CF USA AGENDA’s SNAPSHOT
SEC – JOBS ACT – Early Investing
Family Offices – IRA Trust
Rules and Regulations Consideration
Rule 506(c) – Title II Tittle III REG D REG CF
Definition of accredited investor?
Liquidity for the private securities space
Redefining Securities Distribution through Crowdfunding
Real Estate Crowdfunding
Why Hot Real Estate CrowdFunding Is The Next New Frontier?
Impact of crowdfunding on real estate finance and deal-making
Is Real Estate Crowdfunding Offers An Attractive Alternative For Secure Investments?
The Impact of Technology and Internet on Real Estate Crowdfunding
Trump to Lift Community Bank Regulations (and what that means for house flippers)
Dodd-Frank: A Republican Congress
will likely be looking for ways to scale back time and money on business regulation.
Real Estate Crowdfunding and Community Development
Pros & Cons of Internet finance and lending
2017 State of CrowdFunding
Business of Crowdfunding & Reaching the Goal – How to Make It Happen
Multiple Faces of Crowdfunding on Equity
Future of EB-5 Business Finance & Crowdfunding
Disruption of Equity Crowdfunding on VC’s – Angel Investors
Is Online Lending & Fintech industry here to stay?
Exploring Title II
Why it dominates and will continue to dominate crowdfunding
What initiatives are being pursued to create secondary markets or other means
Effect of IPO window
Regulation A+ Mini IPO
Many of the Reg A deals got pulled this last year.
Is this offering type holding up to investor interest.
Need research on Reg CF, Reg A+ and other offerings.
How much was raised, and how have they performed.
Aftermarket performance of Reg A+ deals
After hours Networking
Round table discussion
GROUNDFLOOR, the first and only U. S. real estate lending platform open to non-accredited investors and IRA Services Trust Company, the leading innovator of hi-tech Self-Directed Individual Retirement Account (SDIRA) solutions, today announced an initiative to maximize the benefits of tax-deferred investing for retail investors. As a result of the collaborative effort, GROUNDFLOOR will immediately begin inviting investors on their platform to fund their accounts directly through their 401(k)s and IRAs.
GROUNDFLOOR offers real estate investments with different grades that have a range of risk/reward profiles, offering returns ranging from 5% to over 20% so investors can build a diversified portfolio. In 2016 GROUNDFLOOR delivered loans with an average annualized return of 14.16%.* Compared to 2015, in 2016 loan origination volume in dollars grew by 621%, and the dollar value of principal repaid grew by 588%. Only one of the 108 loans repaid to date has returned less than 100% of the principal due back to GROUNDFLOOR’S investors.
At a time when private markets continue to deliver superior returns compared to public markets, most Americans currently saving for retirement can no longer rely solely on traditional stocks, bonds, and mutual funds for growth and yield. At the same time, many investors have been hesitant to participate in SDIRAs because of the expense, burden, and paperwork traditionally associated with the self-directed investment of tax-deferred funds.
GROUNDFLOOR and IRA Services are working together to address these issues head on: IRA Services’ real-time, cloud-based, API-driven retirement investment solution for the P2P industry – the first of its kind – streamlines the once difficult process of investing tax-deferred funds in P2P marketplaces. Meanwhile, GROUNDFLOOR is the only P2P marketplace where both accredited and non-accredited investors can directly invest in private real estate projects on terms they control, rather than turning their money over to a fund.
“More and more retail investors are realizing the necessity of asset diversification and are turning to fintech platforms like GROUNDFLOOR in hopes of recouping lost yield and reducing portfolio volatility. IRA Services’ ISCP™ is the first intelligent and sophisticated retirement account investing solution that allows the masses to increase their ability to diversify by enabling them to effortlessly hold next generation alternative products – like GROUNDFLOOR’s “Limited Recourse Obligations” (LROs) – in tax-deferred accounts. By accommodating the retirement investing needs of all investors – regardless of their size – IRA Services is helping marketplace lending platforms access 12 times more capital,” said Todd Yancey, Chief Strategy Officer of IRA Services.
GROUNDFLOOR earned a historic qualification by the SEC in August 2015 to sell private real estate debt investments open to participation by non-accredited investors. The company is generally recognized as one of the most transparent platforms available as their audited financial statements, management information, and loan performance data are filed with the SEC and publicly available.
“People aren’t saving enough for retirement because so many intermediaries lost their trust,” said Brian Dally, co-founder & CEO of GROUNDFLOOR. “Today, we’re excited to start changing that, one do-it-yourself retirement portfolio of private real estate microloans at a time.”
To learn more about investing directly in private real estate loans, visit https://www.groundfloor.us/investors.
*Average annual rate of return on all loans that GROUNDFLOOR repaid to investors in 2016. This is a weighted average return of the return on each loan based on the total principal amount.
About IRA Services Trust Company
With over $7 billion in assets, IRA Services Trust Company has a 37-year history of specializing in custodial trust solutions for non-exchange traded assets. Today, IRA Services is emerging as the leading innovator of hi-tech SDIRA solutions. The company recently introduced ISCPTM, the first scalable, bank-grade highly secure, cloud-based retirement investment solution for the next-generation of P2P and Crowdfund investing. By providing an SDIRA integration solution that finally allows financial platforms to seamlessly transact real-time investments from 401(k) and IRA accounts, IRA Services is enabling peer lending and equities crowdfund platforms, as well as traditional financial services providers, with the ability to significantly grow their retail account base and increase assets under management. Additional information can be found at http://www.investorservices.com/institutions.
GROUNDFLOOR is the first and only real estate lending marketplace open to non-accredited investors. We open the door to short-term, high-yield returns backed by real estate. In 2016 GROUNDFLOOR delivered loans with an average annualized return of 14.16%.
GROUNDFLOOR was founded in 2013 by Brian Dally and Nick Bhargava and is headquartered in Atlanta, Georgia.
GROUNDFLOOR’s fast-growing team is on a mission to benefit individual investors and the investments they fund by reformatting and opening private capital markets to broad public participation.
