Which real estate crowdfunding platform is best for me? by Stefano D'Aniello of GroundBreaker


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In the following chart, Stefano D'Aniello of GroundBreaker provides readers with a comprehensive overview of real estate crowdfunding.

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Which real estate crowdfunding platform is best for me? by Stefano D'Aniello of GroundBreaker

  1. 1. How it works Examples Advantages Disadvantages Who is it for? Online Syndicates Syndicates find a local operator that originates a deal and will acquire, build, and/or manage the relevant property and offer to raise (“syndicate”) funds in exchange for a cut of the deal economics. This is the most common type of operation and includes “passive” investment platforms like Realty Mogul, iFunding, RealCrowd, and Patch of Land. For those raising funds, the advantage of this model is its simplicity: investors and operators deal only with the syndicator, who takes the burden of managing both the investors and the operator. The extra layer of costs and fees that the syndicator brings along and the lack of a direct connection between the operator and the investors. Overall, for fundraisers and investors alike, online syndicates are a good way to get their feet wet with real estate crowdfunding. Placement Agents Placement agents play matchmaker between investors and operators – they connect the parties through their online platform and take a commission on all funds that are raised (usually 3%). Fundrise Networks uses this model, at least in part. Venovate and other alternative investment brokerages will likely get into this space. For investors: placement agents are broker-dealers bound by SEC and FINRA rules. They have to do some basic due diligence on all deals they place. Placement agents, unlike syndicates, will usually have no ongoing management responsibilites. Thus, plain brokerage will provide fewer protections than a reputable syndicate can bring. For operators: This is a good alternative if you are looking to raise funds for one project, as long as there are no “retainers” or other upfront fees. If you are a savvy investor looking for dealflow, this
  2. 2. The fees can be a drag. model and lead generation may be a good choice, if you don’t mind the fees. Vertical Integration Vertically integrated platforms work like syndicates but also add value in some other way: usually by being the developer or property manager. In short, they are operator and syndicator, all in one. Both Prodigy Network and Fundrise have done deals of this kind in the past (although they do not use these models for every deal they do). Since there is no middleman trying to get a cut of the deal economics, this model has the best potential to offer a win-win for investors and fundraisers alike. The absence of a middleman presents some problems on its own, especially for the uninitiated. I would only warn investors to take a close look at fee structures, since the platform and its related entities will be getting paid in many different ways. For those looking to get “close to the asset,” be passive, and avoid middlemen, this is the best choice. This is probably the most sensible business model in the industry and we would all benefit from more vertically integrated platforms. Lead Generation These are PR/marketing platforms that promote a deal and charging per impression (the online term for lead), regardless of whether an investment is ForeFund Capital It provides a direct link between investors and operators (presumably at a lower price point than a placement agent). It neither protects investors, nor assures results to those seeking funds, who will have to pay before they even close the investment round. This is a great choice for more experienced investors and operators who are comfortable paying for an introduction, with no assurances made.
  3. 3. made. White Label These SaaS businesses create custom-branded crowdfunding platforms for their clients, who in turn adopt any of the four models listed above. The client manages the content and front- end operation of the platform. The technology company manages everything on the back end, from software updates and server maintenance, to reporting and compliance. GroundBreaker (which I co- founded) uses this business model and provides operators a scalable, fully operating crowdfunding platform within a day or two. Clients (operators) (i) don’t pay commissions or management fees, (ii) retain full control of their deal and (iii) grow their investor base directly. Investors will need to analyze each platform operator individually, since white label software will power up any of the business models described above. Creating your own site is a long-term business move. Hence, this is not the best alternative for those that need funds right then and there for a project. For operators seeking a long-term solution to their funding needs and who want to complement their offline fundraising efforts with an online platform, as well as streamline their fundraising and investor management operations, this is it.