Podcast #109 – Fundamentals – Comparing Crowdfunding websites with Andrew Savikas

By Lane

Show Notes

Here are the Show Notes:

Andrew Savikas- Investor, advisor, writer, father. Founder at @yieldtalk. Ex @oreillymedia, @safari. Occasional consultant & speaker. Chronic reader.

1) Your background and your Real Estate investing track record?
Andrew Savikas
andrew@yieldtalk.com
My own journey through crowdfunding, especially real estate

Importance of new crowdfunding choices in helping fuel entrepreneurism (and overall economic growth), especially serving traditionally underserved categories (eg non-males and non-tech companies outside of Silicon Valley, NYC, and Boston)

Importance of understanding “convex” vs. “concave” risk, and the implications for risk/reward profile of your portfolio

The surprising number of choices out there for non-accredited investors

You should also ask me about the time I had to pick between the Google IPO and a new couch (I picked wrong!) criteria in your site, insights from looking at all though sites, and your recommendation for people to invest in rentals, crowd funding, or direct syndication.

2) Something that you have recently or thought about “burning your cash” on for time savings or an improvement in quality of life.
[Andrew] After leaving my last job (CEO of an ed-tech company for 5 years) right after my second child was born, deliberately moved to a lower-cost-of-living place and dialed down work commitments to have more time with my kids while they’re young. Definitely worth it! But I’ll never forget the night I was putting my son to sleep soon after my daughter was born and contemplating the return to a very demanding job that was only going to get more so, and imagining myself 5 years in the future wishing I could trade the money I’d made for more time with the kids while they were growing up.

3) Something that you changed your mind on? Our ego often gets in the way of greatness.
[Andrew] Having kids definitely changed my perspective about the opportunity cost of my career trajectory. Has helped me see the benefits of a more balanced portfolio approach compared with driving 1000% down one path.
Also, what it means to have a “balanced” or “diversified” portfolio. Was profoundly influenced by Nassim Taleb’s “Anti-fragile” and the concepts of convex and concave risk (and the notion of a “barbell” portfolio).

4) Anything we missed and contact info if you would like anyone to get a hold of you. URL?
[Andrew] I’m a voracious reader, and as a side project I started posting lengthy reviews of books that have shaped my thinking about leadership, strategy, business, and more. I’m also super into meditation and mindfulness, and have written about 10 books that helped me apply mindfulness to my life in general, and doing better work in particular. And speaking of books, 13 years ago I wrote a book about Microsoft Word of all things.

OPM (Other People’s Money) concept does not apply to investing in business alone but to real estate as well. It is a strategy most financial savvy do to leverage, borrowing using other people’s money for capital to increase potential returns.

Why burden yourself when purchasing properties for investment if you can pool OPM (Other People’s Money) to start and strategize earlier?

Time is gold, and the clock is ticking!

Crowdfunding resembles the OPM concept. Wherein not only does one investor shell out money but a group of investors pools their money to purchase rental properties, multi-family units, or commercial property.

In a crowdfunding platform, they offer a minimum amount to start investing. It will use that money to manage a diversified portfolio of property projects all over the U.S. A scheduled payout will be established as the investor’s shares grow in value, still depending on the status of the property.

Update: Realty Shares going under – [a sign of more consolidation to come]

They were one of the biggest Crowdfunding sites however they went under because they can’t afford to secure additional capital to fund additional investor acquisition.

In other words, the marketing to get people to sign up is coming from outside sources (venture capital) and not from their business. This is typical of a tech startup.

How Real Estate Crowdfunding Works

Crowdfunding has websites that most of the time act as the connections between the company behind the website, the one looking for investment opportunities, and the investor.

A well-founded crowdfunding website (or company) must be a good negotiator of properties that they’re buying and can attract legit investors to profitably fund the opportunities they’re eyeing for. Moreover, they need to collectively pool money that can be used to invest in the company’s future.

Advantages and Disadvantages of Crowdfunding

Advantages
Accessible to anyone
No experience needed
Exhibits positive returns as compared to a savings account

Disadvantages
Capital can be at high risk
Undisclosed penalties may be present
Lack of control as an investor
Poor liquidity

I’m doing some research on Crowdfunding sites (although I always prefer working directly with the operator as opposed to using these middlemen platforms). A lot of Hui Deal Pipeline Club members have been collaborating on this and been using Equity Multiple.

As a syndicator I don’t like using these sites to raise funds because: 1) I don’t have access to the investor contacts which totally kills the referral marketing for future deals and 2) we tried it on a previous deal where the Crowdfunding site committed to raising a small portion of our total raise and they fell on their face..

Not saying that the Crowdfunding sites will never be effective but at this time it is not a useful means for experienced syndicators who already have investors of their own..

