Crowdfunding for Real Estate is heating up and becoming one of the most popular products for venture funding. Just recently, RECF (Real Estate Crowdfunding) Platforms Patch of Land and Realty Shares, simultaneously announced a successful Series A funding on April 4th, 2015. Other companies, like Fundrise, received Series A funding back in 2014. Realty Mogul is already on to their second round of funding as of March 2015. Institutional and individual investors are beginning to catch on to the potential the industry is projecting. Even more so, they are already actively capitalizing on it.
Series A is the first seed funding round for privately held startups, in return for ownership in their company. Usually Series A allows for preferred ownership or anti-dilution provisions in the case of future financing.
Why Venture Funding?
RECF Platform’s main reasons for seeking additional funding are to scale operations, boost technology and increase overall market share. “It’s a race to see who is going to figure it out first and whoever does will become the leader in the industry,” says Craig Cecilio of DiversyFund, a Real Estate Crowdfunding Platform based in California. He also mentions, “RECF Platforms’ want to become the real estate crowdfunding equivalent to LendingClub or Kickstarter. There are a lot of bright minds in our space right now and it will happen sooner rather than later.”
In many ways, the SEC is, and will continue to be, the reason for why there has been a lag in an emerging leader due to ongoing regulation amendments and implementation. In recent news, the SEC announced March 25th of new rules providing investors with more investment choices, which will soon allow for an alternative vehicle to raise capital rather than using Series A Funding. This is referred to as Reg A+. Originally referred to as Reg A, Reg A+’s most impactful amendment was allowing for raises up to $20-$50 Million depending on what tier is used. Before the amendment, Reg A was capped at $5 Million which proved to be more burdensome than Series A funding.
Planning Ahead for Reg A+
It is not clear yet whether the use of Reg A+ will still be too burdensome to compete with Series A Funding as it is not currently in practice. However, current public information shows that Reg A+ can open more doors to investor diversity. In other words, the SEC has lifted the restrictions on accreditation thresholds allowing those persons who make less than $200K per year or have less than $1 Million net worth to invest up to 10% of their net worth in any company. This non-accredited raise option is only available under Tier 2.
Given the lack of urgency to push forth these new regulations, 2015 will be another year of pulling back layers of the onion to see what’s to come for new emerging RECF Platforms.
Keep a look out for more information on Reg A+ and join our online community to receive live updates.