[Editor’s Note: This is a guest post from Ray Sturm, the Co-Founder and CEO of AlphaFlow, which helps investors build and manage real estate portfolios across the crowdfunding industry. Prior to launching AlphaFlow, he co-founded RealtyShares. His early career in finance included investment banking at Bear Stearns, restructuring at Lazard Frères and private equity at CCMP Capital.]

Real estate crowdfunding has absolutely exploded since opening up to investors in 2013 (see Part 1 here). I see that growth – 150% per year the last 3 years! – continuing and with that comes amazing innovation and challenging consequences. I wanted to share 5 important things you’ll see come to real estate crowdfunding in the next year:

1. Automated Underwriting

A number of platforms raised enormous rounds of venture capital in 2015. Many of these rounds were much larger than their performance metrics might garner in other industries. Fintech is hot right now though, and P2P/crowdfunding is on fire. However, large rounds come with similarly big expectations. If real estate platforms are to hit hyper growth, as Lending Club did around 2010 and Prosper did soon after Aaron Vermut and Ron Suber took the helm in 2013, you’ll see one big change. Specifically, I think you’ll see many more companies adopt some form of automated underwriting that allows them to evaluate exponentially more applications without growing their headcount proportionally. PeerStreet is a leader here, utilizing sophisticated data analytics that co-founder Brett Crosby honed at Google. To truly demonstrate the “tech” in fintech and not simply build real estate companies with websites, more platforms will move towards automated underwriting.

2. Auto-Invest

While Lending Club and Prosper offer very different products than the real estate platforms, they are nevertheless the world leaders in P2P investing. As such, many of us studied them closely in our earliest days as we looked for the roadmap to success. Most investors on these platforms that I know – at least those not in the P2P industry – choose to use automated loan picking instead of pouring through thousands of loans themselves. As the real estate crowdfunding market has started to pick up and sites have increased volume, many have begun to launch their own versions. Actually executing this in real estate is proving to be much more difficult than many founders expected though. The real estate platforms are working with tiny statistical sample sizes and long feedback loops compared to the massive wave of loans Lending Club can pour through in developing its grading system. Add in a lack of standardized metrics between platforms, and it’s going to be a tremendous challenge. For those who pull it off though, it could produce an inflection point in the ability to quickly fund deals! I’ll think you’ll see many try in the coming year. [Read more…]

[Editor’s Note: This is a guest post from Ray Sturm, the Co-Founder and CEO of AlphaFlow, which helps investors build and manage real estate portfolios across the crowdfunding industry. Prior to launching AlphaFlow, he co-founded RealtyShares. His early career in finance included investment banking at Bear Stearns, restructuring at Lazard Frères and private equity at CCMP Capital.]

As one of the founders of RealtyShares, I remember the dawn of real estate crowdfunding in 2013. There were only a handful of real platforms and simply getting people to sign up for our websites – never mind actually investing – was an enormous struggle. Oh how things have changed!

Launching AlphaFlow last fall gave me the opportunity to step back and start to look at the industry as a whole. From the number of platforms, to the tremendous growth in crossing $2.5 billion of crowdfunded dollars last year, to the world class founders like Jilliene Helman and Brew Johnson leading incredible companies, it’s exhilarating to see real estate crowdfunding begin to truly make an impact! Looking back on the industry, I wanted to share 5 observations from what’s happening in real estate crowdfunding today.

1. Multiple platforms reaching new heights

In the industry’s early days, we often needed weeks or months to fund a property. In our first six months at RealtyShares, we barely crossed $500k in total crowdfunded dollars. In the next six weeks, we doubled that and took off with much of the rest of the industry.

Today, at least 4 real estate crowdfunding platforms have entered the “Century Club” after having funded more than $100 million: Realty Mogul, Sharestates, Patch of Land, and RealtyShares. A number of other rising stars like PeerStreet have quickly built incredible investor demand and will be there soon.

2. Big Investments

As real estate crowdfunding exploded, so did investor interest. Venture capitalists saw what is clearly an enormous market – the annual real estate market is about $500 billion – and poured massive investments into the space. About a year ago, LendingHome closed a $70 million Series C. A few months later, Realty Mogul announced a very impressive $35 million Series B. In early 2016, at a time when every headline seemed to announce the end of venture capital and proclaim that the era of large raises is over, RealtyShares announced a $17 million Series B. Good businesses will always get funded, regardless of the venture environment. Silicon Valley’s top venture firms have made it clear that they’re believers in the promise of real estate crowdfunding.

Large rounds come with enormous expectations though. Many skeptics believe the industry is in fact overfunded. I agree with Mark Suster in that overfunding early is dangerous, but it’s ok once product/market fit happens (insider tip: when you see a platform launch all sorts of complicated new products while not really winning with any of them, it’s a good sign that they’re overfunded and don’t have the discipline that comes with a tight budget). Only time will tell how these investments pan out. [Read more…]