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NEXTSEED BLOG

Creating a New Spot in Oaktown

Sky Wegman - 83 Proof, Hopwater Distribution, Oakland Recreation Club

Sky Wegman is not a new face in the Bay Area. With successful concepts 83 Proof, Dogpatch Saloon and Hopwater Distribution in his resume, he’s been in San Francisco for nearly 20 years.

Switching gears to focus on the East Bay, local Oakland residents and visitors alike will have him to thank for their new favorite watering hole when Oakland Rec Club (ORC) opens later this year. Pulling from the best elements at his prior businesses, Wegman is creating a unique business ideal for the growing Uptown neighborhood. Housed in a two-story 1920s-era building, the retro-rustic space will offer lunch dining along with an evening lounge vibe complete with pool tables and shuffleboard.

Not only are Sky’s design and menu decisions based on the community in which he is building his new business, but his funding choices are also influenced by his desire to connect more directly with the folks who will eventually become his customers. Instead of relying on traditional loans, he chose to partner with NextSeed and develop an investment campaign that allows everyone to invest in ORC directly and participate in its growth.

We sat down with Sky to learn more about how he developed the idea for ORC and what it will mean to the Oakland community.

Why and how did you get into hospitality? What key events in your life led you to your current profession?

I went to college at the University of Washington up in Seattle, but I didn’t have a very career-focused field of study. After I graduated in 1998 I moved back to the Oakland area to reconnect with friends for the summer. While I was there I fell into a position as a bar back at Johnny Loves, bouncing around to a few other places and putting money aside. I followed this path for about seven years, in and around the East Bay.

After seven years, an ownership opportunity came up at a bar in San Francisco, taking over an old dive bar in the financial district. After that, I expanded to additional ownership opportunities around San Francisco.

Who has really helped you along the way?

My initial business partner, Chris Barry. I wouldn’t have made it anywhere in this industry without that guy. He brought me into the fold of 83 Proof, our first bar. He and his extended family have all been so helpful and among the kindest people I know. I owe my livelihood to that guy.

How is opening Oakland Rec Club different from opening your prior businesses?

I see this business as pulling together the more functional bits of the previous spots where I was either an owner or an employee. For example, bringing in successful elements like games, killer spirits lists, craft beer and neighborhood vibes. ORC will be different from each of those prior individual spots, but I am drawing on those successful experiences and observations to make a nice comprehensive package for the community.

How did you settle on Oakland for this particular business and in turn how do you feel the business will complement the town?

I’ve lived in East Bay on and off for about 15 years and I am excited to be working on a project so close to home. I also think that ORC is something that Oakland wants because there’s no exact comparable business within the city limits. The next closest spots that offer a similar experience are two cities away. I want to bring the game and drink and food under one roof so people don’t have to travel for that.

Additionally, neighborhood-wise, this venue falls in the Uptown area of Oakland that is just exploding right now. There are concert venues, art galleries, beer gardens, retail, real estate and bars along with new residential buildings. The neighborhood is great, and if it manages to not lose sight of itself I think the complete array of services and entertainment will keep all the nearby residents happy and entertained. There’s been a big push to develop Oakland for a while and while it’s been slow moving in some parts it’s really taking off now.

With the addition of the game tables, I could see the mood/vibe of the bar shifting significantly between lunch and evening. How would you describe your expectations for the sort of experience guests should have as the venue morphs from day time lunch to evening activity?

We’ll have a good lunch service for the business crowd and then close for a few hours before reopening in the evening, which will help define the distinction. Kids will be allowed at daytime, for example, but at nighttime less so. I wouldn’t anticipate the upstairs game area to be open during the day at lunchtime but when we reopen in the evening all the doors will be open, the space will take on a different feel and the music will change.

Will you use décor and visuals to help with the distinction between daytime and evening?

When you first walk in the place downstairs, I want to have a look and feel that’s different from what else is out there right now.  I’m focusing on a 70s throwback nostalgic feel using elements like interesting tile and custom painting decorations. The upstairs, where the pool tables will be, lends itself to more of an industrial space thanks to existing exposed concrete walls, large glass windows and other rustic elements, so I plan to keep those features there. The space lends itself to a pretty good industrial chic décor, but that style is so popular now and sort of overplayed, so I’m trying to get away from that some and go in a different direction.

