The Coven
Initial Investment Range
$213,400 to $465,200
Franchise Fee
$77,550 to $92,600
The Coven Franchising, LLC offers individual unit franchises for the development and operation of a The Coven® business (each a “Community”) offering an inclusive network of co-working and private workspaces, and other related services and products.
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The Coven April 14, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The Coven Franchising, LLC's (The Coven) audited financial statements in Exhibit A reveal a persistent members' deficit (negative net worth) for both 2023 and 2024. This financial weakness is explicitly highlighted as a "Special Risk" by the franchisor and has prompted regulators in states like California and Illinois to impose fee deferral conditions. This situation raises significant questions about the franchisor's long-term ability to support its franchisees and grow the brand.
Potential Mitigations
- A thorough review of the audited financials, including all notes, with your accountant is essential to assess the franchisor's viability.
- Engaging a franchise attorney is crucial to understand the implications of the state-mandated fee deferrals and the franchisor's disclosed financial risks.
- Discuss the franchisor's capitalization and plans for achieving profitability with your business advisor and the franchisor directly.
High Franchisee Turnover
Low Risk
Explanation
This risk was not identified. The franchise system is very new, having started franchising in 2023, and the data in Item 20 shows no franchisee turnover. While positive, it's important to monitor these figures in future FDDs, as high turnover can signal significant problems with a franchise model's profitability or support structure. There are no former franchisees to contact for due diligence.
Potential Mitigations
- Your attorney can advise on how to track franchise system health through future FDDs and public information.
- Discussing long-term franchisee satisfaction with your business advisor is a key part of ongoing due diligence.
- Speaking with the initial franchisees listed in Exhibit F is crucial to gauge early satisfaction levels.
Rapid System Growth
High Risk
Explanation
The Coven plans to nearly triple its number of franchised units in the next fiscal year, growing from 4 to a projected 11. This rapid expansion, combined with the franchisor's disclosed financial weakness and negative net worth, poses a risk. The franchisor's resources may be strained, potentially compromising the quality and availability of training, site selection assistance, and ongoing operational support for all franchisees.
Potential Mitigations
- Question the franchisor directly about their specific plans and budget for scaling support staff and infrastructure to match the projected unit growth.
- A business advisor can help you assess whether the franchisor's operational capacity can realistically support this rate of expansion.
- Your accountant should analyze if the franchisor's financial model appears overly dependent on new franchise fees for survival.
New/Unproven Franchise System
High Risk
Explanation
The Coven only began offering franchises in late 2022 and has a very small number of operational units. This lack of a long-term track record for the franchise system makes it an inherently riskier investment. The business model's viability in a franchise context, brand recognition, and the effectiveness of the support systems are largely unproven. The franchisor explicitly discloses this "Short Operating History" as a special risk.
Potential Mitigations
- Your business advisor should help you conduct extensive due diligence on the performance of the few existing company-owned and franchised locations.
- Speaking with all current franchisees listed in Exhibit F is absolutely critical to understand their early experiences and the quality of support.
- An experienced franchise attorney may be able to negotiate more franchisee-favorable terms to compensate for the higher risk of an emerging system.
Possible Fad Business
Medium Risk
Explanation
The business model focuses on an inclusive niche within the co-working industry, described as a "relatively new concept." While this provides a strong brand identity, you should consider the long-term sustainability and market size for this specialized focus. The success of the business may be tied to current social and work trends, so it is important to assess its adaptability to potential future market shifts.
Potential Mitigations
- A thorough market analysis of your specific territory with a business advisor is crucial to determine the demand for this niche co-working concept.
- Discuss the franchisor's long-term vision and plans for evolving the brand to maintain relevance with your business advisor.
- Your financial advisor can help you model the potential impact of market shifts on the business's long-term viability.
Inexperienced Management
Medium Risk
Explanation
While the management team has operated company-owned locations since 2017, their experience in managing a franchise system is very limited, beginning only in late 2022. Running a support system for franchisees is a different skill set than running a local business. This lack of extensive franchising experience could present challenges in areas like franchisee support, supply chain management, and strategic growth of the franchise network.
Potential Mitigations
- It is critical to speak with the few existing franchisees about the quality and responsiveness of the support they are receiving from this new franchisor team.
- Inquire with the franchisor whether they have hired experienced franchise executives or consultants to guide them in developing their system.
- A business advisor can help you evaluate whether the described support systems in Item 11 appear robust despite limited franchise experience.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified. The franchisor appears to be owned by its founders and not by a private equity firm. When a franchisor is PE-owned, there can be a risk that short-term financial goals are prioritized over the long-term health of the franchise system and its franchisees. This can lead to cuts in support, increased fees, or pressure to use affiliated vendors.
Potential Mitigations
- It is always wise to have your attorney verify the ownership structure of the franchisor entity.
- A business advisor can help you research the reputation of any major investors or parent companies involved in a franchise system.
- Should ownership change in the future, your attorney can advise you on the implications based on your franchise agreement's assignment clauses.
Non-Disclosure of Parent Company
High Risk
Explanation
The FDD discloses that "The Coven, Inc." is the parent company and its operational history forms the basis of the Item 19 financial performance representation. However, the FDD does not include the parent company's financial statements. Given that the franchisor entity is newly formed and has a negative net worth, the absence of the parent's financials makes it difficult to fully assess the overall financial stability and resources backing your investment.
Potential Mitigations
- Your franchise attorney should strongly advise you to request the parent company's financial statements from the franchisor.
- An accountant must be engaged to review the parent's financials, if obtained, to assess the overall health of the enterprise.
- Without the parent's financials, you and your financial advisor must assume a higher level of risk associated with the franchisor's stability.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified. The FDD discloses a predecessor entity, but no negative history such as litigation or bankruptcy is disclosed in Items 3 and 4. A franchisee should always carefully review any disclosed predecessor history for potential inherited issues or a track record of problems that could affect the new franchise system. You would want to know if the brand was acquired out of a bankruptcy, for example.
Potential Mitigations
- A franchise attorney can help you review the FDD to ensure all required information about predecessor companies is properly disclosed.
- If a predecessor is disclosed, consider having a business advisor help you conduct independent research on its history and reputation.
- Speaking with long-term employees or customers of a predecessor business, if possible, can provide valuable insights.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified. Item 3 of the FDD indicates there is no material litigation that requires disclosure. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about the health of the franchise relationship and the franchisor's business practices. Similarly, a high number of suits initiated by the franchisor against franchisees might indicate an overly aggressive posture.
Potential Mitigations
- Your attorney should always carefully review Item 3 and can conduct independent searches for litigation not required to be disclosed.
- Discussing any disclosed litigation with current and former franchisees is a key due diligence step.
- A business advisor can help you assess whether the nature of any disclosed litigation indicates systemic problems.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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