Beware as an investor! Its like trying to find a mate on Tinder, this is a controversial subject I know. But for many, there is a reason they are on the “open market” and cannot attract “capital” on their own from their own personal network..

Fundrise & Realty Mogul have launched “eREITs” which tries to tackle investment vehicles other platforms are not capitalizing on.. It’s interesting to watch how they trademarked “eREITs”.. Definitely a sign where investing is going.. Again institutions controlling and taking a cut away from the little guy.. 🙁

BLACKHAT TACTIC 😉 Some deals are put out to private networks (like the Hui Deal Pipeline Club) and these crowdfunding sites simultaneously..

Many times the crowdfunding site offers a 7% preferred rate where the direct source offering gives a 8% preferred rate. Tricky ,tricky if you ask me!.

Now one could backward engineer this all and go around the crowdfunding site but still, like I always say, YOU DON’T KNOW THESE GUYS..

Syndicator’s are running around out there without any operator experience or portfolio of their own and doing deals with people just off referral.. A recipe for disaster if you ask me!

Here are comments from Hui Members:

“I’ve invested in 10 you have listed and am familiar with quite a few others. The best on your list are yieldstreet.com, groundfloor.us and streetshares.com. I have had 12-14 % returns with all three. Hedgable.com is also a good site for investing in the stock market.”

“Some of the companies have questionable backgrounds make sure you google ‘company name + SEC infraction.”

“Chicago company that was recently shut down for allegedly running a Ponzi scheme. They promised investors returns of 15% to 20% on Chicago real estate. This is a huge red flag in my opinion. Those returns are extremely tough to achieve in Chicago, even in “high yield” areas.” Read the related article here.

“The returns started around 15% using my criteria but have leveled off to about 8% since then and I expect it to remain as this level.”

“Lending Club – This is UNSECURED debt. This is also known as peer to peer lending.. Like a guy needs to borrow 3k for a table saw for his business or someone has a broken car.. Good user experience and the information on the dashboard provided is much more readable than Prosper.com.. One user says “my net annualized return is 12.37 % and Adjusted net annualized return is 5.6%.. Both information is easily readable on the dashboard and it gives an easy to read view of the payments of how much principal, interest, late fees.. Also gives a good view of the notes itself like issued, in grace, fully paid, late by 16-30 days. It has automatic re-invest and liquidate quickly.”

“PeerStreet – Works like Lending Club but is Secured by real estate.. They also give you quite a bit of information on borrower as well as the property details (LTV, Stressed LTV, Improved LTV, borrower’s FICO, etc.).”.

“Prosper – It does same as above Lending Club but not as good dashboard information interface.. It has automatic reinvest.”

Crowdfunding websites seem to show a lot of opportunities. Perhaps in a decade or more, it can be a viable solution or alternative to syndication.

“Yieldstreet – It’s for accredited investors only – So basically for people who are Rich already!”

“Some of the more established crowdfunding sites are starting to lower their returns because they have achieved a good sized crowd.. It’s still a wild wild west space with many platforms/website jockeying for position.. Many are offering high rates of return and under-collateralizing themselves in my opinion for market share.. Beware some have fraud in their past so make sure you do a little Google-stalking to dig up the dirt.. When I evaluate deals for the Hui Deal Pipeline Club, I realize there are so many deals out there that if someone has a questionable past, I just move on.. Too many good people doing good deals to not be choosy.. This is a newbie mistake I see a lot in private placement investors that they marry the first deal they get pitched at a local REI meeting.. It happened to my partner who lost $45K and myself who lost $40K.”

“Overall what I hear from you folks trying this method of investing is that the default rate is higher than what is expected and the middle man (crowdfunding site) is getting rich here.. But hey if you are not good at networking these are the table scraps you get.”

Here’s the Crowdfunding list I am working with:

Note: There is a lot of consolidation in this new space. Think of the many competitors there was before there was the eBay or the Amazon. I get website alerts of the below sites going offline all the time.

https://alphaflow.com
AlphaFlow helps investors build diversified real estate portfolios across the crowdfunding industry. Make informed decisions, faster.

https://agfunder.com
AgFunder is the premier marketplace for the most promising Ag and AgTech startups seeking to raise investment capital from accredited investors.

https://1000angels.com
Build your own venture portfolio, free of management fees or carried interest.

https://angel.co
– OUT OF BUSINESS. Private single-deal VC funds led by top angels.

https://yieldstreet.com
YieldStreet connects investors to originators with deep expertise in alternative lending.

https://bolstr.com
Invest in businesses you understand and believe in.

https://circleup.com
CircleUp lists companies for you to review across a spectrum of consumer product and retail categories. Browse or search our portfolio to find opportunities that interest you.