BY Brock Murray Chief Executive Officer katipult.com, CROWDFUNDING BEAT GUEST POST.
Private capital markets are plagued with compliance requirements and operational inefficiencies, and software can eliminate many of the pain points from deal administration to investor reporting. For this reason traditional finance firms are looking at investment crowdfunding, peer to peer lending, and investor management solutions to stay relevant within this industry among the upstart Fintech (FInancial Technology) players.
In order to be successful, it’s pertinent to avoid the following pitfalls that often leave teams frustrated, sidetracked, and wondering what went wrong:
- Insufficient Preparation. Many firms, uneducated and uninformed, don’t prepare appropriately and assume everything will work just like it did for the industry leaders. Critically thinking through the platform requirements, validating/invalidating assumptions, and having a detailed and prioritized roadmap will create efficiencies in the long run, despite initial delays.
- Underestimating Resources. Moving operations online isn’t easy. Your technology is crucial for success. While there are compliant software products available that have the core functionality your firm needs, there will likely be configuration requirements or modifications. Launching the platform is 50% of the battle, having it successfully implemented and adopted by your stakeholders is the other 50%.
- Unrealistic Expectations. Approach your platform initiative within the realm of possibilities and on a multi-year timeline. Launching a platform isn’t a miracle solution for investor growth and capital raising. You will need to have realistic operating goals and a measurable strategy to ensure targets are achieved month over month.
- Eliminating Human Element. The assumption that the human element of the investment process is eliminated with an online investment platform is terribly incorrect. Online and offline processes are meant to compliment each other. The software eliminates inefficiencies, redundancies, margin for error, but it’s not meant to replace your sales, marketing, or investor relations staff. Use investor analytics to understand your investor behaviour and follow up with phone calls and emails to ensure you get the most out of each user interaction.
- Superficial Distractions. Stick to your core competencies and focus on business development. Too many firms are consumed by adding bells and whistles to their technology, trying to reinvent processes, or worrying about what may or may not happen 1 year out. Remember data drives decisions, not assumptions. All efforts should be defined and concentrated on the business fundamentals to generate business.
- Forgetting Securities are Sold NOT Bought. Investors need direction, support, and explanation. An investment platform is an extension of your process, not a replacement. If you build it, they might not come. Leverage the technology for exponential growth and operational efficiencies.
Katipult is cloud-based software infrastructure that allows companies to design, setup, and manage an investment crowdfunding platform.We provide unparalleled adaptability and flexibility for regulatory compliance, diverse asset structures, business model specifications, and localization requirements.
By Anum Yoon, Crowdfund Beat Media Guest Editor,
Throughout the past few years, crowdfunding has become a source of fundraising for charities, life-saving surgeries, new products, individual travel goals, research projects and more. With crowdfunding platforms and social media, it’s easier than ever to set up a page where friends and family can donate to whatever it is you’re passionate about or need money for. But does this new fundraising fad have a place in politics?
Politicians who are starting campaigns or building platforms need money, and it’s a fairly new possibility that this money could come from small individual donations from people on crowdfunding websites instead of the wealthy upper class. Here’s everything there is to know about crowdfunding in the political arena.
Traditional Political Fundraising
In the past and even currently, campaigns have been funded by the appropriate political party the candidate is running for. Additionally, wealthy donors throw large amounts of money into the politician’s bank account and, more often than not, cash in the donation for a favor later on down the road.
With this system, the upper class and politicians are completely running the show. Campaigns are based on who got money from the top dogs, and elections are based on those campaigns. So, it’s not hard to see how the average person isn’t exactly included in the political process.
Changes Being Made
In 2008, Barack Obama, who would be elected president that year, changed the game of fundraising in politics. He was the first candidate who collected funds for his campaign from the average working class family.
Obama successfully built a campaign that got American families interested and invested in him – literally. He asked for donations on his website in order to fund his campaign and raised millions of dollars from small donors who simply donated what they could afford, even if that was only a dollar.
Obama’s strategy worked, obviously. Since then, politicians at the local and federal level have used similar campaign strategies. Bernie Sanders, who ran for the Democratic nomination in the 2016 presidential race, prided himself on not accepting money from billionaires. Instead, he wanted to be funded only by the average American. It was easy for his supporters to support him because donating was just a few clicks away thanks to the ease of electronic payments.
He would often send out emails to his supporters asking for just $3 before midnight to send a message to Washington that Americans are tired of billionaires buying elections. The average campaign donation was $27.
On the surface, it seems like Sanders’ strategy did not pay off, since he did not win the nomination. However, Bernie Sanders made quite a name for himself in just a few short months and was a serious contender for the nomination, running on only small donations through crowdfunding efforts. His effort is a look into what could be the future of political fundraising.
Building a Community
The idea behind crowdfunding is to build a community. Crowdfunding started with individual stories. People who wanted to travel and do philanthropic work. Somebody who needed a surgery their family couldn’t afford. An entrepreneur with a great business idea. A young girl who wanted to go to Disney World.
The stories behind each crowdfunding page are what drives people to donate money. People tell their story in the hopes of touching others and convincing them to donate to their cause.
For this reason, crowdfunding in the political arena could be a great thing. Imagine politicians building their campaign not around the nitty gritty of politics, but around a story that touches the American people — a story of hope and resilience. Campaigns and politics in general could become so much more personalized, and Americans could really play a part in the government.
Of course, there are always some things that could go wrong. Politicians could somehow corrupt this system. There will always be billionaires to buy out politicians in their own best interest. There are holes in every system, but it’s also possible to patch up those holes. Since crowdfunding is such a new idea, there is much to be said and discovered about how the system would actually work when utilized by many politicians.
So, crowdfunding in politics could be great, it could be terrible or it could be somewhere in the middle. Only time will tell how politicians will use crowdfunding for their campaigns and how people will react to this new way of fundraising.
The impact of crowdfunding on real estate finance and deal-making has been one of the hottest topics of the past year. With the advent of crowdfunding, real estate developers and investors have multiple pathways to finance their projects and even to plot their exits. But in many ways the impact of crowdfunding has not yet arrived. Crowdfunding for real estate is still in the early stages and may take several detours along the way to its final destination.
