The following risk factors are intended to highlight certain risks associated with investing in securities offered on www.nextseed.com (“NextSeed”) by Issuers facilitated by NextSeed Securities LLC and NextSeed US LLC and are not exhaustive. You should also review any disclosure documents and risk factors provided by the business issuing the securities (“Issuer”). These risk factors are not intended to provide professional legal, tax or financial advice. Please consult your financial advisor before investing. Securities offered on NextSeed are highly speculative, so you should not invest if you cannot afford to lose your entire investment.
Securities offered by Issuers on NextSeed are not registered with the Securities and Exchange Commission (the “SEC”) in reliance, among other exemptions, on the exemptions provided by Section 4(a)(2), Section 4(a)(6) and/or Regulation D of the Securities Act of 1933. Issuers also rely on available exemptions from securities registration or qualification requirements under applicable state securities laws. No assurance can be given that Issuers or offerings currently qualify or will continue to qualify for the exemption or exemptions relied upon, due to any changes in securities laws or regulations that apply retroactively, the adequacy of disclosures, and the manner of distribution, among other qualifications.
If it is found that an Issuer is non-exempt and failed to register its offering, or found to have conducted any acts or omissions constituting offenses under the Securities Act of 1933, the Securities Exchange Act of 1934, or applicable state securities laws, the Issuer could suffer adverse consequences that negatively affect its operations. Additionally, if any claims or lawsuits are brought against Issuer for any such failure to register, the Issuer could be adversely affected by the costs and time needed for any legal defense.
Securities offered on NextSeed’s platform will not be recommended or approved by any federal or state securities commission or regulatory authority. These authorities will not pass upon the merits of any securities offered or the terms of the offering on NextSeed’s platform. Furthermore, these authorities will not take a view upon the accuracy or adequacy of this document or any offering documents.
Issuers are not public companies and not subject to the Sarbanes-Oxley Act of 2002. Therefore, it may not have financial controls, reporting or disclosure procedures that would meet the standards of a public company subject to Sarbanes-Oxley requirements. An Issuer’s financial controls and disclosure procedures reflect its non-public company status and there can be no guarantee that there are no significant weaknesses or deficiencies in its controls and procedures. If an Issuer needed to implement such controls and procedures, the cost of compliance could be substantial and could have a material adverse effect on the Issuer’s operations.
Issuers rely on exemptions to securities registration when offering securities on NextSeed. Such exemptions depend on representations of the investors made to the Issuer in connection with the offering. If any such representation proves to be false, such exemptions may not be available to the Issuer and the Issuer may be adversely affected and liable under applicable securities laws.
Issuers may not be required to provide financial statements or balance sheets that have been audited by an independent CPA. Any financial statements or balance sheets provided may contain limited information, such as a limited time period, and may not be an accurate or complete representation of the current financial condition of the Issuer. Additionally, Issuers may not be required to provide annual or quarterly audited financial reports or audited balance sheets.
The execution and success of a business depend on the business owners. Entrepreneurship is inherently risky, and there is a chance that the business you invest in will not survive the entire term of your investment to pay you back in full or a chance that it will not open at all. Each venture is unique with its own set of variable factors, and even the most seasoned entrepreneurs may not succeed in their next venture.
Issuers seek to provide prospective investors with information on how they think the business will perform on good faith and relying on reasonable assumptions. Investors should bear in mind that past, targeted or projected performance doesn’t necessarily mean that those results will be achieved in the future. There are no assurances that the business will have comparable results.
Issuers may require additional capital for its operations, to develop new products or services, marketing, or other business activities. There is no assurance that an Issuer will be able to obtain any additional funding currently or as needed in the future. Even if there is available capital, the terms may be unfavorable or may be terms that excessively dilute existing equity holders. If additional funding is not available to Issuers when needed, Issuers may not be able to make payments to investors when due, and its business may be adversely affected.
The success of past businesses that have raised funds on NextSeed does not guarantee the success of any other business raising funds on NextSeed.
The historic returns and data on past NextSeed businesses are provided for informational purposes only to celebrate the successes of local communities. This information should not be interpreted as investment advice or as any guarantee of investment returns on any other business raising funds on NextSeed. Each business and each investment is unique, and you may not see similar, if any, returns on your own investments.