https://crowdfunder.com
Venture Capital: Crowdsourced. Invest in many deals at the same terms as leading VCs

https://www.crowdstreet.com
CrowdStreet provides superior technology solutions that enable all investors to directly connect, invest, and create wealth through real estate.

https://equitymultiple.com
Gain exclusive access to high-yield commercial real estate deals

https://equitynet.com
Use EquityNet‚Äôs patented technology to efficiently screen and analyze thousands of investment opportunities in minutes.

https://equityzen.com
Where Private Investors Access Proven Startups

https://farmfundr.com
FarmFundr offers an affordable way to own and invest in high quality farmland.

https://flashfunders.com
Invest in Companies You Believe In

https://fundable.com
Fundable is a powerful fundraising platform that enables Startups to quickly engage a large network of Backers to raise capital.

https://fundersclub.com
Invest in the world’s most promising startups. Diversify your investment portfolio with insider access to highly vetted startups from Silicon Valley and beyond in just minutes.

https://fundingcircle.com
Invest in successful small businesses.

https://fundrise.com
Real estate meets technology, with one simple goal: Earn better returns.

https://www.fundthatflip.com
Earn 10+% annual yield by investing in qualified real estate loans.

https://www.groundfloor.us/
Private lending, now public. Earn average returns of 10%.

https://hedgeable.com
We are the only digital wealth manager to offer curated investing in venture capital.

https://homeunion.com
– OUT OF BUSINESS. Build a diversified residential real estate portfolio using HomeUnion’s end-to-end services of property selection, acquisition, management and sale to match your financial goals

https://ifunding.com
-OUT OF BUSINESS. Revolutionizing Real Estate Investing. Individuals invest as little as $5,000 in institutional quality real estate.

https://investability.com
Find Your Next Single-Family Investment Property Now

https://lendingclub.com
Build a diversified portfolio that can offers solid returns, low volatility, and monthly cash flow

https://lendingrobot.com
Automated management of your existing Lending Club, Prosper, or Funding Circle accounts.

https://lendinghome.com
Build your own diversified, institutional-quality real estate portfolio in minutes. LendingHome offers high returns and durations of just 12 months or less.

https://www.lexshares.com/
Earn returns by investing in lawsuits

https://localstake.com
Connecting businesses & local investors

https://www.macrocrowd.com
We work with investment specialists who have vetted billions of dollars in real estate developments. These industry giants provide us with exclusive investment opportunities for our platform‚Äôs investors.

https://microventures.com
Get access to highly curated early and late stage investment opportunities

https://nextseed.com
Invest in exclusive, pre-vetted deals that used to be available only to the wealthy and well-connected.

https://www.ourcrowd.com/
Invest alongside trusted venture capital and angel investors

https://patchofland.com
Earn up to 12% on your real estate investment in one year.

https://peerrealty.com
PeerRealty is the premier real estate crowdfunding platform. Gain insider access to high quality opportunities with top developers.

https://www.peerstreet.com
PeerStreet is a marketplace that provides unprecedented access to high quality real estate loan investments.

https://prosper.com
Investors can earn solid returns by investing in personal loans listed on Prosper

https://realtymogul.com
Commercial Real Estate Investing for All

https://realtyshares.com
Institutional quality real estate. Simplified investing.

https://republic.co
Invest as little as $10 in the private companies shaping our future. Pick the companies you believe in and support their mission.

https://roofstock.com
Own an income producing house with as little as $20K down. No hassle.

https://seedinvest.com
Invest in highly vetted startups.

https://seedups.com
– OUT OF BUSINESS. Connecting Investors with Technology Startups

https://selequity.com
Selequity connects accredited investors with the sponsors of commercial real estate (CRE) investment offerings. Our national network of accomplished real estate professionals assures you‚Äôll have unique access to investment opportunities.

https://sharestates.com
Invest in real estate with as little as $1,000. Faster access to capital for real estate developers.

https://startengine.com
Invest in companies you believe in.

https://trialfunder.com
We make access to the lucrative legal funding industry possible

https://upstart.com
We go beyond FICO scores to finance people based on signals of their potential, including schools attended, area of study, academic performance, and work history.

https://wefunder.com
Back founders solving the things you care about. Grok the risks, then join 93,004 investors who funded 155 startups with $35.5 million.

https://www.wundercapital.com
Invest in solar projects. Do well and do good.

https://crowdsourcefunded.com/
Where entrepreneurs and investors source the wisdom of the crowd.

https://dreamfunded.com
The New Way for Everyone to Invest in Real Estate

https://equitybender.com
We seek to help Software and IOT companies raise capital online and build shareholder value.

https://fundingwonder.com
–OUT OF BUSINESS. Invest in loans that help small businesses grow

https://gridshare.com/
GridShare enables everyday people to invest in renewable energy projects and cleantech companies.

