[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…]