One of the investment products we offer on NextSeed is a revenue sharing loan. Each month, the business shares with you and other investors a percentage of the business’s gross monthly revenues. That’s why it’s called “revenue sharing”. The way it works is like this:
1) You invest in a revenue sharing loan issued by a business.
2) The business agrees to pay you monthly until a predetermined total amount is paid.
Here’s an example of how this would play out:
The business idea
Let’s imagine that there’s a popular coffee shop in your city called Bean Me Up, Coffee. This hotspot is owned by two long-time friends, Sam and Sara. They regularly sold out of their limited lunch menu, and the savvy entrepreneurs recognized that people really want a nice lunch spot in the area.
They hunted down a perfect location and started drawing up the design and plans for their new restaurant. At the same time, Sam and Sara pulled together funding from various sources to secure the lease, buy inventory and finance operational costs.
Why a business would choose revenue sharing
They needed another $100,000 that will help pay for the final buildout, and they applied to launch an offering on NextSeed. Sam and Sara think it’s a great idea to get people involved by making them investors – they’ll be an army of advocates!
Offering a revenue sharing note makes sense to Sam and Sara because it gives them the flexibility of making payments based on their revenues. So, if their revenues are lower starting out, they can just pay a percentage of their lower revenues. They like the idea that their investors would also participate in the upside if they crush it in the next month, getting a larger monthly payment from their higher revenues. The total amount they pay to investors is capped, so if they pay everyone off sooner, they’re done with payments sooner.