A New Option in the Crowdfunding Landscape

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ckmack-1Crowdfunding has grown substantially since the inception of Title II of the JOBS Act. One of the most active subsections has been equity sharing in real estate. With over a hundred active companies all offering their own special blend of crowd sourced real estate transactions, it is hard to see how another could innovate a new option for investors.

C.K. Mack just launched a company with a new take on crowd sourced real estate investing. Their COO, Mack Schicktanz, describes the platform as “an improvement on both the crowdfunding and peer to peer lending models. The system offers cash flow based, real estate backed investments with a minimum of just $25. Unlike the crowdfunding model, which calculates IRR, your return isn’t heavily based on speculative appreciation estimates. We calculate the return based on the actual performance of each individual property on our system.” C.K. Mack escrows for hard costs like taxes and insurance. They also take escrows to account for repair and vacancy. So, even if your investment needs property improvements, your return should not be affected.

While users don’t get the appreciation, there are some very interesting advantages to this system. When rent increases so does your ROI. Rent increases are passed on to investors in those properties. Users are only committed to holding their investment for 12 months while other companies sometimes require three to ten year commitments.  A very exciting aspect of the business model is their in-house buyback program. After 12 months, whenever you are ready to divest, C.K. Mack will buy back your securities at your initial principal investment. The monthly distributions allow you to reinvest at a more frequent rate. The compounding effect of the reinvestment opens the opportunity to boost investor’s returns even higher than some traditional equity crowdfunding opportunities.

One of the most exciting opportunities and a hot topic at CrowdTrader.net is diversification. The minimum investment per property is $25, however you can invest in as many properties as you choose. This allows any investor the option of spreading what might be a minimum investment on other platforms across a pool of properties. As the investment offerings on the site grow it will be exciting to explore the option of diversification through multiple regions.

To take a closer look at this new option visit https://ckmack.com.

A CEO’s Perspective Crowdfunding with Title III: Q&A w/WOLACO

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Since Title III of the Jobs Act just recently went into effect we decide to get a closer look at how CEOs actually view the new legislation in respect to their future financing needs. We had an opportunity for a Q&A with Terry White the Founder/CEO of athletic apparel company WOLACO. He was able to share with us the company’s history as well as their first crowdfunding experience with Kickstarter and his perspective on Title III.

 

CT: What does WOLACO mean?

TW: WOLACO is an acronym for Way of Life Athletic Co. I thought about the company name long and hard, I asked close friends for input, and conducted lots of surveys. However, it was during a commute home from my day job at the time that WOLACO popped into my head. I asked myself what I really wanted this company to stand for, and concluded that at the core, it was about an athletic and deliberate Way of Life.

Since the start, we’ve been uniquely focused on meeting the lifestyle needs of the modern male athlete—guys who need active apparel that’s bold, functional, comfortable, and built to last…not for brunch. Gear for guys who live life with deliberation, passion and daring.

 

CT: When and where did the idea come from?

TW: There are two pieces of the puzzle that came together soon after my college graduation. I was a collegiate athlete and despite much forewarning, I was caught off guard by the abrupt transition from that hyper-athletic lifestyle to a largely sedentary professional routine. As a young professional, I was spending 80 percent of my waking hours either sitting at a desk or commuting to-and-from work. When I wasn’t working or commuting, there were other hindrances that prevented me from living an active, healthy life. Living in New York City, you have the challenges of time, money and an outdated corporate culture that revolves around happy hours and client entertainment—indulgences. This challenging transition really moved me to want to find the right work-life balance.

 

Then, I had an idea for a product. At the end of 2013, I left my NYC apartment to go for a run. With my phone in my hand and my key tucked into my sock, I thought to myself, there must be a better way. So, I came up with the North Moore Short—a men’s athletic compression short with two sweat-proof pockets, one pocket for your phone or music device and the other for your keys, cash, credit cards, or any other valuables. This was the catalyst for WOLACO. The foundation of the brand was already being built, but it was this game-changing product that afforded me the window to enter the market.

 

CT: How is your compression gear different from others?

TW: We’re the first company to introduce sweat-proof compressive pockets to compression gear—and we’re the best at it. What makes us different is that we’re the only apparel company that’s uniquely focused on the needs of the modern male athlete.