What is Crowdfunding?
The idea of “crowdfunding” has been in the news a great deal but investors have only just begun to realize its potential for the industry. Crowdfunding is the idea that a large number of people, with no particular expertise, can accurately predict the likely success or failure of a venture by combining their own observations and communicating with each other. James Surowiecki, in his book, The Wisdom of Crowds, recounts dozens of examples where a large group of people who were able to collect and share information were able to make more accurate guesses about the success of a project than the best guess of any individual expert in the topic. The Internet, with its ability to collect a large number of people quickly and easily, makes it possible to collect a “crowd” to evaluate an idea better than was ever possible before.
Crowdfunding applies this idea to the process of evaluating investment opportunities, allowing members of the crowd to put money behind their predictions and preferences. Proponents believe that by allowing a crowd of potential investors to share their opinions about the investment and the information they collect that crowd will be better able to predict the success of the investment than individual investment experts. Sydney Armani, the publisher of CrowdFundBeat, says, “People get excited when they engage with a new product that arouses their passions. Those passions take on even greater intensity when they can invest in that new product.” 
Crowdfunding can take several forms. Popular crowdfunding sites like Kickstarter and Indiegogo let project sponsors describe their projects to the public and ask for donations. In an “affinity” campaign, supports of a project pledge funds for a project because they like it and support it. Their affinity for the project is their only reward. In a “rewards-based” campaign, project sponsors offer rewards for cash contributions. Rewards may range from recognition on a website or on a wall, to t-shirts, products samples and more.
Securities-based crowdfunding is possible through several recent changes in U.S. securities laws, most of which are derived from the 2012 Jumpstart Our Business Startups Act (or “JOBS Act”). In particular, the JOBS Act created three types of crowdfunding: (a) crowdfunding to “accredited investors” under Rule 506(c), (b) crowdfunding for up to $50 million each year under new Regulation A+ and (c) crowdfunding to both accredited and non-accredited investors in small offerings under Title III.
Investing Under Rule 506(c)
First, a sponsor could offer debt or equity securities to “accredited investors” under Rule 506(c). The JOBS Act changed some of the rules affecting private offerings under Rule 506 so that sponsors could publicly-advertise their offerings. Before this change in the law, public solicitations of private offerings were strictly prohibited. Under new Rule 506(c) however a promoter that wants to advertise publicly must take various steps to ensure that every investor who participates in the offering is “accredited”, which is defined as having a net worth of over $1 million (excluding the investor’s principal residence) or having an income of more than $200,000 for two consecutive years ($300,000 is the investor is married and files tax returns jointly with a spouse).
Crowdfunding under Rule 506(c) has been feasible for more than a year and several websites, have had some success hosting real estate crowdfunding campaigns that have included securities under Rule 506(c). Most of the popular real estate crowdfunding sites included in our survey, however, require accredited investors to create a membership on the site before they can view any live offerings. As a result, the offerings made available to members are intended as a private offering, and not a general solicitation. Because there is no general solicitation, those websites take the position that their offerings are private offerings under Rule 506(b) rather than publicized general solicitations under Rule 506(c).
Investing Under Regulation A
Another legal change that came from the JOBS Act was a change to Regulation A, an SEC rule that allows a private company to qualify its securities (which may be equity or debt) through filing a formal prospectus with the SEC. The SEC reviews the prospectus to ensure that it adequately describes all of the risks of the business and the risks to investors. Once the issuer’s prospectus is approved by the SEC (at which point it is said to be “effective”) the sponsor may sell the securities to both accredited and non-accredited investors.
Before the JOBS Act, offerings under Regulation A were limited to not more than $5 million. Under the new provisions of Regulation A (sometimes called “Regulation A+”) an issuer of securities may raise up to $50 million in any 12-month period.
One of the advantages of a Regulation A offering is that the company will be able to solicit investments from both accredited and non-accredited investors, thereby widening the scope of interest in the project. The SEC’s rules, implementing these changes to Regulation A, however, have only been effective since October 2015. As a result, there have been relatively few offerings that have completed the new process and it is harder to tell how these new offerings will be accepted by investors.
The third possible route for crowdfunding is often called “Title III” because it arises under Title III of the JOBS Act. Although the JOBS Act became law in 2012, the SEC only released its rules implementing this new law in October 2015 and those rules didn’t take effect until May 2016. Under those roles, a promoter may issue securities, in an amount up to $1 million in any 12-month period, to both accredited and non-accredited investors. But, soliciting for investors may only take place through licensed crowdfunding portals that have received a license from the Financial Institutions Regulation Authority (“FINRA”).
Under Regulation CF (the name used for the SEC’s Title III regulations), issuers do not file a prospectus with the SEC but do need to include certain disclosures about the company in their offering memorandum. The funding portal will also be liable for making sure that all of the prospective investors receive certain notices about the process and for ensuring that each investor does not invest more than a certain maximum that is derived from the investor’s taxable income. While a Regulation CF offering can “go national” by accepting investments from people across the country (whether they are accredited or not) the $1 million limit and the requirement that all solicitations take place online through the licensed portal make this approach a challenge for many new ventures.
Because of the $1 million annual cap on fundraising under Regulation CF, however, this approach is usually not a good fit for real estate projects that often require more than this maximum amount.
Surveying the Landscape
The following websites have used one or more of these regulatory pathways to create a marketplace for crowdfunding real estate projects. By surveying some of the more popular websites I have tried to provide an overview for how industry players are using these now crowdfunding regulations to make deal flow and investment opportunities possible. This list is not an endorsement of any of these sites and a site’s omission from this list is not intended as a criticism or a suggestion that the site is not worthwhile or valuable.
PeerStreet specializes mostly in residential debt investments (with a smattering of multifamily and commercial). PeerStreet utilizes Rule 506(b) to solicit accredited investors to participate in loans that are secured by real estate. They have one of the lowest minimums in the top 10 ($1K versus $10K average), and a healthy volume of new transactions.