What guiding principles do you follow when approaching your work?

I’m selling fun so my heart is to treat it as such. I’ve seen a lot of unnecessary attitude in this industry — there’s too much of an “us against them” kind of mindset sometimes. I try to approach everything with a smile. Providing that level of customer service and trying to be good natured and happy with everyone would be my biggest guiding principle when it comes to work.

What helped you commit to the crowdfunding concept for ORC? What made the concept of crowdfunding enticing?

It takes on a few different levels. It can be a great source for the start up cash because it’s tied to a promotional scene. Additionally, it can help get the name of the business out to the public in advance of opening to help connect the business to the community and customers before it even opens.

Is this the first time you have used crowdfunding for a business?

It is. I’m usually more traditional with my investment route but I think the last time we did a build out I don’t think crowdfunding was where it is today. I think NextSeed specifically has been great because it’s somewhere between a bank and crowdfunding. They heavily vet the businesses and review reports with accountants to assure the viability with the business. I think there’s a lot more safety in their offering than a lot of what’s out there right now.

Why is it important to engage the local community?

The town is growing quickly and a lot of people are finding themselves priced out of their long-term homes and neighborhoods. It’s vital to both my business and to the city that I do my part to support the existing culture and not just take advantage of big business and money coming in. I plan on offering space for fundraisers in support of local community needs and creating event space. I think these efforts add an air of good will, bring customers in, and add interest in a way that is good for the community and makes people happy. I feel like that’s how it needs to be in this town now.

How do you unwind and relax?

It’s changed so much over time. When I first started with the ownership thing, it was 10 years ago and I was a different person. I’d get off a 90-hour work week and veg on the computer looking at motorcycle parts. Since then it’s evolved into a fascination with fancy whisky and just settling down and unwinding after a shift at home. Now I’m in my mid-forties and I have 5-year-old daughter. I’m more aware of my life and health and longevity. I run a lot and it really helps me unwind and put me at ease. It sounds so cliché to say exercise but it’s just something that seems to work for me. There’s a park in the hills of Berkeley where I like to run. It’s my favorite place to go for sure.

What’s your favorite Disney movie?

When I was a kid it would have been The Fox & the Hound. As an adult I don’t usually look forward to going to animated movies but then I usually wind up being happily surprised for whatever reason. So if we can bring Pixar into the fold, Inside Out kind of stuck with me.

 

Check out Sky’s campaign for Oakland Rec Club on NextSeed.

Next Up | The EaDo Edition

On April 13th, Chapman & Kirby opened up its doors and welcomed NextSeed in to host our second Next Up event, Next Up: The EaDo Edition.  As guests arrived, they got a sneak peek at the soon-to-open gastrolounge committed to honoring the neighborhood’s history and bringing people back into East Downtown.

Guests enjoyed cocktails from the bar and light bites from Flip’n Patties before taking their seats for the presentations.  One by one, up-and-coming entrepreneurs pitched their business concepts to a panel of experts who asked them questions and provided them with helpful feedback to grow their businesses.  Our audience got a rare chance to see inside the entrepreneurial process and vote on their favorite pitch.

After the presentations were finished, guests mixed and mingled with each other and our business owners.

The winner, SOTAH Systems, will receive a year of mentorship from our esteemed panel.

A huge shout out to our panelists and presenters for sharing their ideas and their time with our community!

Next Up panel

The Panelists

Ashley Williams, Owner, The League: Elite Training Facility

Bien Tran, Owner, Chapman & Kirby

Jonathan Brinsden, CEO Midway Companies

Peter Licata, Headquarters

The Presenters

Department Of – A mixed coffee, yoga, and community concept

HTX made – Locally made, custom-designed furniture

Flip ‘n Patties – Filipino fusion food truck

SOTAH – Smarter apartments, happier residents

Department of

Department Of

HTX made

HTX made

Flipn PattiesFlip ‘n Patties

SOTAH

SOTAH

The Snoring Center has paid investors in full!