 

  • To ensure built-to-last durability that can withstand our customer’s lifecycle (multiple washes, high intensity workouts) we use a heavier, performance-based compression fabric, held together by a flatlock construction with reinforced stress points. It’s intended to be Worn Hard, Washed Gently, as our care and content label advises.

 

  • To enhance and streamline your workout, our compression gear features two compressive, sweat-proof pockets, reminding you that sweating while working out isn’t just okay, it’s encouraged. The placement of these pockets is also strategic, making access to your valuables while working out seamless.

 

CT: Tell us how WOLACO got off the ground?

TW: It’s been a very organic process and largely grassroots the whole way through. It started with a small family loan that funded our initial product development. My brother Alex and I then liquidated a small investment fund to build our website. From there, we launched a series of pre-sales, selling 500 units of our North Moore 1.0 and then we graduated to Kickstarter to reach a more diverse customer base very quickly.

CT: What made you choose to fund via alternative investment options?

TW: It was a decision that I made early on. I had a concrete vision for WOLACO and I didn’t want to sacrifice that vision for large investments, especially during the foundational stages. Kickstarter, in particular, allowed me to remain vision-focused, while also engaging the community in a meaningful way, selling product to athletes around the world, and getting a lot of tremendous feedback and direction from our customers.

CT: Kickstarter is both a costly and time-consuming venture, what assured you of a lower risk to reward ratio? And what attributed to the success of your campaign, which exceeded goals by 400%.

TW: During campaign preparation, a mentor of mine, who had previously run a successful Kickstarter himself, told me that it was just like a game of dominoes. If you could line up all the pieces beforehand, once your campaign launches, all you’d need to do is nudge the first one and the rest falls into place. I took the concept to heart, and in many ways, his philosophy proved true. Preparation is everything; you cannot rely solely on organic traffic on the platform to fund the whole campaign. It requires a “kitchen sink” networking approach, which means exhausting every networking angle you can imagine, and preparing them for what is to come.

 

That said, in any business, the quality of the product is of pivotal importance. It’s also important to keep in mind that crowdfunding campaigns are unique in that the consumer takes an unusually large risk with you. Even if a campaign is well-funded, there are an incredible number of things that can still go wrong, whether that means a delayed delivery, or, worse case scenario, a complete failure of delivery altogether.

 

Lastly, creativity—the product or concept needs to turn heads and have a strong, consistent message. If you’re not doing something different, improving upon something or challenging norms, then you should think twice before launching a crowdfunding campaign. Some companies are well-suited for this type of funding method, but others, not so much. WOLACO was addressing popular demand for a product that met people’s needs. We had an overwhelming amount of organic support for this simple, well-engineered, yet unprecedented product.

CT: Tell us about the brand’s growth since its inception.

TW: We’ve grown from a community of 350 customers throughout the Northeast to over 6,500 customers from 50 countries around the world.

 

CT: How do you currently market your product line, and where are the products available?

TW: WOLACO’s gear is primarily available through our online e-commerce store, wola-co.com. We’re engaging in a number of additional means of distribution, though, including local retailers, on- and offline affiliates, and through a network of brand ambassadors.

 

To this point, the majority of our marketing to this point has been done through organic efforts, including social media and email marketing. We’ve leveraged influencers to raise awareness and gain exposure. And we’re looking to establish partnerships with those brands that align with our mission.

CT: What plans do you have for the future?

TW: Functional compression is how we started and will always be rooted in who we are. Over the next year, we’ll continue to listen to what our customers are saying. We’ll continue to elevate our compression offering, while strategically expanding our brand and thoughtfully introducing new products that fit the needs of our customer.

Our greater brand mission is to inspire an epic life through active living. As we look ahead, our ultimate goal is becoming the lifestyle brand for the modern athlete.

CT: The SEC’s JOBS Act, Title III went into effect on May 16th. Can you explain what that is, and how it’ll impact businesses looking to raise early capital?

The amendment to Title III of the Jobs Act is an easing of regulation. Which allows non-accredited investors to invest in companies raising raise less than $1mm on an annual basis.