Virtually every site in the industry claims that they have superior due diligence. PeerStreet, however, supports its claim with concrete proof. PeerStreet allows investors to review the performance of every past investment. PeerStreet’s site claims that, since 2014, the site has offered more than 200 notes but without any foreclosures or unremedied defaults.
Unlike many other real estate crowdfunding sites, however, PeerStreet does not originate its loans. Rather, project sponsors introduce opportunities to the site and then earn a fee based on successfully closing the investments. As a consequence, investors that participate in deals on PeerStreet pay slightly higher total fees than some other sites. Because of the relatively high performance that PeerStreet’s deals have produced, however, these fees so far have not kept investors away.
Real Crowd acts as a syndication platform for real estate development companies and real estate funds. The development companies and funds pay a fee to Real Crowd to have their offerings listed on the site. Viewing the offerings is possible only for accredited investors who have created a free membership account on the site. Most of the opportunities on Real Crowd involve commercial real properties or multi-family properties. Some of the investments are funds in which the fund manager will be investing in the proceeds in a targeted type of property while others are syndicating take-out financing for existing properties.
From the investor’s point of view, Real Crowd has successfully recruited a large number of property developers and fund managers, so there are many investment opportunities to consider. Most investments, however, require a minimum investment of at least $25 to $50,000, so the platform is not friendly to small retail investors who want to dip their toes in the water. In addition, most of the investment opportunities are equity securities, so there is a higher risk of principal loss than is generally the case with debt-oriented platforms.
Realty Mogul is one of the largest real estate crowdfunding sites and it uses several different approaches based upon the needs of the project sponsor and the class of investor involved. Accredited investors may invest in either debt or equity securities. Accredited equity investors invest in syndicated private placements of special purpose limited liability companies that exist to finance equity investments in particular properties. The equity investment has the higher potential return associated with equity as well as the potential downside risk of loss.
Accredited investors may also invest in debt securities called “Platform Notes”. Each Platform Note is a debt security issued by a Realty Mogul special purpose vehicle which uses the proceeds of the Platform Notes to make a loan to particular sponsored investment. By issuing the note from its special purpose vehicle, Realty Mogul is able to take on the management function of managing the underlying loan (reviewing financials, monitoring loan covenants, working out any defaults, and so on) without involving the passive investors who have purchased the Platform Notes.
For non-accredited investors, Realty Mogul has sponsored its own non-traded real estate investment trust. Although the REIT (called Mogul REIT I) is not traded on any stock exchanges, its shares were qualified with the SEC through a Regulation A prospectus. According to the prospectus (which went effective in August, 2016) the REIT plans to hold:
“(1) at least 55% of the total value of our assets in commercial mortgage-related instruments that are closely tied to one or more underlying commercial real estate projects, such as mortgage loans, subordinated mortgage loans, mezzanine debt and participations (also referred to as B-Notes) that meet certain criteria set by the staff of the SEC; and (2) at least 80% of the total value of our assets in the types of assets described above plus in “real estate-related assets” that are related to one or more underlying commercial real estate projects, these “real estate-related assets” may include assets such as equity or preferred equity interests in companies whose primary business is to own and operate one or more specified commercial real estate projects, debt securities whose payments are tied to a pool of commercial real estate projects (such as commercial mortgage-backed securities, or CMBS, and collateralized debt obligations, or CDOs), or interests in publicly traded REITs. We intend to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2016.”
Because Realty Mogul facilitates both equity and debt investments for accredited investors as well as equity investments for non-accredited investors through MogulREIT I, Realty Mogul is ideally-situated to generate substantial deal flow and relatively rapid underwriting for projects that apply for funding. As a platform for providing funding for sponsored-projects as well as a platform for creating investment opportunities, Realty Mogul has one of the best head starts of all the available real estate websites.
Those advantages, however, come at a cost. Realty Mogul has a large staff operation (which is required for its extensive underwriting duties) and that cost is borne by investors through the 1-2% fees they pay to participate in investments on the site. While the site has tremendous deal flow, however, a student of the industry might ask, “is this really crowdfunding?” Because Realty Mogul takes such an active role in performing due diligence on its projects and in structuring the investment opportunities on its site, the overall experience is more structured than most crowdfunding sites and there is less opportunity for the collectively give-and-take than crowdfunding was originally thought to represent.
Realty Shares facilitates both debt and equity investments into both commercial and residential real estate. The site claims that it has funded over $300 million to 550 projects that have returned more than $59 million to the site’s more than 92,000 registered accredited investors. Project sponsors must submit to underwriting through Realty Shares and only projects that have exceeded the site’s standards can be offered to the site’s members. Fees range from 1 to 2% of the investment amount, but investment minimums are as low as $5,000.
As with most of the other real estate crowdfunding sites, investments are made through private placements under rule 506(b).
Residential Real Property Sites
There are several websites that focus primarily on residential real estate. Because of the similarity of their focus and approach, they can be surveyed as a group:
Lending Home describes itself as the “largest hard money lender” [providing] “fix and flip loans up to 90% LTC and 80% LTV.” Unlike many of the other sites that aim their value proposition at investors, Lending Home addresses itself primarily to homeowners how are looking for loans and are willing to pay “hard money” rates of interest to get cash. Accredited investors can participate in Lending Home in increments as low as $5,000.
Roofstock’s tagline is “Property Investing Like the Pros.” Like Lending Home, Roofstock focuses only on single family residential properties. Differently, however, Roofstock allows accredited investors to invest directly through loan participations as well as through small funds that focus on particular regions or particular rates of return. Roofstock also emphasizes, through its underwriting and its messaging, the underlying quality of the properties and their surrounding communities, school systems and the like. Browsing through loan opportunities on Roofstock feels more like browsing through listings on Zillow than looking for investments.
Patch of Land
Patch of Land is one of the largest and most heavily-trafficked real estate crowdfunding sites. The site claims to have originated more than 400 loans for over $245 million in loans, returning over $61 million to investors. Although Patch of Land has made investments in multi-family and commercial real estate, more than 70% by value of its investments have been made in single family real estate.
