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Developers turn to crowdfunding

posted Jul 22, 2014, 12:26 PM by Siamak Ebarhimi

YOU can support entrepreneurs' apps, gadgets, clothing creations, restaurants - you name it - through the exploding phenomenon of "crowdfunding". But what can you show for your investment? A drawer full of T-shirts, bags and other tokens of appreciation.

NOT the kind of rewards most serious investors are looking for.crowdfunding marketing
For wealthy funders - so-called "accredited investors" - some crowdfunding platforms offer an ownership piece of the startup venture they are funding. If the concept becomes the next big thing rather than the next big flop, they could reap a giant return.

Increasingly, those wealthy crowdfunders are turning to a tried-and-true investment class they can see, feel and understand: real estate.Until crowdfunding platforms came along, only a small fraction of the nine million US accredited investors - those with a net worth of at least $US1 million or $US200,000 in annual income - had participated in private-investment opportunities, said Joanna Schwartz, chief executive of EarlyShares, a Miami crowdfunding platform aimed at those very investors.Typically, she said, "they didn't have access to them unless they knew someone (in the deal), and this is especially true in real estate. This really is about giving direct access to investors in ways they never had before."CrowdFunding marketingCrowdfunding started with popular donation-based websites such as Kickstarter, where supporters can fund enterprises as disparate as a company that makes mermaid outfits and a film about Churchill's Pub in Little Haiti. In the past few years, crowdfunding has become increasingly popular for nonprofit causes and microlending.Equity-based crowdfunding is more complex - and more controversial.Kickstarter MarketingEarlyShares, founded in 2011, and dozens of other US companies, targets accredited investors. By the end of 2013, the company had launched its first online fundraising campaign for the Miami-based peer-to-peer boating company Boatsetter, which already has raised more than $US1 million ($A1.08 million) on the platform and is seeking $US2.25 million. A dozen more campaigns are underway for technology, film and entertainment companies and other firms around the country.And now, real estate deals.The Wall Street Journal in June reported that dozens of real-estate crowdfunding sites had popped up in the past year, including FundRise and Realty Mogul. Already, these companies have raised more than $US135 million in debt and equity for real-estate deals, The Journal's calculates. While that is tiny compared with the more than $US700 billion market value of publicly traded real-estate investment trusts, it is the fastest-growing category in the crowdfunding arena, according to Crowdnetic, a firm that tracks crowdfunding data.Indiegogo MarketingThat doesn't surprise Schwartz."Where else can investors go with a few clicks and get a potentially seven or nine per cent return on a project that they understand? We're not saying its riskless - nothing is riskless - but they get it," Schwartz said."Real estate is intuitively understood in a much different way than startup companies are. Investors are chasing yield."crowdfunding advertisingNew methods for doing business often come with a learning curve - much like the advent of online stock trading in the 1990s, Schwartz said."If you look back at online stock trading 20 years ago, all of the same kind of early adopter concerns people raised are the same here," she said. "Will there be fraud? Will people know how do to it? Will they adopt it?'Still, she expects the time-saving and financial advantages eventually will prevail."Going direct, there are a lot of fees we are saving for both sides here."crowdfunding websites

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By David Khorram