 

Generally, the crowdfunding aspect of Title III of the JOBS Act makes capital potentially more accessible for young startups. It reduces invest risk by allowing for investors with less experience to invest less substantial dollar amounts in to early stage companies. For early-stage companies with a great story, vision and team, but limited traction and proof of concept in the market, Title III will help to raise capital in lieu of a lack of time in the marketplace. In turn, expediting investment and allowing them to focus on building their business.

 

Additionally, companies built around a community will benefit even further from Title III, as it is an opportunity to disperse ownership to some of the company’s most loyal customers. For early-stage companies, this community empowerment could be exactly what is needed to build much needed momentum.

 

Terry thanks for your time and we will keep our eye out for WOLACO and any new developments from your team.

terrywhite headshot  Terry White is the Founder/CEO of athletic apparel company WOLACO.

 

 

RealtyShares Announces Over $30 Million in Real Estate Investment in Q3

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RealtyShares, has announced topping $30 million in real estate investments during the third quarter of 2015.  The accredited crowdfunding platform stated it continues to see solid investor demand across diverse property types.  RealtyShares claimed to have some of the most robust deal flow within the real estate crowdfunding sector.

“Crossing the $30 million dollar mark for a single quarter is a major milestone, particularly given the short history of our company,” commented Nav Athwal, CEO of RealtyShares.  “It is particularly significant given that these financings were entirely funded by our “crowd” of accredited investors.  We’ve seen some of our competitors tout numbers that appear to include institutional capital handled entirely outside of the crowdfunding platform. This latest funding milestone, on the contrary indicates yet again that RealtyShares’ deal volume is among the highest in the industry.”

Read the full article here.

Cap rate vs. IRR: Who, What, When?

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If you have started looking through real estate crowdfunding offers you have almost certainly come across two popular terms referred to as Cap Rate and IRR (Internal Rate of Return). You have probably figured out that both of these are figures that are relevant the return on your real estate investment or in simple English how much money you will make from the investment. But these terms are in fact different and they are used in different ways in analyzing the returns of a real estate investment. So which is the best calculation to use when vetting your prospective deal?

Keep reading for a more detailed explanation courtesy of Realtyshares.com one of our  favorite real estate crowdfunding platforms.

What is the cap rate?

The cap rate or capitalization rate is a simple ratio that is determined by dividing the net operating income or NOI by the property’s purchase price or current market value, with the final number expressed as a percentage.

For example, a property that’s valued at $1 million and has an NOI of $100,000 would have a cap rate of 10%. A property that’s valued at $500,000 with an NOI of $25,000 would have a cap rate of 20%. A higher cap rate usually indicates a greater degree of risk and, typically, a higher expected return.

The net operating income refers to the property’s annual return, minus any operating costs such as taxes or maintenance. Expenses related to capital improvements and depreciation are not a part of NOI, so are not factored into the tally.

NOI can be expressed in a number of ways: current NOI, projected NOI after stabilization (that is, after improvements are made to the property to increase rents or raise occupancy levels), or forecast NOI (in the case of new development). It is critical for prospective investors to understand the specific assumptions that are built into the NOI figures as presented.


What cap rate tells investors

The cap rate is a point-in-time snapshot that investors can use to compare different investments at a given moment. Specifically, it offers the investor one measure of how much risk they’re taking on with a particular property, how the property stacks up against similar properties in the same market and what kind of current income they can reasonably expect if all of the assumptions are born out in reality.

It’s also possible to use the cap rate to make an educated guess about an investment’s payback period. This is the length of time required for a property to yield enough profit to recover the initial cash outflow. To get a rough estimate of the payback period, express the cap rate as a whole number and divide it into 100.

For example, if an investment has a cap rate of 10% the formula would look like this:

100/10 = 10 years

Just remember that the payback period isn’t set in stone. There are a myriad of reasons why operating income (the OI in NOI) might change, for better or worse. Rents may decline due to higher vacancy rates or other property-specific or broad factors. Expenses might increase. If the cap rate increases or decreases, the payback period would be correspondingly shorter or longer.


What is IRR?

Like the cap rate, IRR is also expressed as a percentage but it offers one measure of the investment’s value over the entire holding period. In simpler terms, the internal rate of return is the percentage rate earned on the investment during the specific time frame in which it’s invested, assuming a reinvestment of cash flows at the IRR.

