Emerging Franchisors Are Wrong About Private Equity: How To Fix It
by Patrick Galleher, originally published on Forbes.com on September 2, 2025
Private equity interest in franchising is at an all-time high, and for good reason. Franchises offer scalable models, recurring revenue streams and the potential for rapid growth. For emerging franchisors, this wave of investor demand feels like a golden opportunity. But here’s the reality: Most early-stage brands aren’t ready for institutional capital, even if they think they are.
After years of advising franchise brands through growth and M&A, I’ve seen the same story repeat itself. Founders assume that selling a few dozen units or riding a hot trend means they’ll attract premium offers. They focus on momentum instead of fundamentals. When it comes time for diligence, those gaps become glaring and costly.
The good news? These pitfalls are avoidable. But first, you need to understand what private equity really values and what it doesn’t.
The Illusion Of Early Momentum
One of the most common misconceptions among emerging franchisors is that rapid early growth guarantees investor appeal. Selling 50 or even 100 territories in the first year is impressive, but it’s not enough. Private equity firms aren’t buying development numbers. They’re buying performance, predictability and scalability.
If your early franchisees aren’t profitable or lack strong support, that momentum can actually become a liability. The fastest way to kill a deal? Franchisee validation calls that reveal dissatisfaction or thin margins. A handful of well-performing units with proven economics is far more compelling than a map full of struggling operators.
Infrastructure isn’t optional. It’s the product.
Another frequent blind spot is operational infrastructure. Many founders are exceptional entrepreneurs. They’ve built great brands, hired lean teams and driven growth through sheer determination. But scaling a franchise system isn’t about hustle, it’s about systems.
Investors want to see that your business can function at scale. That means documented processes, robust training programs, marketing systems that drive demand and leadership bandwidth to support aggressive expansion. Without these in place, your business looks risky, which erodes its valuation.
The Valuation Myth
Emerging franchisors also tend to have unrealistic expectations about valuation. Everyone’s heard about brands selling for 15 times or 20 times EBITDA. But those multiples aren’t awarded for potential, they’re earned through consistent unit-level profitability, disciplined growth and clean financial reporting.
Private equity is sophisticated. They pay for predictability, not promises. If your systems aren’t scalable or your unit economics aren’t strong, no amount of branding or enthusiasm will change that.
So how do you get it right?
The path to private equity readiness is clear, but it’s not glamorous. It starts with unit-level economics. Before you chase development deals, make sure your existing units are thriving. Support your franchisees with best-in-class training and resources. Build infrastructure early; technology, compliance and reporting systems that allow you to grow without chaos.
Equally important? Seek an outside perspective. An experienced advisor can help you identify the gaps investors will spot and guide you in closing them before you ever enter the deal room. In our experience, the brands that take this preparation seriously not only attract capital, they command the kind of multiples that make headlines.
Private equity doesn’t invest in potential. It invests in proof. Emerging franchisors that slow down, focus on fundamentals and build for scale will find no shortage of investor interest, and they’ll be in a position to negotiate from strength rather than desperation.