Fund That Flip
Fund that Flip is a site that proudly advertises its role in financing single family residential rehab and resale projects. The site claims that the sponsors underwrite individual deals, requiring borrowers to put at least ten percent in the property’s value in equity. The site also tries to entice investors, claiming average returns between 10 and 14%.
The Future of Real Estate Crowdfunding
Real estate crowdfunding has definitely arrived. Through the dozens of existing sites claiming to offer some kind of real estate crowdfunding, investors have invested more than a billion dollars through thousands of investments in just a few short years. While this method of investing is still very small (in contrast to retail investments in mutual funds and the stock market) it fills a market need that shows no sign of disappearing.
For real estate crowdfunding to achieve a wider degree of acceptance, platform owners will need to continue to facilitate high quality investment opportunities while improving transparency. Wider acceptance will require a level of information sharing that does not yet exist in the industry. Even the most popular sites today have varying levels of information available to potential investors. These inconsistent levels of disclosure can undermine the trust that is necessary to grow crowdfunding as a method of investing. Real estate crowdfunding sites that facilitate exempt transactions under Rule 506(b) are not regulated, and that is probably a good thing. But the lack of regulation also permits a wide diversity in style and approach that can make comparing the platforms difficult.
If the leading crowdfunding platforms could collaborate on a standardized “scorecard” that pulled together standard metrics on transactions, investment amounts and rates of return, the result would make it possible for both investors and project sponsors to compare platforms on a level playing field. The investor confidence that might come from such a development would encourage new investors to come into the market. Platforms that did not adopt the scorecard at first would experience market pressure to begin reporting results in the scorecard format. Adopting a standardized scorecard for recording would, in a sense, demonstrate the power that crowdfunding was supposed to represent, by making it possible for the market to adjust itself to the information needs of the investing community.
 Surowiecki, James, The Wisdom of Crowds, Anchor Books (2005).
 Wilson, Jonathan B., Follow the Crowd: What the Future of Crowdfunding Holds for Startup Restaurant Owners, Restaurant Owner Startup & Growth Magazine, 18 (Feb. 2016).
 PeerStreet claims that its loans have generally yielded between 6 and 12%. See PeerStreet FAQs, available at https://info.peerstreet.com/faqs/how-do-peerstreet-returns-compare-to-other-debt-investments/ (last visited January 29, 2017).
 MogulREIT I, LLC SEC File, available at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001669664&owner=exclude&count=40&hidefilings=0 (last visited January 29, 2017).
BY Rachael Everly ,CrowdFund Beat Guest Post,
Crowdfunding platforms are a product of technological advancement. However at the end of the day they are a financial solution and their success is dependent on the economic situation at a given time. Many businesses prosper when the economy is booming and all is good. Crowdfunding on the other hand has always prospered when the economy is not doing well, and even during the worst recessions.
During the last recession of 2008, there was a great lack of confidence among banks. This led to a drying up of sources of finance for the small business owner and for individuals who were just starting out. Either their loan applications were outright rejected or they were given such high interest rate offers that they were forced to decline. But with the advent of digitalization came the much flexible option of crowdfunding that led smaller business achieving the necessary finances much cheaply and much easily.
Setting up a crowdfunding platform is an excellent business idea for it is something that the entrepreneurs need. However to be successful it has to meet the finance needs of people successfully.
- Initial set-up
Crowdfunding platforms are a place where investors and people looking for finance gather. So you need to be sure about how you are going to attract investors in your starting days. Your whole business is dependent on them.
You also have to ensure that you offer a “deal” that is both acceptable to investors and the people looking to borrow. The system has to be set up in a transparent way in order to induce trust from all the involved parties. In order to achieve this you will have to focus on a marketing strategy that delivers the maximum information. Information about how you operate, the charges for the borrowers and how are you going to handle the funds at your disposal. You will especially have to convince people that your platform is a secure place to invest. You will need to figure out your marketing channels. The most basic will be your own company blog and possibly even your own in-house developed app (which could be done via crowdfunding).
- Developing a brand
Once the crowdfunding concept was new and there were hardly any platforms on the scene. Now competition is arriving and the first mover advantage is long gone. You will have to differentiate yourself from your competition. In the simplest way, it could be by the way of focusing on the aesthetics on your website that is the logo and theme and the usability.
Secondly you should match the features being offered by the competition and where possible streamline your processes even more. You will have to communicate your “differences” via email marketing and company blog. The best way to do this is to provide content that is actually useful for the reader and yet brings your platform to attention.
- The technical expertise
At the end of the day customers prefer businesses that provide them with a superb quality service or product. Crowdfunding is essentially a fintech product and thus technology is its backbone. Your crowdfunding platform must not only be user friendly, but it also must be secure and have features that help you make better decisions. For example, Zopa has its own algorithm for deciding which borrowers are more likely to stick to repayment schedules.
In order to succeed it is very important that you analyze your existing competition and see what features you have to match in order to attract customers and what you can do better than them.
In the Fall of 2016, I penned an article entitled, “Modernizing the Self-direct IRA – The Trillion Dollar FinTech Opportunity” – the first in a new series of articles that focuses on next-generation retirement planning. The piece underscored how FinTech will mend America’s flawed retirement system and foster the growth of “digital” investing.
This initial report drew attention to the growing necessity for a low-cost, high speed, autonomous retirement solution that would meet the demands of today’s alternative micro-investor. Most significantly, the piece summarized the two distinct individual retirement account prototypes – the Brokerage IRA and the Trust Company IRA – which are vying to become the self-directed IRA exemplar and dominate the $14 trillion retail retirement market.
Sometimes I feel like I am the only one sensing a war brewing in the retail retirement market. But then again, I am somewhat clairvoyant.
Perhaps the majority of America’s retail investors are too busy reluctantly allocating their retirement dollars to sanctioned bond funds – many of which yield more clout than performance – to even notice the race to create a next-generation retail retirement product that will economically custody coveted micro-sized alternative investment products and, in doing so, ensure that a greater number of Americans maintain more properly diversified retirement portfolios.