For example, an investor who holds a property for five years would earn interest on the income received during the first year for the remaining four years. Income received during the second year would earn interest for the next three years and so on. Taken together, the interest earned on each year’s income would represent the IRR.

Another way of evaluating an investment is to consider the Net Present Value or NPV of the investment. The NPV tells investors whether they’ll be able to achieve their target rate of return, based on the present value of cash inflows and outflows. The IRR reflects the rate of return at which the Net Present Value becomes zero. For financial professionals, NPV is the preferred method of evaluating the economics of a particular investment.


Why IRR is important

When compared to the cap rate, it’s clear that the IRR uses a more multi-dimensional approach to estimating returns. Instead of zeroing on a single moment in time, the IRR projects returns over the entire ownership period based on more than just the NOI and purchase price. This is invaluable for investors who want to avoid properties that won’t allow them to hit their investment goals. IRR and NPV analysis is also more robust in allowing investors to consider changing NOI assumptions over time, or changing assumptions about liquidation value.

While the IRR is used to estimate potential returns, it provides more than just a detailed picture of how much an investor stands to gain. For example, the IRR can be calculated with and without taxes factored in. By crunching the numbers both ways, it’s possible for an investor to determine his effective tax rate for the year.


When to use cap rate vs. IRR

Cap rate is often used as a “quick and dirty” way to estimate value when buying or selling a property and it’s especially useful when working up an offer. For example, if a seller lists the cap rate at a percentage point that’s below the average for similar properties in that same location, the investor might use it to scale their purchase price down.

Investors would also tend to rely more heavily on the cap rate when investing in single tenant properties with a long-term lease. In that scenario, the income is likely going to stay the same and it’s easier to calculate the annual operating expenses.

With an asset like an office building or strip mall, however, where multiple tenants may be moving in and out from one month to the next, it becomes more difficult to get an accurate picture of what the cap rate actually is. In that scenario, the IRR would be a more reliable standard for gauging returns because it looks at projected cash flow over the life of the investment.

If the property’s rents are increasing annually or the operating expenses are creeping up, the IRR will pick up on that information whereas the cap rate won’t because it’s based on the NOI and market value at a fixed point. In short, the IRR is a more comprehensive method for anticipating potential returns.

All financial professionals would agree that NPV and IRR analysis offer investors a more robust estimate of potential return, compared to NOI. As with NOI estimates, however, the assumptions used to produce IRR and NPV analysis are critically important, and an IRR calculation is only as useful as the assumptions that underlie it. It is as important to analyze the assumptions as it is to compare the mathematical results!


The bottom line

Both the cap rate and IRR are useful for assessing whether an investment is worthwhile, though neither one is without certain flaws and limitations. The cap rate, for example, doesn’t take into account financing, which would directly affect the final rate calculation. With the IRR, it’s impossible to predict with 100% certainty what a property may eventually sell for how, at what pace income from rents will grow, or the rate at which cash flows can be reinvested. Unforeseen expenses, changes in vacancy rates, and other factors also affect investment returns and are difficult to predict with accuracy.

Ultimately, both measures play an important part when making investment decisions. Just remember that the cap rate and IRR are only as accurate as the information that’s used to calculate them. That’s why it’s crucial for investors to make sure they have the complete picture on a property before crunching the numbers.

You can find out more about realtyshares.com and leave a review here.

 

 

 

Fundrise Launches First Ever eREIT

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Well Fundrise.com is leading the industry again with their highly anticipate “new product” which just launched today. Fundrise announced the newest investment vehicle which they have dubbed the eREIT.  Being that this investment is a REIT any investor is allowed to participate even if they are not accredited. The invest is basically a commercial real estate REIT which offers more liquidity (limited on a quarterly basis) , higher projected returns and lower fees than traded and non-traded REITs. The minimum investment is for $1000 and they plan to offer quarterly distributions.

Here are some of the highlights:

Investment Strategy

eREIT uses technology to reduce the costs of operating a traditional real estate investment fund by up to 90%. This increase in efficiency allows us to focus on a greater number of smaller transactions, a segment of the market underserved by large institutional investors. By capitalizing on this market inefficiency, the eREIT is able to seek superior risk-adjusted returns for investors.