If you’ve been with us since our early days in Texas, you’ll remember our second deal, The Snoring Center. The Snoring Center treats snoring and sleep apnea using its proprietary Pillar Procedure. Under the leadership of Dr. Craig Schwimmer, this deal attracted 40 investors across Texas to raise $100,000 on NextSeed. The Snoring Center offered a term note to investors and promised to make monthly payments for 18 months.

Investors earned a 11.16% net annual return. The Snoring Center made its final payment this month, repaying investors a total of $110,109.10, on time and in full.

The Snoring Center has locations around the country, so if you know someone who might need some help in this area, check it out!

Why are businesses paying “higher” rates to crowdfund debt?

Why are savvy business owners crowdfunding debt? It might appear that successful entrepreneurs are paying higher interest rates for money that they could get more cheaply from equity investors or banks.

Are you missing something?

Many people don’t realize that debt can be used strategically to finance a business.

When you look at how your company is growing, pay attention to its debt-to-equity ratio, which indicates how much debt your business utilizes relative to equity. Some people have an aversion to debt and strive to attain a low debt-to-equity ratio, but this could signal that your company is relying too much on outside equity. Outside equity is the most expensive way to finance a business. Compared to debt, equity investors expect higher absolute returns, and a growing business could find itself paying those returns in perpetuity until the equity investors are bought out. On the other hand, a high debt-to-equity ratio may be a red flag that a business is too leveraged and may not be able to repay debts.

Senior secured debt

Banks and other traditional sources of lending are often the go-to source for debt financing. Banks may insist on collateral and/or personal guarantees, will require that a certain loan-to-value ratio be satisfied and will want to be first in line for payments. This is why a bank loan often takes the form of senior secured debt (senior in the payment line, secured by collateral and/or personal guarantees). When a company needs to meet the loan-to-value ratio necessary to secure a bank loan, existing owners can put in more funds or sell more equity to outside investors. Or, the company can utilize debt crowdfunding.

If the notion of using debt securities to secure a bank loan sounds odd, we need to venture into a different area of financing: something that’s not strictly debt or equity.

Mezzanine debt

Now you’re entering the world of mezzanine debt. It occupies the space between senior debt and equity, and is often used in conjunction with senior debt to reduce the amount of equity required to sustain a business.

Mezzanine debt has elements of both debt and equity, thus the separate designation.

For example, mezzanine debt provides repayments based on sales or available cash flow, but is behind senior secured debt in the payment line. Because of its position in the capital structure, returns on mezzanine debt tend to be more like equity returns than typical debt investments (such as a senior secured corporate bond). Mezzanine debt may also be structured to provide a business with greater flexibility in repayment terms than is possible with senior debt.

Finally, from the perspective of senior debt, mezzanine debt is the same as equity: subordinate. A bank doesn’t care whether a company has 40% equity or 20% equity and 20% mezzanine debt; from the perspective of the senior debt lender, they are the same. This is how businesses can crowdfund mezzanine debt as an equity substitute to obtain a traditional bank loan. Filling the gap in the loan-to-value ratio with crowdfunded mezzanine debt is much cheaper than issuing traditional equity, and prevents the existing equity holders from being diluted.

mezzanine debt

Cool idea

Debt crowdfunding can raise mezzanine or senior debt

A company can now reduce its overall cost of capital by crowdfunding mezzanine debt, where traditionally it would have needed to issue additional equity—thereby diluting existing owners and possibly bringing in third party investors. In addition, because those equity holders are as a group contributing less cash to the business, they are able to create more leverage, thereby enhancing their potential return. Check out this article from The Motley Fool for examples on how savvy equity holders use mezzanine debt to achieve higher returns.

Mezzanine debt is also attractive to investors because they’re able to obtain equity-like returns and are paid out before actual equity investors. Unlike equity holders, mezzanine debt investors receive regular payments over the term of the debt and don’t need to figure out if, how or when they can cash out.

There are, however, many reasons that a business may not want a traditional bank loan. For some, the personal guarantees required by a bank blur the lines of limited liability that their corporate structure is intended to create. For others, the myriad of forms and other hoops are simply too much to handle. And then there are businesses that are simply not able to obtain a bank loan due to their lack of operating history, type of business or lack of adequate collateral.