Maybe most old-school financial professionals are just too preoccupied chasing the “whale” to realize the imminent colossal impact of the rising micro-alternative investor.
No matter the rationale, the fact is that this battle to produce a next-generation retail retirement vehicle is likely to go down as the largest industry duel in the history of commerce – dwarfing the cola and software wars by trillions.
The victorious retirement product stands to inherit the power to redirect $14 trillion dollars of mutual fund assets and disrupt long-standing retirement asset monopolies – thus paving the way for a superior breed of investment products to emerge (download: http://www.slideshare.net/smox2011/the-trillion-dollar-fintech-opportunity).
Unlike previous corporate clashes, the winning IRA model is easy to predict. The frontrunner will be the one possessing the most optimum technological and regulatory framework to accommodate the needs of the modern retail investor. Today’s retail investor is not looking for another mutual fund. He is not begging for ETFs. Nor is he interested in day-trading stocks. Instead, he is craving yield, and he is demanding access to the same level of returns that institutions have been enjoying for years through alternative asset diversification. Simply put, modern investors are looking for a self-directed retirement vehicle that enables them to readily, easily and affordably spread tiny increments of retirement capital across a broad range of asset classes.
Except for the possibility of a sudden legislative change, hands down, the trust company based model will emerge as the clear victor. The Brokerage IRA is bound by too many compliance constraints to enable it to efficiently and cost-effectively facilitate micro investments into alternative asset classes such as P2P notes or crowdfinanced offerings.
The Trust Company IRA, by contrast, operates under a much more favorable regulatory scheme, and any technological shortcomings are presently being addressed and conquered (see: http://www.prnewswire.com/news-releases/ira-services-launches-p2p-lendings-first-cloud-based-api-driven-retirement-investment-solution-at-lendit-2016-300247413.html).
Because it is faster and easier to overcome a technological deficiency than it is to amend regulations, the Trust Company IRA will continue to amass a significant advantage. This is especially true as technology becomes less and less of a commodity and the political climate becomes more and more contentious
There are simply too many compliance-related obstacles that FINRA-regulated BDs would need to surmount in order to formidably compete with the trust company based model. Perhaps one of the most pressing is the Department of Labor’s fiduciary rule which is scheduled to take effect in April.
Under the new DOL rule – which expands the definition of a fiduciary to include commission-based brokers – brokerage firms that handle retail retirement accounts will find themselves facing additional and unwelcomed liability.
In the wake of the DOL rule, retail brokerages have already been seen scrambling to adjust their existing retail retirement product lines. Merrill Lynch has announced that it will be closing its commission-based retirement business altogether, and Edward Jones pronounced that it will simply stop offering mutual funds and ETFs as options in commission-based retirement accounts.
Yes, you read that correctly. Retail brokerages would prefer to limit access to investment products or exit the retail retirement business altogether than to deal with the regulatory headaches of helping small investors prepare for retirement.
Instead of being able to access “prepackaged” diversified investment products, Edward Jones’ retail clientele will either have to self-diversify across stocks, bonds, annuities and CDs, or move to a managed account that charges an asset-based management fee. Since the typical retail investor’s account is too small to properly self-diversify using individual investment products such as stocks and bonds, and since asset-based management fees tend to be much more expensive than one-time commissions, once again retail investors are getting the shaft.
According to CEI finance expert John Berlau, “The DOL fiduciary rule will restrict access to financial advice and reduce choices for lower and middle-income savers. The restrictions can deter companies from serving middle-class savers, creating a “guidance gap” that could cost an estimated $80 billion in lost savings.”
As the DOL Fiduciary Rule succeeds in eliminating both financial advisors and investment choices from the traditional retirement planning equation, smaller investors will be forced into taking a more autonomous stance to retirement prep – leading to a seismic shift in both retail assets and retirement vehicles.
This will have widespread implications on the financial services industry that will include a mass exodus from brokerage IRAs into Trust Company IRAs as well as a flock to robo-advisors, marketplace finance and well as P2P and digital investing – a trend in retail investing that is already well underway.
As the battle for the retail retirement account unfolds, I am going to be reveling in the irony of how once again needless regulatory oversight is helping fuel the FinTech revolution.
Originally published on Dara Albright Media.
Recognized authority, thought provoker and frequent speaker on topics relating to market structure, private secondary transactions and crowdfinance. Welcome to my new personal blog where you can glean unique insight into the rapid transformation of global capital markets.
Part 3 –The (really) Ugly
In Part 1 I covered all of the good things that we have seen as crowdfunding continuously gathers momentum across the world. The future looks bright indeed!
In Part 2 I wrote of changes within the industry, especially within rewards based crowdfunding – the competition which makes it so much harder for the small guys and the Indiegogo platform now giving preferential treatment to corporates, allowing them “…to pay for special placement on Indiegogo’s site, making them more discoverable than other campaigns”. I also explained that although campaign creators are often labelled as scammers when they fail to deliver on their promises, in many cases this is not true at all.
Here in Part 3, we delve into the dark world of extortion, blackmail and a whole host of other not so nice behavior. I’ll cover some real scams where the campaign creator’s intention from the very beginning was to steal people’s money, in some cases, with the crowdfunding platforms help too!
Part 3-The (REALLY) UGLY
Extortion and Blackmail
Ethan Hunt – Micro Phone
During our very early days of offering crowdfunding campaign marketing services, we were engaged by a Mr. Ethan Hunt who had just launched his Micro Phone campaign on the Indiegogo platform. Ethan and I shared a few phone calls as his campaign began to gather momentum and I specifically remember being on a call with him one day, while the money was rolling in, and each refresh of his campaign page showed more and more backers claiming the rewards on offer. Times were good and there was an element of excitement in his voice (and mine too). Who wouldn’t be excited to see such fantastic traction?