What are the costs associated with investing?

You pay $0 in quarterly asset management fees unless you earn a 15% annualized return during the first two years (ending December 31, 2017). Once a 15% annualized return has been reached, investors pay a quarterly asset management fee of 1% per year. This description of the fees associated with the Fundrise eREIT is qualified in its entirety by the disclosure contained in the Management Compensation section of the Offering Circular.

So what is the catch? First of all in order to invest you need to have already signed up and been on the waiting list a few days before the launch. That means if you create and account now you won’t be able to invest yet. How long will it take until they will be able to allow more investors nobody really knows but I would assume not everyone that was on the list will actually invest which means within the month the investment could still be opened to other investors.

The question is what does this offer that a regular REIT doesn’t? Fundrise is projecting higher overall returns than any traditional REIT but that is just a projection and remains to be seen. Fundrise is a technology leader in the field and they hope to leverage this to cut operating costs and exploit inefficiencies that other traditional REITs may face.

Crowdtrader plans to test this with our own intial investment and we will share our results with all of our readers.

Find out more about Fundrise and write a review here. 

Q&A With Fundrise co-Founder and COO Brandon Jenkins

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We sat down and asked Brandon Jenkins, COO and co-founder of real-estate crowdfunding Fundrise.com to share with our readers some of the history and developments within Fundrise.com.

Hi Brandon, thanks for taking the time to share your thoughts with us.

CrowdTrader: Can you tell us about how Fundrise began and how you joined the team?

Brandon: The idea behind Fundrise came out of the personal experience of the founders as real estate developers in Washington, DC who recognized an opportunity to open up the world of real estate investing to a broader audience.

I joined when we were still doing our own real estate development projects – when Fundrise was just an idea starting to emerge.

CT: Fundrise has a bunch of unique features which is why I personally love the site, but how would you differentiate Fundrise from the other platforms out there?

BJ: First and foremost quality. We only work with the best quality real estate companies and search through hundreds of deals a week selecting only the top 1% to actually offer as investments.

Second, we focus on providing unmatched customer experience by creating a one-of-a-kind platform. Our technology is 100% designed and built in house…from scratch, so that the experience of investing on the platform is as straightforward and enjoyable as possible.

CT: The huge amounts of VC funding your company has raised is well known, where are you focusing most of this spending?

BJ: We are very diligent about how we spend. We want to know that we are getting a great return on our investment, so we focus our resources on creating the best products with the greatest long-term value.

CT: Since you are also in charge of product development, can you share with us any cutting edge product roll outs or features we can expect to see on Fundrise.com in the near future?

BJ: I can’t give away any specifics but we are working on a few big things that will be complete game changers for the crowdfunding industry…as big as the first day we launched.

CT: Do you have any plans to start issuing offers under Regulation A+ for non-accredited investors?

BJ: Our core business has always been and will be to provide the best quality investments to everyone – whether that is through Reg A+ or other offering structures we are constantly working to deliver on that goal.

CT: Fundrise.com is pioneering the prefunding model which definitely helps protect investors, but doesn’t this have a negative impact on the number of deals you can bring to market as well as the overall returns that investors will receive?

BJ: No, we are big believers in “putting your money where your mouth is” and prefunding every deal is evidence of the level of quality for each investment we offer. It also allows our investors to earn better returns because we are able to negotiate the best terms possible by having certainty of
capital.

Platforms operating under a “best-efforts” model have inherent uncertainty which puts them at a disadvantage when negotiating terms and this is passed along to their investors in the form of lower quality deals and a poorer risk adjusted return.

Refusing to lower our quality standards may result in us doing less deals in the short term, but we believe that our investors will benefit over the long run…and we are long-term in our thinking.

CT: Fundrise.com recently launched an income and growth portfolio which packages together a number of assets, this is starting to resemble a REIT how is this different?

BJ: It’s similar in that investors are able to diversify across multiple assets and we like that. Diversification is critical when it comes to smart investing.

It’s different in that investors get more transparency into what they are investing in and have much lower fees. Lower fees means better returns for investors.

CT: Currently Fundrise is only offering the two portfolio options for investment does this represent a fundamental change in your offering strategy? Will we still be seeing single offerings listed on Fundrise for investments?

