Ever heard of Kickstarter? NextSeed is like Kickstarter, but for crowdfunding small businesses. Instead of just getting a small reward, you can now get interest or revenue sharing in addition to bonus rewards.
- 1 What Is NextSeed?
- 2 NextSeed: Marketing To Your Local Community
- 3 Is CrowdFunding New?
- 4 Is Your Investment Guaranteed With NextSeed?
- 5 Is There A Minimum Investment?
- 6 NextSeed Current And Past Deals
- 7 Does NextSeed Charge Fees?
- 8 NextSeed Account Types: Individual, Investment Entity, And Self-Directed IRA
- 9 What Kinds Of Loans Does NextSeed Offer?
- 10 What Documents & Information Does NextSeed Investments Provide?
- 11 What To Expect From Opening An Account
- 12 Is NextSeed Secure?
- 13 NextSeed Bonus Rewards
- 14 NextSeed Pros And Cons
- 15 Table Of Deals
What Is NextSeed?
NextSeed was created in 2015 in Texas by Abraham Chu, Robert Dunton, and Youngro Lee in order to make crowdfunding possible for small businesses. To date, NextSeed has helped small businesses get investments of over $10 Million. NextSeed has raised $7.5 Million in venture capital.
NextSeed has had 42 successfully closed deals with 6 current deal opportunities open, as of the time this post was published. The company has been prominently featured in the media.
NextSeed: Marketing To Your Local Community
NextSeed has slightly higher interest rates than a bank, so why would they go on the NextSeed platform vs a traditional bank?
One reason is bank loans take longer and require higher amounts of loan principal. The other reason is that the small businesses on the platform want to have members in their local community vested in the business. All the business on the platform offer bonuses and rewards for local investors. Word of mouth spreads!
Is CrowdFunding New?
You may have noticed crowdfunding for investments has become popular in recent years. This is due to the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act allows non-accredited investors to invest in startups and funds vetted by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
If either of an investor’s annual income or net worth is less than $107,000, then the investor’s investment limit is the greater of $2,200 or 5 percent of the lesser of the investor’s annual income or net worth.
If both annual income and net worth are equal to or more than $107,000, then the investor’s limit is 10 percent of the lesser of their annual income or net worth.
During the 12-month period, the aggregate amount of securities sold to an investor through all Regulation Crowdfunding offerings may not exceed $107,000, regardless of the investor’s annual income or net worth.
Is Your Investment Guaranteed With NextSeed?
NO. Unlike high-yield savings accounts that are backed by the government through the Federal Deposit Insurance Corporation (FDIC), NextSeed investments are not backed by anything. Keep in mind that stocks, bonds, and other securities are not guaranteed either.
NextSeed investments can be classified as mezzanine debt, which is below senior secured debt, but above equity in the capital structure. This means that if the business fails, business assets get liquidated and the proceeds are used to pay off senior secured debt first, then mezzanine debt, then equity shareholders. Don’t mistake this capital structure as thinking you’ll be made whole of your investment. Senior secured debt is usually partially collateralized, but considering you’re going to be liquidating assets, it’s questionable the entire chunk of senior secured debt gets paid off. It’s entirely possible you don’t get paid
Let me be explicitly clear, it is entirely possible you lose money on your investment.
Is There A Minimum Investment?
The minimum investment on NextSeed is $100. However, after crunching the numbers for the 42 completed deals, we found the average investment to be $1,405. We realized this was because most really good rewards started at the $1,405 investment mark (1 free beer per day for life?!).
NextSeed Current And Past Deals
NextSeed has funded 42 deals so far. We checked them out and noticed some interesting things:
- 30 Deals were in Texas, with 13 businesses funded in Houston, 8 in Austin, and 9 in other Texan cities
- 8 Deals were funded all across California, with 2 in LA
- The remaining 4 deals were funded in Utah, Nevada, and two in Brooklyn, NYC
In terms of kinds of businesses NextSeed funded:
- 32 were food and beverage related — 17 restaurants, 14 bars, and 1 food truck
- 5 fitness studios
- The remaining 5 deals are a hotel, co-working space, healthcare space, shuttle service, and a hair salon
There are currently 6 open deals at the time of this blog post. All 6 are for restaurants.