Around 4 weeks later, with almost $50,000 raised, Ethan reached out to me to say he’d been contacted by a guy named Michael Gabrill who claimed that he had some negative information about Ethan and that if he did not pay him $10,000 he would release this information to the public through various media channels. Ethan forwarded me the email communications so I could see for myself.
Low and behold, there it was in black and white.
My advice to Ethan at the time was to just ignore this guy, as I was sure that Gabrill was just a typical opportunist money grabber and was probably seeking attention too. Ethan wrote back to him, refusing to pay a single cent but what happened next surprised us both – Garbrill began contacting various media including Pando and even went so far as to create a webpage slandering Ethan and his Micro Phone project.
The story continued and in Ethan’s own words at the time:
“Did Michael Gabrill attempt to extort money from us? Yes, he did, this is fact he has admitted to doing it here and on one of the many webpages he has set up in an attempt to cover his actions and his motives, claiming it was a test to see if we would incriminate ourselves. Incriminate us for what? Running a successful and legitimate campaign? Or refusing to pay him money not to do what he has done, something he threaten(ed) to do if we did not pay him.
What did Michael Gabrill do exactly? Well, he approached me the day after our campaign reached 100% funding which means in laymans terms when our campaign had received enough contributions for our campaign to be successful and for us to receive payment of the funds at the end of the campaign.
It took more than 30 days to reach our goal and our campaign to be fully funded. During this time, Michael Gabrill sat back and waited until there was enough motivation for us as campaign owners to if he could build enough fear of loss by the thought of him getting our campaign closed down to pay him money for his silence.
Why if Michael Gabrill if he really believed the campaign was fraudulent did he not immediately report it? Simple up until the campaign is 100% there would be no motivation for campaign owners to pay him a penny. This was never about him believing there was an issue with the campaign it was about his motivation to gain financially from a successful campaign. Something, we are sure he has done many times before.
Why do we think he has done this before? He waited until we were 100% funded, he claimed he could shut us down, he claimed that we had no intention of delivering anything to contributors and were going to steal their money and he wanted his cut or he was going to have us arrested for fraud.
Michael Gabrill’s only motivation was money, he sent me a link to his first webpage and told me if we paid him it would not go up. That webpage included photos of myself, details Michael Gabrill had obtained from my eBay account (which could only have been accessed by an eBay employee) and he claimed I was a creep or in Australian terms a sex offender. When I refused to pay him and reported him, he had the webpage active in less than 10 minutes. Only an extortionist would have a pre built webpage ready to go to force his victims into paying him to remove it.
Is our campaign is legitimate? Yes it is, we have registered businesses in Hong Kong and Australia, neither Mike or I have ever been investigated for fraud and we have both been successfully running business in Australia, Hong Kong and China for more than 25 years.”
To end the story, Ethan initiated legal action and managed to have all the slandering webpages created by Gabrill removed and received a public apology from the man himself too. In turn, Indiegogo went on to ban Gabrill completely from their platform.
This turned into a very time consuming and costly endeavor for Ethan but unfortunately, there are many Gabrills lurking in the shadows and waiting to pounce.
Bob Rohner – RG Energy
Bob signed up with us a few months after Ethan but his story is a different one in that his crowdfunding campaign didn’t really do too well at all. We tried our best but the ‘crowd’ seemed to think that what Bob was attempting to do was nigh impossible.
However, during the third week of his campaign. Bob received an email from someone claiming to be the owner of RG Energy, a company based in Ohio. Bob’s business was registered in Iowa. They emailed Bob stating that because they were using their RG Energy’s company name, he would have to pay $10,000 (yes, coincidently the same amount as Ethan was asked for) in license or royalty fees. What??
After a little research, it turned out that this goon had registered a company by the same name in Ohio AFTER Bob had launched his crowdfunding campaign thinking he could get money out of him by playing this little game. This led Bob to get his legal team involved and the problem swiftly went away.
The Scammers – Very few real ones but they are out there!
Intentional scams are very rare. During my time in the industry I have seen no more than 3 or 4 which were clearly scams from the very beginning.
Many labelled as scams today are situations whereby the people involved set out with good intentions, only to find out that what they are attempting to do is either impossible or far costlier than they expected. Crowdfunding campaign first, homework afterwards rarely works.
Julien (Courteville) Buschor – Launching Multiple campaigns helped him steal almost $400,000
During July 2015, a campaign on the Indiegogo platform called Smart Tracker 2 (ST2) caught my attention for the simple reason that it had raised over $20,000 within the first 24 hours. Normally, campaigns that gain this kind of traction so quickly have done their homework and are fully prepared with social media assets before launch. In most cases, they have a substantial number of social media followers. However, when I looked at the Smart Tracker accounts I saw that they barely had any followers at all. In fact, at the time, their Facebook page showed only 149 ‘likes’ and their Twitter account a measly 19 followers. Maybe they’d done a fantastic job of building a targeted email database before launch, was a thought at the time. My suspicions were aroused though which lead me to delve a little deeper.
I returned to the ST2 campaign page and began to scroll through their backer list. As I scrolled down to the very first backer, and began searching through the list of names, low and behold, I began to see some of the same names appear as backer’s multiple times and eventually realized that 7 or more user accounts had contributed to the campaign many times over – a clear sign of self-funding taking place. This raised alarm bells and prompted further investigation.
What I discovered was a first for me. A look at the user account profile that created this this ST2 campaign showed that this was the 4th campaign launched since the beginning of the year by the very same person – Julien Scherer (whose real name turned out to be Julien Buschor) and now it was only July? Ding..ding..ding. The alarm bells grew louder!
Upon further investigation I discovered that Mr Buschor first launched a campaign called Last Crime in January 2015 raising over $7,000 and claiming:
“Last Crime was made with cutting edge technology that can easily analyze data, provide facial recognition, perform phone and email scanning and much more”
A month later yet another campaign had launched by the name of Innovative Swiss Teeth Whitening Machine raising over $ 60,000 and with a tagline of “Swiss White Teeth, the most advanced swiss teeth whitening light with color screen and USB interface”
A few short weeks later the Smart Tracker campaign launched and managed to raise just over $18,000. And finally, the ST2 campaign as initially mentioned above.