BJ: We continue to develop ways for our investors to diversify across more deals at lower minimums – diversification leads to better performance and is something we have seen our investors consistently ask for.

CT: Where do you see the real estate crowdfunding industry in general in the next three years and Fundrise in particular?

BJ: One of our favorite quotes at Fundrise is from Bill Gates, who said “Most people overestimate what they can do in one year, and underestimate what they can do in ten” – crowdfunding is still in its earliest stage. Only in the last year have we truly started to compete and beat out traditional
institutional capital players to get deals done.

Over the long term, technology will disrupt the financial industry just like it did with book stores, travel agents, and taxi cabs – it’s simply more efficient to raise capital online with fewer middlemen each trying to get a cut of the action.

In the near term, you will start to see consolidation. The advent of crowdfunding has not gotten rid of normal business cycles and only when the downturn comes will you find out who was doing things right and who’s out of business.

CT: From a sponsor’s perspective, why should they choose Fundrise to raise capital?

BJ: The best real estate companies want to work with the best partners, ones that have a real depth of track record and experience in the real estate industry. They also want to get the best terms possible.

Because of the unique way in which we raise capital we can provide real estate companies with both the speed and efficiency of private funds and a cost of capital similar to the public markets -in short they work with us because we can provide them with the best deal.

 

Thanks Brandon, we will keep an eye out for new developments from Fundrise.com as I am sure the entire industry will too : )

 

 

FundriseHeadShots-2_(1)

 

 

 

Brandon is the Chief Operating Officer of Fundrise, the country’s first online platform for real estate investment. Brandon works with the design and technical teams to set the strategic direction for the software platform. Before joining Fundrise, Brandon worked as an investment broker and advisor at Marcus & Millichap, the largest real estate investment brokerage firm in the country. Prior to his time in brokerage, he worked for Westfield Shopping Centers in the Regional Development Office.

 

Title III Crowdfunding Now Everyone Can Invest

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Well last Friday it finally happened. The SEC passed Title III of the JOBS Act which effectively allows non-accredited investors to invest in private placement investment deals. In plain English this means when you visit any of the crowdfunding platforms they will allow you to view and invest in their offers without confirming that you are an accredited investor. Well at least in theory this will be the case.

On the surface this seems like the day we have all be waiting for in the crowdfunding industry but in reality it may have limited impact. While everyone has been jumping for joy about the new legislation and don’t get me wrong there is a lot to jump for here, there are still some issues. The problems are basically due to the capital limits placed on the deals which can be offered to non-accredited investors. In the current version of Title III the maximum that can be raised in these offerings will be $1 Million dollars. This may seem like a lot, but for most high quality real estate deals the capital limit basically prevents any of these deals from opening up to the small retail investor.

In my opinion the greatest potential crowdfunding offers retail investors is precisely in these type of investments which are relatively lower risk investments compared to start-up investing. The limit will have a small impact on the start-up investing platforms such as seedrs.com and seedinvest.com as most of these offerings are for less than $1 Million dollars. This is the exact issue that Nav Athwal, CEO of Realtyshares.com addresses here.

There are other issues regarding the additional regulatory hurdles which will be placed in front of the companies wishing to take advantage of this new legislation as Tanya Prive points out as well. You can read more about her concerns here.

In contrast to the issues raised by Athwal who runs a real estate crowdfunding platform, Chance Barnett CEO of crowdfunder.com a platform for startups, was singing the praises for the new legislation in his article here.

The contrast of these two views I think is really dependent on what Athwal pointed out. The implications of Title III are vastly different for real estate platforms as opposed to start-up platforms. The start-up platforms have a lot to gain as most of their offerings will fit under the $1 Million dollar cap and due to inherent riskiness of investments into start-ups investors will in any case want to commit less of their money to these investments. The opposite is true for the real estate platforms, which need more capital for each deal and are inherently much more stable investments which attract larger investments from each investor, the investment caps on these type of deals will seriously hinder the participation of retail investors.

