Reg CF is finding a nice niche serving the kinds of businesses that aren’t likely to attract interest from traditional venture capital, like restaurants, retail, and entertainment. Mainvest follows the lead of LocalStake in squarely targeting just those kinds of businesses with their investment offerings, exclusively focusing on brick-and-mortar businesses.
Types of investments MainVest offers
MainVest offers debt investments in small, local businesses like restaurants, breweries, beauty salons, and yoga studios. All investments are currently open to anyone via Reg CF.
What do you get when investing with MainVest?
Mainvest currently offers one type of debt security called the Revenue Sharing Note, which is like an unsecured loan, but is repaid based on the revenue or actual performance of the business. Investors may be paid back faster if the business outperforms revenue expectations.
MainVest refers to these investments as “Revenue Sharing Notes” (RSNs). As an example, a business offering a 1.5x investment multiple and is sharing 5% of revenue will pay 5% of its revenue to investors quarterly until a 50% total (not annual) return is reached (1.5X the initial investment). If the principal and 50% return haven’t been paid back in 5 years, the full remaining balance is due. The revenue share percentage, length of the loan and total return vary from business to business
How does MainVest make money?
MainVest itself doesn’t charge investors any fees, but does charge issuers a percentage of the amount raised (typically 6%), which investors should understand reduces the amount of capital the business actually receives for operations.
Potential returns and cashflow
Investments made via MainVest are high-risk investments in small businesses.
With the revenue share investments, the borrower pays a predetermined percentage of their revenue each quarter until a defined multiple of the original investment is reached (either 1.25 or 1.5, depending on the security type). For example, with the Revenue Sharing Notes, investors receive 5% of sales (which may fluctuate each month) until investors receive 1.5X their original investment, but for no more than 5 years (if investors haven’t received the 1.5X by then, the full amount comes due).
The revenue share model is clever, and it’s obvious why it’s appealing to businesses facing unpredictable cash flow.
It can be a bit tricky to compare investments apples-to-apples, but as a rule of thumb to get an approximate IRR equivalent, you can take the multiple, raise it to 1 divided by the term in years, and then subtract one. For example, with a multiple is 1.5 and a term of 5 years, 1.5^(1/5) - 1 = 8.5%, which is a far cry from the advertised returns of 50% or more (which may indeed represent total returns, but investors should be sure to understand the time horizons involved). Note that if the full multiple is paid before the term is over, the effective rate of return would be higher.
Breadth of offerings on MainVest
As of this writing there are 7 investment opportunities avaialble, all in Massachusetts.
Regulatory framework and due diligence expectations
MainVest is an SEC registered Title III Funding Portal. That means they are subject to a range of rules and obligations around investor education and due diligence. All developers offering Reg CF investments on MainVest will have been through background checks of key officers and owners, and there are clear links provided to the relevant SEC filings made by the developer.
Prospective investors also have access to an online channel for asking questions of the issuer (and viewing answers of prior questions from others).