NextSeed first launched in Texas, taking advantage of one of the intrastate exemptions allowing crowdfunding from non-accredited investors, and was one of the first Title III Funding Portals offering Reg CF investments. To date they have offered only debt investments, with a focus on small retail/restaurant businesses. As of April 2019, they have registered with the SEC as a broker-dealer, with plans to add Reg D and Reg A+ offerings.
- Website: https://nextseed.com
- Investment Types: Startups/Business Financing
- Security Types: Debt
- Sectors: Restaurants and Retail
- Minimum Investment: 100
- Advertised Returns: 8-12%
- Open to all investors
- Low minimums, open to non-accredited investors
- Very detailed, yet readable investment overviews
- Easy-to-understand debt investments (including some as revenue shares)
- Many investments include rewards (discounts, goodies, etc.)
- Relatively low number of active investments
- Only open investments are in California and Texas
- Almost all offerings are restaurants or retail
- Potential upside is capped
NextSeed began as NextSeedTX, offering crowdfunded financing to businesses in Texas, which is one of more than 35 states offering some form of intrastate crowdfunding. NextSeed was among the first Title III Funding Portals offering Reg CF investments to investors nationwide.
Types of investments NextSeed offers
NextSeed focuses on restaurants and retail. While NextSeed emphasizes “local businesses”, as of this writing that only technically applies if you happen to live in California or Texas, where all of their current offerings are located. Browsing many of their previous offerings, it’s clear they’ve found a niche financing new restaurants, often in college towns.
Minimums are low (typically around $100) and investments are open to all investors.
What do you get when investing with NextSeed?
NextSeed only offers debt investments under Reg CF. Some offerings are traditional loans, with fixed monthly interest and principal payments, while others use a revenue share model, where the investor receives a pre-defined percentage of the monthly revenue (4.25% in one recent example) until a pre-determined multiple of their original investment is reached. If the multiple is not reached by the end of the loan term, the full amount is due to the investors.
NextSeed fee structure
NextSeed does not charge investors anything up front, though they do retain a 1% fee on all payments made by the business (as well as charging the borrower 10% of the total capital raised).
Potential returns and cashflow
Details vary slightly with each investment, but there are two main models offered by NextSeed:
- A traditional debt offering, where the borrower pays a predetermined principal and interest payment each month for the term of the loan
- A revenue share variation, where the borrower pays a predetermined percentage of their revenue each month until a defined multiple of the original investment is reached. For example, 4.25% of sales (which may fluctuate each month) until investors receive 1.6X their original investment, but for no more than 48 months (if investors haven’t received the 1.6X 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, if the multiple is 1.6 and the term is 48 months, 1.6^(1/4) - 1 = 12.5%. (Though note that if the full multiple is paid [em]before[/em] the term is over, the effective rate of return would be higher.)
Breadth of offerings on NextSeed
NextSeed seems to have about 3-4 active investments available at a time. They don’t describe much in terms of any curation philosophy, besides emphasizing local businesses, and empirically there’s a focus on retail and restaurants. Most offerings have minimums of $100 or less.
Regulatory framework and due diligence expectations
NextSeed is an SEC registered Title III Funding Portal, which means they are subject to a range of rules and obligations around investor education and due diligence. All companies offering investments on NextSeed 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 offering company. Prospective investors also have access to online forums to talk with other investors, and an online channel for asking questions of the company raising funds (and viewing answers of prior questions from others).