One of my major concerns as well is that when the legislation actually goes into effect the start-up platforms will be the first to adopt offerings under title III. The hype and exuberance on the part of many retail investors to get in on these deals will lead to money flowing in without sufficient due diligence and without the proper hedges against risk. Since these are the most risky investments in the crowdfunding space it is really a horrible place for us to have to start with retail investors. A few deals that go bad and with start-ups the majority go bad will put a black cloud over the industry in terms of retail investors and this is all before the real estate platforms will be able to figure out the proper way to take advantage of the new legislation.

I hope for the industry and for investors both platforms and investors will proceed with caution using the proper due diligence and diversification to invest.

Title III of JOBS Act, Equity Crowdfunding for Non-Accredited Investors

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Here is a great article from Chance Barnett, CEO of crowdfunder.com about the implications of the Title III for start-ups.

The SEC just voted on and passed rules to implement Title III of the JOBS Act, bringing non-accredited investors into the fold for equity crowdfunding. This sets the stage for equity crowdfunding to continue its exponential growth over the next 3-5 years, on top of the existing market for accredited investors.

Crowdfunding was already expected to surpass VC in 2016 at $34B a year in total crowdfunding online, across all types of crowdfunding. By bringing in a new class of investors with Title III, we can expect further growth of the equity market as venture capital continues to move online.

The public has been waiting on Title III equity crowdfunding for three and a half years now, as the SEC continuously stalled in finalizing rules to allow non-accredited investors to come into the market and invest in startups under Title III.

Read the full article here.

What Is Wrong With Title III Crowdfunding

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Not everyone is so convinced about the prospects of Title III of the Jobs Act which was recently passed by the SEC.We thought we would post some thoughts from around the web on the issues with the current legislation.

Nav Athwal, CEO of Realtyshares.com voiced his concerns about the legislation because the capital limits effectively exclude real estate deals.

Athwal writes:

In theory, it seems like a win-win for both sides but putting the Title III changes into practice may not be a realistic goal at this stage of the game. At my two year old crowdfunding for real estate startup RealtyShares where the goal has always been to cater to the general public and not only Accredited Investors, we’re struggling to determine if this rule is actually as impactful as it appears to be in theory. That is because while Title III does expand crowdfunding opportunities for non-accredited investors, there are still certain requirements that have to be met and restrictions that apply.

For instance, under Title III individual investments would be limited to either 5 or 10% of the investor’s gross annual income, based on their net worth. And any investment opportunity would be capped at $1 million in total fundraising within a 12-month period. For commercial real estate, a capital intensive asset, these upper limits could be very limiting.

In recent weeks, legislators have been making a push to have the cap raised to $5 million and reduce some of the cost to crowdfunding platforms with regard to Title III offerings. It’s not clear yet which way the SEC will rule on these issues. In terms of the logistics of vetting non-accredited investors and making sure investment deals fall within the guidelines Title III imposes, the challenge may be too much of an obstacle for more nascent startup platforms to take on.

Other verticals, particularly those catering to startups or small businesses, will reap some positive benefits from Title III and those benefits extend to the public as a whole. Unlike real estate, oftentimes startups and small businesses do not need as much cash to hit that next milestone and thus the upper limit of $1 Million could prove workable. On the whole, however, the rules in their current form may not carry as much weight as previously thought.

You can read the full article here.

Other concerns were voiced by Tanya Prive, which concern the higher regulatory demands that will be put both on platforms and start-ups themselves to be allowed to open their offerings to non-accredited investors.

Prive writes:

Plus, a detailed due diligence screening conducted by the intermediaries or their outsourced partners will need to take place before the deal can be admitted, which can take anywhere between 15- 90 days. It will examine every little aspect of the company, its officers and major stakeholders, which depending on whether the intermediary does this in-house or outsources it, will result in additional fees, typically ranging between $2K-$5K. To build on top of that, there is no good way of making this process truly scalable as each due diligence conducted is unique in a way to the company undergoing it.

Read Prive’s full article on Forbes.

It remains to be seen how effective the new legislation will be as well as how many of the platforms will actually start adding offers under Title III. Keep reading more on this issue.

Fundrise Wikipedia

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Fundrise is an American real estate crowdfunding platform.[3] It facilitates transactions from individuals, allowing them to invest in real estate projects with initial investments starting at $100 and up to $10 million. It has been labeled as the first company to successfully crowdfund investment into the real estate market.[4]