Archive for April, 2014

Sourcing the Right Crowd for Investment Opportunities

Tuesday, April 22nd, 2014

crowdfunding investors

Crowdfunding is giving accredited investors direct access to entrepreneurs.

There’s a whole new level of crowdfunding and participants are looking for big returns, not just mentions or prizes. Let’s call it “crowd-investing.” It’s quickly taking shape in real estate as many investors are jumping onto new real estate crowdfunding platforms.

Through a provision in the recent JOBS act, entrepreneurs can now advertise private investments to accredited investors who earn at least a $200M annual income and possess more than $1 million in net worth.

Earlier this year Realty Mogul announced a $9 million crowdfunding round whereby  accredited investors pooled their resources and bought shares of investment properties. It’s similar to investing in Real Estate Investment Trusts, but unlike REITs investors know specifically what they are investing in such as office buildings, retail space and residential properties. In addition to investment returns, investors can claim real estate depreciations on taxes.

Forbes has gone as far as suggesting that crowdfunding may reshape the whole real estate investment model. Where entrepreneurs traditionally had to raise capital through banks or professional investors, they can now go directly to people with money to invest. This democratizing of the process allows individuals outside of institutional funds to invest in real estate properties paving the way for entrepreneurs to more easily secure capital.

A similar sea change is taking place in the entertainment world where accredited investors and high net worth individuals have the opportunity to back a movie. The film investment company Junction has been called “Kickstarter for the rich” and rewards investors based on their contribution to a film. Two films currently funded by Junction include some big Hollywood names — A Hologram for the King starring Tom Hanks and Triple Nine starring Chiwetal Ejifor, Kate Winslet and Woody Harrelson.

As in real estate, filmmakers can take their projects directly to people with money to invest thereby accessing capital more quickly than seeking bank loans or the backing of a big studio. The holy grail of this type of investor is the “angel” who’s willing to stake a filmmaker whatever it takes to get the movie produced. In many cases, the investors can play a role in the film making process.

A few recent developments have made online crowd-investing possible.

1)   The SEC lifted a decades-long ban on general solicitation. Prior to this, entrepreneurs could not try to raise money from investors with whom they did not have an existing relationship.

2)   Self-directed online investing has become the norm that entrepreneurial companies can capitalize on by pooling money from individuals who buy shares in the company or specific projects.

3)   Through new web platforms, investors can browse and screen investment opportunities, view details of the investment and sign legal documents online.

The key to success in crowd-investing is acquiring and retaining a list of accredited investors open to the concept of crowdfunding, which is no easy task. Before you solicit funding for investment opportunities via mail or email to a prospect list, make sure you ask two very important questions of the prospect data provider.

a)    Do you have accredited investors?

b)    Do these investors have a history of making crowdfunded investments?

Marketing to accredited crowdfunding investors will make all the difference in your ROI. Finding an angel or two among the group willing to bankroll a project can quickly spell success. These types of prospective investors are very difficult to identify, but when you do, they can send your operating capital through the roof.

 

 

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