The average investment by an investor across all deals was $1,405. The loans for 7 deals were successfully completed. 6 of those deals were structured as a revenue sharing loan while one was a term loan for an interest rate.
Does NextSeed Charge Fees?
NextSeed doesn’t charge the investor fees at the time of investment but does charge the business that is raising funds 5-10 percent of an all-inclusive origination fee.
They do charge 1 percent for payments made to you after the loan is funded.
NextSeed Account Types: Individual, Investment Entity, And Self-Directed IRA
NextSeed offers three types of accounts, all of which are FDIC insured up to $250,000 for funds not invested in a loan.
The individual account minimum is $0, with the investment entity and self-directed IRA requiring a minimum of $5,000.
For the IRA option, NextSeed offers to pay for four years of IRA fees and the cost to open. IRA fees are $100 to open, $65 per year in maintenance fees, and $100 to close the account. Due to income limits on regulated crowdfunding, you need to have an income and net worth of at least $100,000. Your IRA account is held at GoldStar. A self-directed IRA is a great way to invest in alternative investments in a tax-advantaged account, but take note of the fees and your own personal tax situation. It may not be the best option for everyone.
What Kinds Of Loans Does NextSeed Offer?
NextSeed offers two loan options. One is your normal bank-type term loan with a fixed interest rate and the other is a revenue sharing loan until your loan is paid back. Most revenue sharing loans are for small businesses that need to renovate or build out their concept and won’t generate revenue for a while. You can back out an implied annual interest rate based on the revenue sharing multiple.
For example, a loan with a 1.5x multiple for 24 months implies an annualized interest rate of 22.5 percent.
Out of the 42 funded deals, 15 are term loans and 27 are revenue sharing loans. Revenue sharing loans are great for newer businesses that might need time to ramp up businesses.
What Documents & Information Does NextSeed Investments Provide?
Capital structure: Most NextSeed investments are not solely funded by NextSeed. Founders provide a certain amount of equity, outside investors provide some more, so NextSeed investments are only a portion of the capital.
Investments have floor plans, architectural designs, backgrounds on the company founders, competitor analysis, etc.
What To Expect From Opening An Account
Since this is an account regulated by the government, you’ll be asked questions similar to if you were opening a bank account: name, birth date, address, social security, etc. If your information doesn’t match public government databases, you might be asked to verify your account with a license or passport.
Once you get your account verified, you can start investing. You don’t need to have a verified account to see the deals though!
Is NextSeed Secure?
NextSeed uses Plaid, a third-party site that connects to bank and investment accounts with 256-bit encryption and SSL. Plaid is the third-party app used for most FinTech apps.
NextSeed Bonus Rewards
We enjoy looking at investment deals here, so we went through all the deals for fun one afternoon. The best reward a small business offered was free beer for life for investments larger than $1,000. On the investor side, that is a lot of product given away. Good thing it’s only 1 free beer per day so hopefully, the investor will also buy some food.
NextSeed Pros And Cons
Though there are tons of pros for NextSeed, there are also a few cons as well.
NextSeed allows a non-accredited person, an average Joe, to invest in crowdfunded small businesses. You can invest in your community via small businesses and get paid interest or a revenue share.
You also get bonus rewards if you invest a certain minimum. Rewards are picked by the small business, so they are different amongst all investments.
You can invest in NextSeed companies through a self-directed IRA for tax benefits.
One of the pros of NextSeed is that you can get bonus rewards for investing in a business. However, if you live in a locale that doesn’t have businesses on NextSeed, you might not get to use these bonus rewards since they are usually physical rewards.
Investments are not guaranteed, so if the business fails, you could lose money.
