Trump Tower (Photo credit: Chris Breeze)
The market for crowd funding is hot. Thanks in part to the JOBS Act; recent U.S. government legislation that allows for a wider pool of small investors with fewer restrictions combined with the success of companies like Kickstarter. A variety of industry specific crowd funding startups are emerging to take advantage of the opportunities for community organized fund raising.
By far the largest player in the crowd funding space is Kickstarter. Since its launch in 2009, more than two million people have pledged greater than $300 million to projects by individual groups of creators. Kickstarter specifically focuses on “creative projects” from the worlds of music, film, art, technology, design, games, fashion, food, and publishing. A prime example is Pebble, an infinitely customizable e-paper watch that has raised more then $10 million using Kickstarter’s crowd funding marketplace.
Unlike Kickstarter that focuses solely on creative projects, a new group of up-start companies are attempting to fill the void in funding opportunities within niche market segments. FundersClub allows accredited investors to make early stage investments in curated startups recently raised a $6 million VC round. Another is CircleUp, which is tackling crowd funding for retail companies has recently raised $1.5 million in their angel round and claims to have funded five food companies to date.
Yet another emerging sector for crowd funders is that of commercial real estate with several companies attempting to fill the void. I recently had the chance to catch-up with the Jilliene HelmanFounder and CEO of Seattle based RealtyMogul.com. She describes the service as “insider access to pre-vetted real estate investments.”
The concept of Realty Mogul is fairly straightforward. Users of the service pool money with like-minded investors to make commercial real estate investments that are otherwise difficult to access. Investors can invest as little as $5,000 for a slice of an investment. Each real estate investment is tied to a real estate company that deals with the hassles of “toilets, tenants and trash.”
Helman notes that a lot of the investments are in the so-called “rehabilitation” of real estate properties. Anyone who’s ever watched one of the fix-and-flip “reality” TV shows will recognize the concept. Essentially Realty Mogul provides the ability to bring together investors who are interested in short term real estate investments without the risk of doing the actual renovations. The funds raised go to professional contractors and real estate development firms who are financed from the crowd funds raised with average returns anywhere from 5-20%.
Realty Mogul isn’t alone in seeing the opportunity to apply crowd funding to the real estate space with startups like Fundrise.com, Collaperty.com and New York-based Prodigy Network also putting its own spin on the concept. InColombia, Prodigy has recently crowd funded a building called BD Bacatá that will be the nation’s tallest. About 3,100 investors kicked in $171.8 million (COP308 billion) of the $239 million needed to build the 66-story skyscraper in downtown Bogotá. Investors can also buy and sell shares through a resale program, which functions like a secondary market. Other companies like Fundrise provides “shares” of various real estate investment for as little as $100.
Helmen is unfazed saying that she believes the market to be a massive opportunity with more than enough room for several players. According toIBISWorld, the global real estate market is estimated at more than $5.2 trillion. Without question it’s a huge opportunity for those able to tap into it. More-over with an average annual rate of just 2.8% in 2012 many commercial real estate investors may begin to look for ways to reduce their risk factors while maximizing their yields. Crowd funding appears to be on the cusp of solving both problems.
Realty Mogul is in the midst of closing its first round of outside venture funding and is currently part of the TechStars accelerator program. It’s definitely an interesting space to watch.