In each of these scenarios, debt crowdfunding can entirely replace the bank or other traditional senior lender. In this case, where a business satisfies the necessary loan-to-value ratio, crowdfunded debt takes the role of the senior lender in the overall capital structure.

crowdfunding mezzanine debt

Is debt crowdfunding right for my business?

As outlined above, debt crowdfunding provides businesses with an alternative source of funding to traditional bank loans and equity financing. Two key criteria that apply to any type of debt crowdfunding are that (1) crowdfunding should not be the single source of financing and (2) the business must be capable of generating sufficient revenue in the near term to service the debt. A business that can satisfy both of these criteria can utilize debt crowdfunding as part of its overall financing strategy.

Keep in mind that crowdfunded debt securities (both mezzanine and senior) generally have higher rates than bank loans. This is mainly because they have less restrictive covenants – for instance, personal guarantees may not be required.

Crowdfunding also provides repeated engagement with the community: it’s a source of capital that businesses can tap year after year. Under Regulation Crowdfunding, a business can raise up to $1 million every 12 months and utilize debt crowdfunding as part of a long-term strategy for growth.

It’s more than just financing for companies

Aside from the pure financial aspects of debt crowdfunding, consider the social marketing advantages associated with crowdfunding—a component that is altogether absent from traditional financing methods. Simply put, crowdfunding is a great way not only to obtain financing, but also to attract local investors that will become customers and—perhaps more importantly—advocates for your business. In the end, the excitement behind crowdfunding is about much more than a financial transaction and leveraging debt. It’s a way to create a collaborative and supportive community.

 

Further Reading Material

“A Refresher On Debt-To-Equity Ratio.” Gallo, Amy. Harvard Business Review. July 13, 2015. https://hbr.org/2015/07/a-refresher-on-debt-to-equity-ratio

“Mezzanine Debt: What It Is and How It Works – With Examples.” Wathen, Jordan. The Motley Fool. May 22, 2015. https://www.fool.com/investing/general/2015/05/22/mezzanine-debt-what-it-is-and-how-it-works.aspx

 

The information provided on this blog is based on publicly available information, and NextSeed makes no representations with regards to the accuracy or completeness of such information. Any opinions expressed herein are our own, prepared solely for informative purposes. NextSeed does not provide any investment advice or recommendation, and does not provide any legal or tax advice with respect to any securities.

Next Exit, College Station

by ellie sharp

PORTERS

Brad Freels, Chairman of Midway Companies

As construction is kicking off with Century Square – the new 55-acre multi-use development of shopping, dining, lodging and entertainment in College Station – locals eagerly await the opening of one specific new business: PORTERS. The forthcoming restaurant will lend a sleek yet approachable dining experience to the region unlike anything else currently available. And, in a nod towards the region’s railroad heritage, the name comes from both the helpful gatekeepers of the railcar and also a well-recognized leader in the community, Porter Garner. The long-time president and CEO of the Association of Former Students at Texas A&M University also happens to be close friends with the owners.

Located just steps away from a multitude of attractions, PORTERS will cater to an underserved community ready for a taste of upscale dining without the drive to larger towns like Houston or Austin. The overall development comes from Midway, the firm responsible for similar concepts like CITYCENTRE in Houston. Brad Freels, chairman of Midway, and Charles “Chuck” Criswell, partner and General Manager for PORTERS, are part of an experienced team bringing a unique combination of knowledge, compassion and energy to the design and subsequent experience at the restaurant. Both leaders contribute decades of experience in their respective fields and understand the importance of community engagement for business success.

In this way, they chose to collaborate with NextSeed to fund PORTERS and offer the region a tangible connection to support growth in ways beyond simply going out to eat. Visit https://www.nextseed.com/offerings/porters/ for more information on how to get involved.

We sat down with Freels and Criswell to learn more about how they connected and the kind of impact they hope PORTERS will create on the community for generations to come.

PORTERS GM

Chuck Criswell, PORTERS General Manager

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