Crowdfunding

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Big Idea Getting Bigger

Alissa Adler, Principal

Crowdfunding – the hottest buzzword in the business world. A term that garners giddy excitement from both those petitioning for funds and those eager to be a part of the crowd. Let’s examine the possibilities and trends of this phenomenon.

For developers and real estate companies looking for a way to supplement their investor database, Crowdfunding offers a unique and compelling way to raise funds. On the flipside, not all investors have access to deal flow, so the benefits are often mutual. Take for example investors in rural areas or international investors looking to access opportunities in the U.S.

The concept of Crowdfunding was made possible by the JOBS Act of 2012 wherein the SEC lifted the prohibition against advertising private placements to the general public. Legislation is pending in Illinois to open the door to all investors; to participate in the current Crowdfunding scene, however, money can only be accepted from accredited investors. Crowdfunding portals are not required to be registered broker/dealers, although many are going that direction to enhance credibility.

While many portals support Crowdfunding for various types of investments – business start-ups, technology, even movies – some specialize in raising funds solely for real estate. Sites such as Realty Mogul, Patch of Land and Ground Floor target $1,000-$10,000 raises. Not surprisingly, however, some set their sights on much bigger fish. The Carlton Group, for example, recently launched a platform targeting international investors and increasing the minimum buy-in to $1M. Carlton is unique in that they take an ownership role, whereas most Crowdfunding companies are purely intermediaries.

Fundrise, a pioneer in the real estate Crowdfunding arena, seeks to be a platform for large institutional investors to place equity. While on the debt side, Crowdstreet recently listed a $1.6M mezzanine financing raise with a targeted 10.5% return. Crowdfunding is a new tool in the capital raising toolbox that is here to stay.

KEY POINTS:

  • Crowdfunding is a growth industry: The CEO of one crowdfunding website estimates it to be an $11 trillion market.
  • Crowdfunding is the future: Fundrise, backed by savvy real estate investors, social network promoters and technology gurus from the U.S. and China, recently raised $31M for their own platform.
  • Crowdfunding is local: A campaign for a floating entertainment center off Chicago’s shoreline reached its goal in 36 hours.