The answer to the question – How had the Smart Tracker 2 campaign managed to raise over $20,000 so quickly? – was now fairly obvious as it was clear that Mr Buschor had rolled funds from his other campaigns into this new one.
Armed with this information, we reached out to Mr Buschor using a private email address and began a lengthy exchange of emails over the following few days. Initially he was panicked and changed user names on the campaigns listed above and sometimes became aggressive in his defense, but he did begin to accept that we knew his game. We threatened to report his campaign to Indiegogo and eventually, he did confirm that he had self-funded the ST2 campaign and his defense was made with a claim of “I’ve done nothing wrong as it’s legal so Indiegogo won’t cancel our campaign”
Mr Buschor self-funded his ST2 campaign to the tune of over $20,000, using money collected from previous campaigns to create a sense of popularity in the eyes of the public. No doubt in my mind that we were seeing a real con man in action!
As my marketing agency, Smart Crowdfunding is listed as a ‘Partner’ on Indiegogo itself, I reached out directly to their Trust and Safety division armed with all of the evidence needed to show that Mr Buschor had been scamming the public. I was certain they would listen, or at least reach out to me for more details. Nope. I received a canned email response saying very little except that they would investigate the matter. Did I hear back from them after this? Nope.
Of even more concern was that the ST2 campaign continued and on July 12th was promoted through the Indiegogo newsletter to a huge database of millions of people. Funding continued to ramp up and eventually the campaign raised more than $300,000.
Was it really a scam you may ask? Absolutely! The comments page on the ST2 campaign tells the whole shameful story!
As for Mr Buschor, he was resident in Switzerland and made local news for all of the wrong reasons as seen HERE
BioRing- The Amazing Ring That Made $460,000 Disappear
Now, this one had scam written all over it from the very beginning. However, even some notable Crowdfunding Marketing agencies were taken for a ride in the process too.
During mid-January 2016, we (Smart Crowdfunding) received an email inquiry from a Daniel Johnson asking about our services. After a few back and forth emails with our team, this lead to a Skype call booked for the 20th January. For some reason, they had to reschedule and we rebooked a time for 9am on 27th January, this time with a James Lee.
The call went ahead as planned, and James told me all about BioRing and that they were going to launch a crowdfunding campaign to raise the funds to manufacture the product and get it out there into the market. I explained our campaign development and marketing process, and the need to build an audience prior to launching. James asked if we would work on a percentage only basis to which I replied “No” and then went on to explain that without any validation testing we do not know if his product is a good fit for crowdfunding. Upon concluding the call I did say that I would email through our fee structure and the call ended.
My thoughts at the time were that what they were trying to do was nearly impossible, so a few days later I emailed again stating that after careful consideration I could not help them as I felt their product was impossible to develop.
We did not hear from either Daniel or James again.
The BioRing campaign eventually launched in June 2016 and did rack up over $700,000 in funding.
Fortunately, at least some of the backers were refunded, as Indiegogo did not release any of the InDemand money to the campaign owners. The total amount ‘stolen’ is now showing at $424,664 as of today’s date.
Now, that’s a lot of money and has, in effect, added to a community of backers claiming to never back another Indiegogo campaign again as can be clearly seen on the comments section of the BioRing campaign page. There are many other campaigns with such negative comments.
These disgruntled backers have a right to be pissed and there are hundreds of thousands of them who have supported other campaigns that are disgusted with the treatment they receive from Indiegogo themselves.
You can read more about this scam in this excellent investigative article from Sara Morrison here
The ironic thing with BioRing is that the marketing agencies involved – Funded Today (FT), Herscu and Goldsilver (H&G) and Command Partners (CP) – were up in arms when they didn’t get paid after the campaign concluded, having raised over $700,000. It surprises me that none of them thought that this campaign was nothing but a scam from the very beginning, considering FT were taking a 25% cut of funds raised, H&G a 10% cut and I assume CP a minimum 10%….so, a minimum of 45% off the top! Add to this the 5% Indiegogo platform fee and payment processing fees of around 3.5% meaning that BioRing were giving away more than 50% of the backer’s money!
A screenshot of the BioRing campaign team captured prior to the campaign been flagged as fraudulent. Since then all associated team members removed themselves from the campaign, most likely out of embarrassment.
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Report: Real Estate Crowdfunding Set to Be $5.5 Billion Industry in 2017
Crowdfund Beat Media, “2020 Prospect Report”the leading research and advisory and firm specializing in crowdfunding solutions for private, public and social enterprises, has announced the release of its comprehensive 2017 CF-RE Crowdfunding for Real Estate report, which will provide the first ever detailed look at the intersection of real estate and crowdfunding. The 120-page report features data on the exponential growth of real estate crowdfunding, the emergence of specialized real estate crowdfunding platforms and how this revolutionary new method of real estate finance and investment is disrupting this asset class.
Interesting to note that some platforms are purely providing additive capital to sponsored deals, earning a fee for intermedition, while some are a bit more compensatory, with the inclusion of management fees and a carried interest. As of now, all are focused on accredited investors, though one has included DPOs in their mix. Here is the lists:
2017 Real Estate Crowdfunding Sites. Alphabetically
- Acquire Real Estate
- American Colonial Capital
- American Homeowner Preservation
- Blackhawk Investments Corp
- Carlton Accredited Equity Crowdfunding
- Creative Equity Group
- Crowd Venture
- Funding Hamptons
- Funding Roots
- Global GroupFund
- High Income Real Estate
- Hotel Innvestor
- Inner 10 Capital
- KB Holdings
- KC iFund
- Open Source Capital
- Patch of Land
- Peloton Street
- Property Pool
- Razr Ventures
- Real Circle
- Real Liquidity
- Realty Mogul
- Realty XE
- Silver Capital Portal
- Terra Funda
- The NNN Crowd
- Tycoon Real Estate
- Yield CrowdWe Are Crowdfunding
- 1031 Crowdfunding
Not in the list? News@crowdfundbeat.com
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