It has been a wild ride for the US economy ever since the floor fell out from under us when the Coronavirus hit. More than 17 million Americans have filed for unemployment, hundreds of thousands of businesses have had to close their doors while social distancing has kept customers away, and our public markets saw a 30% decline before a recent uptick. Millions more are expected to file for unemployment and our economy is expected to contract even more as the trillions in stimulus money fails to arrive in the bank accounts of those in need. With the banks and Federal government failing, it is uplifting to see local communities coming together not just to make protective gear but also to provide the critical cash small businesses need to stay afloat during these challenging time.

NextSeed, the popular Houston-based investment crowdfunding platform for consumer-facing businesses has also entered the COVID-funding arena with two programs aimed to help small businesses navigate this period. One offers a new financing product under Reg CF and, the other has been launched as a donation campaign that provides much needed revenue to restaurants by purchasing meals to be delivered to medical facilities for free.

NextSeed has been helping startups and small businesses raise funds since Regulation Crowdfunding first went into effect in 2016. Since then, they have raised over $17 million for community-building small businesses. Their platform is unique in that they have built a core competency in funding restaurants (some of the hardest hit businesses in the Corona crisis) with term notes or via revenue share agreements. With a revenue sharing note, investors can earn a multiple on their principal, such as 1.5x (each deal has a different potential return). Businesses pay investors a small percent of their monthly revenue (for example 3-6%) over a set period of time (usually 4 years) or until the multiple is paid. Revenue sharing notes could work particularly well for businesses in crisis because when revenue is slow, paybacks (that are based on a percent of revenue) are lower as well. This eases the cash burn on these establishments. Then when business picks up, the note repayments pick up as well.

NextSeed is rolling out a new special financing product for qualified small businesses, specifically designed to meet the working capital needs of businesses during and in the immediate aftermath of COVID-19. The NextSeed Community Bridge Note (CBN) will leverage Regulation Crowdfunding rules to provide small businesses with an alternative and efficient way to raise flexible, lower cost, lower fee financing.

NextSeed redesigned their application to streamline the process, with a renewed focus on helping businesses move quickly through their review and diligence process to launch a campaign in as little as 2-4 weeks.

Here are some of the CBN program highlights:

• Working capital for established businesses
• No payments due until Jan 31, 2021
• Maturity of 48 months
• Revenue sharing note designed to give flexibility to businesses
• $10,000 minimum raise (maximum based on projected working capital needs and debt service coverage ratio)

For those that want to get started here is the application.

In addition to the CBN, NextSeed joined forces with Impact Hub Houston and formed a donation campaign called the LIFE Fund. The fund supports local businesses and feeds the healthcare workers and first responders on the frontline of the COVID-19 crisis. Through the generous contributions of donors to date, the LIFE Fund has ordered and scheduled over 1,000 meals to over 15 hospitals and clinics!

“We have always been about connecting investors who care with businesses that matter. On the NextSeed platform, businesses can raise capital directly from community-minded investors that already know and love their businesses — investors that want these businesses to exist tomorrow,” said Youngro Lee, CEO NextSeed. “We’ve raised millions of dollars for businesses at various stages of growth. While the new CBN product is exclusively for working capital needs, if anyone is looking to raise capital for a new business, expanding an existing business, or not immediately affected by the current crisis, please explore the other products and services that NextSeed offers.”

It is great to see how crowdfunding platforms are using both their core competencies and communities to raise cash for businesses that are most affected. But it isn’t just the fact that these local investors are putting up cash to keep these local businesses operating. These businesses provide critical economic activity and jobs. The cash these investors provide help support these local communities. These investors aren’t giving money away but stand to earning a return which may just be less risky than the volatility we are seeing in the public markets today.