Crowdfunding is a fundamental shift in how capital is raised. It will have a lasting impact on the real estate industry. If you’re not quite sure what crowdfunding is you probably missed the story of Pebble. The Pebble watch is just one of 17 projects that eclipsed $1 million raised on the crowdfunding platform, Kickstarter. It went on to take in more than $10 million from nearly 70,000 backers. But Kickstarter did far more than fund 18,000+ projects in 2012; it helped change the laws of raising capital and sparked a wave of innovation in the space.
The JOBS Act
The new regulations make up the basis of the JOBS act, which paves the way for anyone to back a new startup with any amount of capital. And unlike Kickstarter, the JOBS act will allow for crowdfunding investors to receive equity. We’re not talking just watches anymore. While the SEC hasn’t set a date for the implementation of these changes, they have commented favorably on a key revision to securities law which removes the general solicitation ban. This change would allow startups to solicit funds from anyone, not just accredited investors. Experts anticipate equity-based crowdfunding to be approved by early 2014.
Regardless of the JOBS act timing, the crowdfunding space has exploded with companies opening to serve every niche imaginable, including real estate. Companies like indiegogo, CrowdFunder, and Realty Mogul are inventing new platforms for investors to pool their resources to make new companies and new real estate deals come to life.
Kickstarting Real Estate Innovation
I believe that there is a wave of innovation waiting to happen in real estate, and crowdfunding could be the kindling that ignites it. Anyone with a business idea now has access to a massive source of capital. There’s no need to raise venture funds when you can turn to the public and pull in $10,000, $100,000 or $10,000,000 to get your idea off the ground.
The crowdfunding wave isn’t just for startups. Large companies will also be able to leverage their reach to fund innovation from their own customer bases, spin off products and crowdfund projects like anyone else.
Will that wave of innovation occur? I hope so. There have been too few real estate driven technology success stories. One theory is that Sand Hill Road doesn’t love real estate tech due to the complicated nature of the business. If that’s true, removing the venture capital bottleneck could remove the regulator of new ideas coming to market. 2013 and 2014 could be years of unprecedented technology innovation in real estate. I for one will be cheering it on.
Get in the Game
More than $10 billion will be raised by crowdfunding in 2014. How much of it will go to real estate innovation? How many new startups will we see? How many crowdfunded projects will we see from the biggest businesses in real estate? If you want to learn more about crowdfunding and the changing capital landscape I invite you to join us this summer in San Francisco at Inman Connect. We’ll be talking with the leading experts in crowdfunding, discussing the JOBS act, and what it means for real estate. Whether you’re building a project on the weekend, or you’re in a company looking for ways to fund new innovation, you can’t afford to miss where real estate investment is headed.
