Growing investments

Houston startup founder plants the seeds for innovative capital raising

Youngro Lee, co-founder and CEO of NextSeed, wants to create a connection between business and their communities. Courtesy of NextSeed

After eight years as a private equity lawyer, Youngro Lee quit his job to start NextSeed, a digital avenue for businesses to raise capital from the community they serve.

"One thing that I always realized in my professional career is that private equity is not the stock market," Lee says. "It's only open to wealthy, accredited individuals. I didn't like that. I thought it was in inefficient process. It's really hard for entrepreneurs to raise money if it's only open to this small group of people."

Since its founding in 2015, NextSeed has helped dozens of companies — like restaurant group, Peli Peli, and brewery, Buffalo Bayou Brewing Co. — raise money online from individual investors.

"Our mission is to connect businesses and individuals to their communities," Lee says. "That's why our businesses and the people we work with are largely focused on retail or consumer-facing businesses. No matter how our company evolves, we will stick to that as much as possible."

NextSeed is expected to grow and evolve its services in the near future.

InnovationMap: What changed so that NextSeed could exist?

Youngro Lee: When the Jobs Act happened in 2012, essentially a series of laws allowed for online fundraising for companies — including to non-accredited investors. That really caught my eye. I decided to leave my legal career to leverage this new law to start NextSeed, which is a platform for businesses to raise capital for from anybody.

IM: What were your first steps in starting NextSeed?

YL: It was really just understanding the changing law to really come to the conclusion that this could work — and then understanding the parameters that need to be put in place to make it happen. And then there's no easy way to do it, so I just quit my jobs and went for it.

IM: How did NextSeed get its initial funding?

YL: We found angel investors to get the company started. As we made some progress over time, we found some other investors along the way.

IM: How is NextSeed different from anything else out there?

YL: For businesses, it's a completely different way to raise capital. We find businesses legally compliant ways to raise money and put it online, and they get to engage with the community through their page.

IM: How is it different from crowdfunding sites?

YL: There are so many different types of crowdfunding platforms. What we're doing is investment or securities crowdfunding. Kickstarter, for instance, is asking for support or donations with a reward, but NextSeed is allowing for investing in financial securities that's being issued by the businesses. Even amongst the investment crowdfunding platforms, there's usually a focus on specific assets, like real estate, tech startups, or small businesses — that's what NextSeed focuses on, small businesses debt securities.

IM: How do you get new clients and relationships?

YL: A lot of it really is people to people. Investors telling people about it, and businesses telling other businesses about a new way to raise capital.

IM: What do you wish you'd known before you started NextSeed?

YL: Nothing ever goes to plan. I think especially for startups, there's a lot of accomplished companies out there, and a lot will try to give you advice or support. It's helpful, but the reality is that circumstances of a startup is so unique that you really have to be flexible to the feedback from the market when you're starting your business or launching your product.

IM: How does Houston's startup community compare to other major cities?

YL: I think it's changed dramatically. When I started in 2014, there was nothing like what there is now. There was nothing like Station Houston or Houston Exponential. In general, the Houston community has really embraced and has an interest in what a startup is and how it can make a good impact on the Houston economy.

IM: How has startup funding changed throughout your career?

YL: There's definitely more people interested in investing in startups, but a lot of misconceptions on both sides — companies and investors — on what a startup needs in terms of support. It is a lot better now than it was four years ago. I think the key for Houston to understand is Silicon Valley is Silicon Valley. New York is New York. Houston's innovation ecosystem is really different from other markets. I think Houston needs to find what works for Houston and not necessarily replicate what other markets seem to be doing.

IM: What's a mistake you've made in your career and what did you learn from it?

YL: There's so many. One I made, and I keep making, is as a startup founder you're so used to doing everything in a specific way. I've definitely held on to more responsibilities or decisions that I should have delegated and entrusting others to do them. As you get to different stages as a startup you have to grow the organization. What I've learned from not being able to give up control or be more flexible is that it doesn't work. It's a team effort, and you need every member of the team to feel empowered and part of the entire process.

IM: How has NextSeed's team grown over the past four years?

YL: NextSeed started with three co-founders and now we have around 18 people. We are definitely still in transition process from a mature startup to an innovative financial institution. We are officially becoming a broker-dealer to be able to service a larger base — financial side, business side, as well as our investors. The goal was for NextSeed to keep innovating and bring in new technologies and processes

IM: What's next for NextSeed?

YL: Over the next couple month we will be expanding our capabilities to work on larger projects and different types of investment opportunities.

IM: What keeps you up at night, as it pertains to your business?

YL: As a startup, "almost good" doesn't work. You have to get it right because competition and standards are so much higher for startups. So, especially given that we are focused on technology and finance, I want to make sure we set ourselves up for a high standards and meet expectations.

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Portions of this interview have been edited.

Finding a new, larger office space is part of the startup growth process. Getty Images

There are a number of ways to measure the stage of growth a company is enjoying: funding, headcount, acquisitions, exit strategy, and more. But one telling indicator that often goes overlooked is the office space they call home.

In the early days of a startup, working out of someone's garage or at a nearby coffee shop, you dream of moving into a coworking space Such a transition can mean a financial squeeze for some, especially when your prior solution was free. But paying for a space can mark a milestone — it signifies that you've made it to the next chapter. Houston has a number of great options for the many local early-stage startups undertaking this type of move.

Over time, though, as your company continues to grow, this solution may begin to cause strain. There's a big difference between a team of six sharing a room in a WeWork, and a team that's reached double-digits having to manage within a space that it has outgrown. Even external amenities like meeting rooms can become insufficient — as your team evolves, more meetings will be necessary, and the standards and needs at play will shift.

Finding your own private office space in Houston is not a challenge; it requires, however, acknowledging that the time has come to take this next step. Signals that it's time to move out and get your own space typically surface in two ways:

  1. What used to feel like an intimate setting has turned into an untenable situation. People are spending too much time talking about the coworking space and its limits.
  2. And, on the flip side, branding your company identity becomes a topic on your radar. If you find a great software engineer interested in joining your team, they might have some reservations about coming aboard with you if they discover you're sitting in a coworking space rather than your own space.

At SquareFoot, the commercial real estate company I founded in Houston in 2011, I have given special attention to companies looking for their first office space. It can be daunting at first, but our brokers know better than anyone how to be trusted advisors for small business owners searching for their first locations.

The most important question at this stage, we've found, is not which neighborhood they'd like to be in, what their budget is, or what amenities they want. Rather, it's a common growth question: Where do you see yourself in three to five years? By asking this question of CEOs in initial conversations, we can get a better idea of what type of growth they project, and how we can most efficiently find them the right space to accommodate their current needs and future goals.

We see office space as more than segments of larger office buildings. These spaces mean a great deal to the companies that inhabit them. It's our responsibility to fit the right team into the right space, and to advocate and negotiate on their behalf.

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SquareFoot Founder and CEO Jonathan Wasserstrum, who hails from Houston, has worked for over a decade in commercial real estate. Outside of work, Jonathan is interested in the three Bs — bourbon, buffalo wings, and brass bands.