For term notes, the interest rate is set up front. Some businesses have chosen to make prepayments in full or in part without penalty, but this does not mean you will see the same results with any other business you invest in.
For revenue sharing notes, the rate of return is ultimately dependent on each business’ success, such as how quickly the business opens and the amount of revenues earned by the business each month, among other factors.
For any equity investments, any potential dividend payments are made as set forth in the underlying investment agreement. Any increase in the value of equity stock may be realized through a sale of that stock, however, your ability to sell equity stock is limited because there is no secondary market where you can freely buy and sell your stock.
The prior success of an entrepreneur does not guarantee the success of any new venture by that entrepreneur. Each business venture is unique, and while the prior experience of an entrepreneur may be relevant, it is possible that the entrepreneur may not be as successful in the new venture.
A business’s success depends on various factors that are outlined in its disclosure documents for each offering. These may include factors such as brand perception, reputation, competition, management, labor supply, personnel, market conditions, supply and delivery costs, operational factors, financing, real estate, and more. Even with past experience, an entrepreneur may not be able to overcome the difficulties that arise in their new venture.
No investments are “guaranteed” or risk-free. While debt offerings may provide a security interest (in the form of a lien on the assets of the business itself) or a personal guarantee by the owners of the business, neither of these are absolute guarantees of any repayment. It is possible that the security interest may not be sufficient to pay you back fully, and it may not be possible to enforce the security interests due to other legal considerations.
Preferred equity investments are not guaranteed or secured by any assets of the business.
Unlike the public stock market, you will not be able to freely sell the securities that you purchase on NextSeed. There is no public market or secondary market for the securities at this time and none is expected to develop.
There may be required holding periods for any securities purchased on NextSeed according to applicable laws. If you want to sell your securities at a later time, it is possible that you may not be able to identify any buyers, leaving you with very little recourse.
The source of payment on an investment is from the Issuer, as laid out in the investment agreement.
Even if commercially reasonable steps are taken on behalf of investors to facilitate the collection of outstanding payment from the business, it is possible that there is little recourse left for investors. In such event, it is possible that there may not be any valuable assets left in the business to make the investor whole.
Equity investments have no set maturity dates and should be viewed as long-term investments. Any increase in the valuation of equity shares may be realized by selling those shares, however, there is currently no secondary market for those shares and you may not be able to find a buyer.
The bonus rewards offered by an Issuer are purely voluntary as a way for the Issuer to show appreciation to investors and not governed by the investment agreements. The bonus rewards are independent of the terms of the investment—for instance, if a business offers more bonus rewards, that does not mean it will offer a lower interest rate.
The bonus rewards are not enforceable under the investment agreement that you sign, and there is a risk that you will not receive the bonus rewards offered by the business or will be unable to use the bonus rewards because of restrictions placed by the business. NextSeed cannot force a business to fulfill its bonus rewards. The business owners are encouraged to honor the rewards so that they foster a good relationship with their investors.
Furthermore, if you invest using an IRA, there may be restrictions on whether you can receive the rewards yourself. Consult your tax advisor to find out how an IRA may impact bonus rewards.
The financial forecast a business provides is generally based on their experience and market trends. As with all financial forecasts, the results are based on assumptions made at the time of its creation and there is no assurance that those results will be achieved. Many external factors, like unpredictable economic factors, can materially affect those forecasts. Actual results may be significantly different from the forecasts.
NextSeed and Issuers rely on existing rules such as Regulation Crowdfunding and Regulation D 506(c), among others. The implementation and interpretation of any such rules are continuing to evolve.
There is a possibility that changes to these rules may negatively impact how NextSeed operates, including how NextSeed services the securities.
Businesses that offer debt securities on NextSeed intend in good faith to treat the securities as debt instruments for U.S. federal income tax purposes.
Businesses that offer equity securities on NextSeed intend in good faith to treat the securities as equity instruments for U.S. federal income tax purposes.
This is not intended to be legal or tax advice to you as an investor. The IRS may challenge the business’s good-faith determination that the securities should be considered debt instruments or equity instruments for U.S. federal income tax purposes.