Table Of Deals
Though the NextSeed site doesn’t have a compilation of deals, we compiled our own list here with the their main stats. Check it out:
|Name||# Of Investors||Revenue Share Multiple||Rate||Maturity (Months)||$invested||Type||Location||Months Paid Back So Far|
|Bravery Chef Hall||539||1.7||54||1000000||Restaurant||Houston, TX||0|
|Peli Peli Austin||410||1.5||60||1000000||Restaurant||Austin, TX||3|
|Buffbrew Taproom||583||1.9||78||1000000||Bar||Houston, TX||0|
|Pour Behavior||473||1.6||48||700000||Bar||Houston, TX||0|
|Pitch 25||392||1.5||48||549900||Bar||Houston, TX||5|
|PORTERS||254||1.4||48||500000||Bar||College Station, TX||16|
|Chapman & Kirby||134||1.75||48||440800||Bar||Houston, TX||21|
|The Native||227||2||48||496000||Hotel||Austin, TX||19|
|Peli Peli||128||17%||48||358000||Restaurant||Houston, TX||48|
|Fair Isle Brewing||292||1.5||54||327800||Bar||Seattle, WA||0|
|The Brewer’s Table||190||1.5||40||300000||Restaurant||Austin, TX||8|
|The Sugar Refinery||213||1.7||48||273800||Bar||Sugar Land, TX||20|
|The Annex HTX||168||1.4||48||230500||Co-Working||Houston, TX||8|
|Cinco TacoBar||148||1.7||48||200000||Restaurant||San Leandro, CA||10|
|Intero Ristorante||236||1.5||42||200000||Restaurant||Austin, TX||11|
|619 Distillery & Tasting Room||238||1.65||48||191600||Bar||San Diego, CA||4|
|Leela’s Raw Bar & abv establishment||178||1.5||48||176800||Restaurant||Dallas, TX||9|
|MUMU Hot Pot||163||1.4||42||174000||Restaurant||Pleasanton, CA||5|
|Oakland Rec Club||122||1.65||54||169700||Bar||Oakland, CA||0|
|Louie King||210||1.5||48||154000||Restaurant||Dallas, TX||1|
|Rambler||131||12%||24||150000||Restaurant||San Francisco, CA||24|
|Hoke Poke (North Hollywood)||132||1.5||48||125000||Restaurant||Los Angeles, CA||14|
|Wichita Falls Brewing||152||1.45||48||125000||Bar||Wichita Falls, TX||7|
|California 88||180||1.5||48||124900||Bar||Brooklyn, NY||0|
|Vigilante Gaming Bar||117||18%||42||119700||Bar||Austin, TX||27|
|MOB CYCLE||132||1.45||42||117400||Studio||Salt Lake City, Utah||0|
|Healing Waters||38||1.33||36||110000||Studio||Houston, TX||14|
|Citizen Pilates||75||15.25%||48||100000||Studio||Houston, TX||25|
|Alkalign||125||12.5%||42||100000||Studio||Menlo Park, CA||12|
|SquareRüt Kava Bar||31||18%||36||100000||Bar||Austin, TX||36|
|The Snoring Center||40||11.98%||18||100000||Medical||Dallas, Houston and Austin, TX||18|
|Utopian Shift – A Wine Experience||113||18%||42||95500||Bar||Austin, TX||16|
|The Dumpling Bros, LLC||122||15%||48||95000||Food Truck||Denton, TX||16|
|Smiley Transportation||37||10%||48||94700||Bus Service||Keller, TX||27|
|Crab Corner||149||12.5%||48||81600||Restaurant||Las Vegas, NV||2|
|Jenna’s Asian Kitchen||41||16%||30||75000||Restaurant||Austin, TX||30|
|Red Diamond Yoga||91||13.5%||48||67400||Studio||Los Angeles, CA||48|
|Hair Revolution||17||1.05||35||25000||Hair||Houston, TX||35|
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