What is crowdfunding?
To the not so familiar, crowdfunding may loosely be defined as the gathering or pooling of funds from large networks utilizing several platforms. It serves as a less risky means of conducting business as it pools resources as opposed to a single investor placing his money in the hands of others not knowing if the act will bear fruit for certainty. Understanding that the very nature of traditional fundraising is shifted dramatically with the introduction of this means is critical to all interested in this new and innovative practice. Crowdfunding is an action that has taken entrepreneurship and the business world by extension like wildfire. If you were able to gain funds for a project whilst maintaining a level of democracy would you hesitate to dive in?
Crowdfunding and Real Estate
The way the Real Estate business usually works, the agent is solely responsible for sourcing his investors for his projects whilst solely marketing his properties. The traditional method of conducting business in the Real Estate world is not only incredibly costly, it is also time to consume. Imagine the one man up against the world thought pattern. With the introduction of crowdfunding, the one man is thereby able to access a pool of funds by sharing his project that requires investment on social media platforms like Facebook, LinkedIn, Twitter and even more popular for ventures of this nature, Kickstarter. Imagine taking the hassle out of having to deal with a single investor and being so dependent on that one person that it’s almost as if you have to worship the ground he walks on because if he walks your project could very well tank. But no, crowdfunding has introduced you to a more democratic style of business. Take a look at the following flow chart [detailing a comparison between traditional fundraising methods and crowd funding methods] as presented by Rod Ebrahimi in his contributory article in 2013 on how crowdfunding could reshape the Real Estate Industry.
Traditional Fundraising Model (Simplified)
Idea –> Pitch Banks or Investors –> Funding –> Execute Idea
Non-traditional Crowdfunding Model (Also Simplified)
Idea –> Set Up Crowdfunding Initiative –> Funding Goal Reached –> Funding –> Execute Idea
Crowdfunding makes for safer real estate practices. It shields investors at a greater level as they are each able to lower their investment risk by pooling their funds. Networks have a far greater reach than a one-man band and crowd funding embodies and exemplifies just that in Real Estate. Crowdfunding also calls for a greater level of responsibility of those involved, there is an accreditation requirement as well as meeting higher due diligence means. Crowdfunding makes for an easier entry into the market whilst still burgeoning the vie for capital. It is, unfortunately, more fragmented when dealing with real estate and not as liquid. With every step forward there is somewhat of a drawback but I believe these could be deemed as minimalists to the bigger picture of what is able to be achieved with crowd funding.