In the year or so that we have spent building GroundBreaker, we have talked to dozens of real estate entrepreneurs: big and small, institutional and family-owned, residential and commercial. One pattern we have noticed is that the good ol’ boys with institutional and ultra high net worth backing are wary of crowdfunding because they feel their “brand” could be cheapened and their peers would mock them if their deals appear on a crowdfunding site. Here are the arguments we most often hear, as well as my usual responses.
1. “I am increasing my risk of getting sued if I deal with more people.”
True. But while I agree that more people mean more potential plaintiffs, I would be more wary of the bigger institutional investors from whom larger entrepreneurs already take money. These institutions are more likely to sue if something goes south and will probably be much better represented than the average small investor. The bottom line: if you are already dealing with outside investors, you are already exposed to the same type of claims from folks that are much more likely to sue. (And, by the way, this risk is also minimized by doing things right.)
2. “I don’t want to have to address too many requests or questions from too many people.”
We have talked to many real estate fund managers and this has never been an issue that they have identified; not even for their large investors. For obvious reasons, if an investor decides to fund a large portion of a project, he will probably require some additional attention (and the manager will probably want to give him this attention to keep him happy). However, periodic reporting is usually enough for everyone else and this is something you have to do with one, two, or one hundred investors.
Our commitment at GroundBreaker is to educate investors, telling them what to expect and what not to expect, and to act as a traffic controller. Based on our extensive customer research, we can anticipate what investors want to see so entrepreneurs can address these items in advance. This should further minimize questions.
Even if there are questions, technology greatly streamlines the investment process so entrepreneurs can focus on frequent questions that are asked by serious investors. Since answers are posted in a forum, no question needs to be answered twice.
3. “My peers and others will think I am in trouble if I do this to raise funds or if they see me accepting small checks.”
This is perhaps the toughest argument and the most common one. I can only say this: things are changing rather rapidly in the finance world. Just see what sites like AngelList are doing for VC investing. I see a future where sites like GroundBreaker and AngelList will be deal hubs/marketplaces and larger investors will direct investment traffic to different projects (this is the way AngelList syndicates works). It’s called disruption and it’s happening all around us. Investor habits are changing and things are getting more and more decentralized. Firms that do not adapt to new trends will probably end up losing terrain to the newcomers.
Now, the best part: why do firms only accept large checks? Because the cost of servicing investors is high. So, what if we can offer you a platform that can drastically lower these costs and time spent servicing each investor? What if I told you that there is a site with thousands of investors with millions of investable dollars looking for worthy real estate projects and your cost of accessing them is that of having an analyst working full time? Do I have your attention now? This is the future. This is GroundBreaker.