A couple weeks ago, we found out we’re officially the first SEC-registered funding portal under Title III of the JOBS Act. When we started doing this in Texas over a year ago, we didn’t know when the national rules would go into effect – the JOBS Act was signed into law 4 years ago and all we could do was trust that it would happen soon.
So we’re excited that the long-awaited Regulation Crowdfunding rules are finally going into effect today, May 16th. Now, all investors will have the opportunity to invest in small businesses through portals like NextSeed.
Over the past year, we’ve been helping small businesses get capital from investors like you on our Texas site using Texas intrastate crowdfunding rules. Investors purchase debt securities from a business through NextSeed and the business pays you back with a return on top, like a loan.
To date, Texas restaurants, salons, spas, and bars have raised over $1 million, and investors have already received close to $80,000 in payments from their investments (with no defaults or missed payments). We’re grateful for how people have embraced this new movement and we’re excited to launch our new national platform to now serve the entire country.
We’d like to introduce ourselves to all of our new members nationwide and let you know why we’re all in on investment crowdfunding for Main Street businesses.
Main Street businesses have a big problem
In the aftermath of the financial crisis, small business lending fell off a cliff. Access to capital shrank for almost all US businesses, but while some of the largest banks and corporations were rescued by government bailouts, Main Street businesses were deemed “small enough to fail.” Many hard-working business owners couldn’t find funds to continue their business. As their businesses faltered, with them went countless jobs and their American Dreams.
Alternative lenders took advantage of the situation and jumped in. Exorbitant interest rates became commonplace (like merchant cash advance “lending” with interest rates higher than 80%) as their aggressive sales teams blitzed the country. Small businesses have suffered in their wake, and it was obvious to us that there had to be a better way.
Why the crowd can be the ultimate business solution
In fact, another solution has always existed. Friends and family financing is the oldest story in the book. Today, in the US alone, close to $60 billion in investments a year are transacted within our friend and family networks.
Those investments often come in the form of handshakes and personal assurances, though. Even when things go well for a business, servicing the investment is murky at best and arguments often start because of a lack of clarity and documentation. “Messy” doesn’t even begin to adequately describe those deals and subsequent relationships.
Regardless, people remain passionate about small business investing. On a human level, if we believe in an idea and in the people behind it, we want to be a part of it.
We believe the true power and value of crowdfunding is in the people. Businesses don’t just get financing when they crowdfund – they get a small army of supporters on their side.
Would a bank tell its friends to go to a restaurant that it’s invested in?
No, but the crowd would.
The viral nature of crowdfunding highlights the potential of a crowd’s impact on a business. Businesses have already been able to leverage NextSeed’s Texas platform to turn a financing need into a marketing opportunity, and hundreds of people are now engaged with businesses – not simply as investors, but as advocates.
Why debt instead of equity for small businesses
Equity investments make a lot of sense for growing tech businesses. But for many small business owners, selling equity in their business may not be practical. Managing a cap table, debating equity valuation, and dealing with dozens of new shareholders is the last thing that a restaurant owner wants to be doing.
For investors, the risk profiles between equity and debt are different. The value of an equity investment largely depends on the business increasing its enterprise value (and what that value is depends on who’s doing the calculation). Plus, most small businesses aren’t looking for an exit opportunity that would allow investors to also cash out. On the other hand, like loans, debt securities generally depend on a business’s ability to generate sufficient cash flow to make payments regularly to investors.
Why the rest of us want to invest in small businesses
Investing in small businesses offers a level of transparency and control that is missing in other investment options. Social media, online research tools, and customer review sites across dozens of platforms give us an unprecedented level of information about businesses. Whether they’re located down the street or on the other side of the country, their information is at our fingertips.
And because of the transparency, it’s a lot easier to understand what’s happening with your investment. Small businesses raise money for a specific purpose, and investors know exactly what businesses are using the funds to accomplish.
On NextSeed, we want to give you the opportunity to take back control of your investments. We want to provide you with the transparency and convenience you should have for evaluating small business investment opportunities.
Let’s get together and make this happen,
The NextSeed Team