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Tips for Crowdfunding Your Next Project
By: Carrie Rossenfeld,
Dec 1, 2014

IRVINE, CA—Crowdfunding is growing in popularity, but it takes savvy investors and real estate firms to know how to use it properly. In a continuation of our earlier exclusive interview with MondayOne CEO Kenny Dewan and EquityNet CEO Judd Hollas, they reveal their tips and advice on how to crowdfund a project. What are some of the trends, data and states on real estate crowdfunding that you are currently seeing?

Hollas: Around 13% of companies on EquityNet are from the real estate industry. The average market growth rate is 14.33%. The average investor equity is 39.5%. This is the average percent of the company offered to investors for their investments. The average funding goal for real estate companies is $1,948,399. The average funding raised so far is $847,565. That means on average, companies are right at 44% of their funding goals. It seems like $6 million is a lot to raise via online investing. Why are investors feeling more confident about investing their dollars online?

Dewan: MondayOne has the credibility, experience and success that many other companies do not. We’ve been in the business for 14 years, operating in California and now North Dakota, we put our own money in with our investors’ so we have skin in the game, and our experience consistently leads to success. I believe that our investors were quickly able to see that, which gave them the confidence to make their investment decision.

Hollas: Crowdfunding lets investors leverage the power of the Internet to quickly find deals and efficiently conduct their due diligence. Real estate is an industry that is embracing crowdfunding as an alternative to traditional funding options and investors are confident that they will see positive returns on their investments since they are backed by tangible assets. What are some tips/advice you give a real estate company looking to crowdfund their next project online? How do they prep for this?

Hollas: First, you want to have a solid business plan ready to go. Not only can this be used as a fundraising tool, but it also helps establish your company’s valuation, provides a framework for operations and helps to establish your priorities. Secondly, make the appropriate legal preparations and familiarize yourself with state and federal crowdfunding rules. You will need to draft a private-placement memorandum. You will also have to verify that investors are accredited prior to accepting funds if you decide to utilize general solicitation. Third, keep in mind that investors generally invest in what they know. Your initial focus should be on investors who are familiar with the real estate industry.

Dewan: For sites like EquityNet, you need to make sure that your company’s profile is well designed and makes sense to investors. It needs to be informative and transparent, but needs to be designed so that the information can be digested quickly. Basically, you need to have a good, solid deal and present it in a way that is enticing to investors. There’s also a lot of follow-up and work involved for which you need to be prepared. You have to be willing to establish and maintain an open line of communication with all potential investors. Communication is key. How will crowdfunding impact the real estate market in the future?

Dewan: I think that crowdfunding will create more transactions that are easier for all who are involved. As long as there aren’t too many scams out there that discourage investors or make them lose money, then it’s a great beginning to make an open platform with many more transactions that benefit both companies and investors. The key is to make sure that no companies listed have the potential to be a scam. Screening deals carefully is important to running a successful program.

Hollas: Currently, only accredited investors can participate in business crowdfunding. Title III of the JOBS Act will allow nearly anyone to participate in business crowdfunding; however, finalized rules are still pending. Once these rules are in place, we can expect to see an influx of capital in the real estate market since the pool of potential investors will have grown exponentially from 10 million accredited investors to more than 100 million accredited and non-accredited investors.

This article was originally published in

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