Dear NextSeed Community,
As 2019 is now in full swing, I wanted to send a note of gratitude to all of our investors and members to let you know about exciting developments to look forward to this year.
Over 4 years ago, we started NextSeed with a singular focus – based on the impending implementation of the JOBS Act that enabled anybody to invest in private companies, we built an online platform that facilitated local business fundraising from communities everywhere. We got our start in Texas – in April 2015, we launched a portal that operated under TX intrastate crowdfunding rules. Then, in May 2016, we launched NextSeed US LLC to operate our national platform on the first day that the SEC’s Regulation Crowdfunding went live. Over these past 4 years, we’ve gone through ups and downs, met so many incredible people along the way, and most importantly, learned so much about the challenges of starting and operating small businesses and the impact they have in their communities.
As the investment crowdfunding industry has slowly developed, various other investment platforms have popped up to offer the public a variety of investment opportunities in different industries. Through it all, we kept our focus on local brick-and-mortar businesses, and we only offered traditional debt and revenue-based financing, not equity securities. Many of you asked us why we kept our hyper-focus in this area. Weren’t all restaurants super risky and difficult to work with? Why not offer equity in tech startups like the other platforms?
In short, we focused on local small businesses for two reasons:
First, we wanted to create a real source of income for investors within their local communities – something that is highly unlikely when you invest in equity of tech startups. Almost all local small businesses are cashflow businesses, meaning if you invest in the right businesses, you can access consistent cashflow. From a personal finance and investment management perspective, most of us don’t have access to investments that generate consistent cashflow nor access to investments not completely tied to the stock market. We believe that, despite the challenges, local small businesses built on local growth represent a legitimate alternative investment and asset class.
Second, all of us at NextSeed truly believe in the value of local community development, built bottom-up by everyday people. Unfortunately, the current financial system and leading financial institutions don’t work to serve the rest of us – it is so much more difficult for small businesses to access capital, and certainly no traditional financial institutions aim to serve small investors who don’t have a lot of capital to invest. Therefore, we set out to learn everything we possibly could about local economic growth and local business ecosystems – all of which start with bricks and mortar, food and retail.
From reviewing commercial leases, to understanding the opportunities and pitfalls of F&B operations, to uncovering the complex dynamics between tenants and landlords, we’ve lived and breathed “local.” Small businesses are so critical in the context of community development, and specifically, they are the lifeblood of local real estate development and asset values.
We also learned a lot about you, our investors, from all over the country that have collectively invested millions of dollars into local businesses. The first days of NextSeed was the first time in U.S. history that non-accredited investors could freely invest in private companies via an online offering process. With all the uncertainty and complexity involved, we frankly didn’t know how it would all turn out. As we encounter challenges together, we have striven to address them head-on and find reasonable solutions for investors and businesses.
All of these experiences have led us to where we are today, and more importantly, what we aim to be in 2019 and beyond. We are applying all of our learnings since inception to try to build a better company, operate a better platform, and provide better services, products and value to all of you.
With that said, I am excited to announce that you will see NextSeed begin to evolve into something a bit (or a lot) different than what you’ve seen from us until now. The following are some highlights:
We have established NextSeed Securities LLC, an SEC-registered Broker-Dealer affiliate that will be facilitating certain investment offerings on our website in the future.
With the Broker-Dealer, we will be launching offerings under Regulation D (limited to accredited investors) as well as “parallel” offerings that combine both Reg D and Reg CF (allowing everyone to participate). This means we are no longer limited to offerings capped at $1 million, and you’ll start to see larger projects on the platform and investment opportunities we haven’t been able to serve before. In the interim, certain investment offerings will continue to be offered and managed by NextSeed US LLC, our SEC-registered Funding Portal that has been facilitating offerings since 2016.
Creating and licensing a Broker-Dealer was a massive commitment of time and effort from our team in 2018. The standards placed upon us for review and compliance obligations relative to both issuers and investors are much stricter and more comprehensive, as required by FINRA and the SEC, but obtaining this license allows us to offer a more extensive and flexible service to our community. For example, Funding Portals are not legally required to conduct significant due diligence on offerings that they list on their platform, but Broker-Dealers are required to do so. We hope you’ve seen that, since day 1 of our Funding Portal operations, we’ve self-imposed certain standards above and beyond the minimal legal requirements. With our Broker-Dealer license, we’re now just taking another leap forward into a new phase of NextSeed.
New Types of Offerings
We are planning to expand the types of underlying assets and investment securities available on our website.
We look to begin listing different types of investment securities other than debt – specifically, equity offerings will be offered for certain issuers. As you may know, equity securities have a fundamentally different risk profile than debt, and often carry greater risk than traditional debt instruments. The inherent complexity involved in the valuation and associated rights of equity securities was one of the reasons we had not offered such in the past, but with the additional infrastructure of our Broker-Dealer, we feel prepared to bring on equity offerings.
We are also looking to expand the types of underlying assets offered for investment. For example, we anticipate offering investments in, and related to, real estate, given the close relationship between local businesses and the underlying real estate. We also anticipate introducing businesses that have a substantially different business model from the businesses you’ve seen on our platform to date. Rest assured, we are as excited and passionate as ever for local experiential businesses, especially in the F&B industry, and there will always be plenty of unique concepts that will be launching on NextSeed that you can visit and enjoy in person.
New Website & Technology
We have also been working diligently on a brand-new website which is being launched in conjunction with our new products and services to improve your overall user experience on www.nextseed.com. We hope you will see and experience fundamental upgrades to the overall design as well as a complete overhaul of our back-end account infrastructure that we hope you will enjoy. So much of it was developed based on all the feedback we received from you over the years.
Related to this formal transition, we will be onboarding all of you as clients of NextSeed Securities LLC (our Broker-Dealer) through the new website. This legal SEC/FINRA requirement is to ensure that you can continue to access all investment offerings offered on our website, and there will be some additional information we will need to gather to provide you with this next level of service. Please keep an eye out for a separate email with a more specific breakdown, and as always, our team will be on standby to make the transition as smooth as possible.
Other Products and Services
While we can’t officially announce any specifics until they are ready for public release, we can express that there are various additional product and service offerings in our development pipeline that we hope you will be able to see and experience in 2019. NextSeed members will always be the first to know and provided preferential access whenever possible, and we can’t wait to share all of it with you in the coming months.
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Back in the summer of 2014, when we first decided to take the plunge to start NextSeed, we didn’t do so to simply become a “small business debt crowdfunding portal.” Far from it. We started NextSeed because we believed that by utilizing the rapidly evolving laws and technology to build a vertically integrated investment platform, we can actually build a brand-new type of community-driven financial institution fit for the 21st century, designed to work with everyone in our local communities. In order to do this properly, we had to design and build everything from the ground up, from the legal foundations of our business model to the technology infrastructure that enables our individual and collective interactions. Through it all, we’ve always tried to stay true to our mission: connect businesses and individuals to build vibrant communities. We always will.
We are incredibly fortunate to still be here to pursue that vision – and all of this is because you believed in us. We thank you all for your trust in NextSeed and for being part of our community in 2018. We can’t wait to see our community grow further in 2019, and we look forward to continuing to serve you as we try to navigate this brave new world together.