant chains.
But is it ‘cooler’ than crypto?
I run FranShares, a platform for franchise investing. Of the 40,000+ investors on our waitlist, the single largest group are Millennials. 63% of them invested in crypto and 15% in NFTs before becoming interested in franchises. These aren’t trust fund kids: the majority have a net worth between $0-$99K. 72% said they’re drawn to franchise investing because they want passive income and regular payouts.
There will always be crypto purists, who will always skew young in age and investment experience. The Millennials making the 180-degree shift from crypto to franchises were likely never interested in crypto for the thrill of high-risk, potentially-high-rewards. They were looking for an alternative to stocks, bonds and mutual funds. Somewhere along the way, they may have learned that the crypto market can be manipulated just like the stock market — where a single post from an interested party like Elon Musk or Kim Kardiashian can cause the price of coins to spike and plummet.
Reaching for a more “traditional” alternative asset
Millennials interested in alternative assets beyond crypto have no shortage of investment options. Unpacking some of the reasons why they’re specifically drawn to franchises may help paint their investment attitudes in a new light.
First, tangible investments are trending up: people are warming to assets they can see and touch (like art, wine, and even Pokémon cards). Franchises take the benefits of real assets a step further. They tend to fall in need-based industries that perform well in all economic conditions. Millennials still licking the wounds of failed crypto investments find the recession-resiliency of franchises compelling.
When the stock or crypto market crashes, people still get their hair cut, wash their cars, buy gym memberships, and eat at quick-service restaurants. Crypto is based on scarcity. It can’t hedge against long-term inflation. Franchises can: when supply prices rise incrementally, units will raise their prices reflectively to maintain profitability over time.
Millennials distressed by crypto’s high volatility and lack of regulation likely appreciate that franchises can offer predictable cash flow and returns similar to venture capital investing. As a business model, they’re built on data and metrics from already-successful locations. As an investment model, the franchise industry’s disclosures are regulated by the FTC, and franchise share offerings may be subject to SEC regulation.
YOLO investing left Millennials hungry
Since entering the workforce, Millennials have experienced a financial crisis, a slow job market, mountains of student debt and skyrocketing housing costs. Who can blame them for throwing caution to the wind with “stonks” and YOLO-style day trading?
Crypto may not have delivered the express ticket to long-term wealth many Millennials were looking for, but maybe the real treasure was the hard-won investment experience they gained along the way. The decision to transition their portfolios to a predictable, income-producing real asset like franchises — if not a sign of personal maturity — characterizes Millennials as a savvier and more prudent group of investors than they’ve been given credit for.