https://growthfountain.com
–OUT OF BUSINESS. Invest in local businesses and entrepreneurs you believe in, starting at $100.

https://indiecrowdfunder.com
Equity-based Entertainment Crowdfunding.

https://jumpstartmicro.com
Jumpstart Micro brings together investors, entrepreneurs and innovation in one place.

https://mrcrowd.com
Mr. Crowd is a SEC-registered equity crowdfunding platform.

https://minnowcfunding.com
You Can Invest in Real Estate. Start Small, Dream Big.

https://netcapital.com
An open market that brings together entrepreneurs and investors

https://smallchange.com
We Bring You Projects That Make Cities Better. You Invest In Them.

https://razitall.com
Razitall. An innovative equity crowdfunding platform. You pitch, you bid, and everyone wins.

https://us.trucrowd.com/
A new way to diversify your investment portfolio

https://diversyfund.com/
The simplest way to invest in real estate. Higher returns, lower fees and start with as low as $5000.

https://www.richuncles.com/
Invest Alongside Experts in Real Estate

https://acquirerealestate.com
–OUT OF BUSINESS. Acquire Real Estate identifies, underwrites and pre-funds high quality commercial real estate properties. We then offer the opportunity for accredited investors to invest alongside us.

https://www.wealthmigrate.com/
Wealth Migrate is the leading global real estate investment marketplace, giving investors direct access to exclusive real estate investment opportunities in premier markets around the world.

https://neighborly.com/
Invest in the places you live, work and play. Neighborly is modern public finance.

https://www.iintoo.com/
Invest in Exit-Oriented Real Estate for as little as $25,000.

https://www.1031crowdfunding.com
We are an online marketplace for 1031 Exchange investments.

https://healthfundr.com
Invest in healthcare’s transformation. Private investing at the intersection of financial returns and impact.

https://www.money360.com
Invest in loans secured by income-producing properties.

https://www.propellr.com
A curated marketplace for alternative asset investments.

https://www.instalend.com
Invest online in senior debt real estate opportunities and earn monthly distributions

https://www.realcrowd.com
Build relationships with commercial real estate companies and invest directly in their investment opportunities.

https://www.venture.co
Diversify how you invest with access to new private companies in exciting industries raising funding with offerings open to both accredited and every day investors.

https://streitwise.com
A new way to invest in real estate designed to be rewarding and accessible for everyone, stREITwise cuts out the middlemen and passes the savings on to you, the investor.

https://holdfolio.com
Invest in a portfolio of properties we already own.

https://www.royaltyexchange.com
Your online marketplace for buying and selling royalties

https://hotelinnvestor.com/
Hotel Investment Banking – One Innvestor at a Time.

https://www.energyfunders.com
Direct Energy Investing Made Easy

https://www.iselectfund.com/
iSelect works with accredited investors to assemble a diversified portfolio of the Midwest‚Äôs most promising emerging growth companies through their own financial advisors.

https://www.realtyevest.com
RealtyeVest is an online marketplace that connects investors and sponsors (real estate owner-operators) to crowdfund exclusive real estate investments.

https://www.equityroots.com/
Become an owner or lender in branded hotels for as little as $15,000 per share.

https://www.arborcrowd.com
ArborCrowd is an online commercial real estate company. By allowing people to co-invest with successful real estate deal-makers, ArborCrowd enables millions of investors to maximize their financial returns.

https://fundanna.com/
The funding portal for all Cannabis and Hemp enthusiasts.

https://www.cannafundr.com/
Join the largest network of cannabis investors and entrepreneurs in North America.

https://startwise.com
Revenue sharing deals accessible to Everyone

https://cannacrowd.fund/
– OUT OF BUSINESS. Legal Cannabis Investments.

https://streetshares.com
Financial Solutions for America‚Äôs Heroes and Their Communities

https://crudefunders.com
Using Crudefunder’s innovative online investment marketplace, we provide sophisticated and beginner investors with the opportunity to invest in Oil & Gas Projects.

https://www.cityvest.com
CityVest is an online marketplace where accredited investors can pool their capital to buy shares in institutional real estate investments.

https://www.rabbleworks.com
Rabble is an impact investing platform that connects people with projects that strengthen communities.

https://firstrealfund.com
First RealFund‚Äôs Mission is to identify, offer, co-invest, & manage superior commercial real estate investments with capable owners and quality assets.

https://www.cuttingedgex.com/
The Direct Public Offering marketplace connecting investors with social enterprises.

https://www.honeycombcredit.com/
Honeycomb allows local businesses to borrow loans of up to $50,000 directly from their own loyal customers for business expansion projects.

https://www.milkmoneyvt.com
Online equity crowd-funding portal connecting Vermont’s “Main St.” investors with Vermont entrepreneurs.

https://wunderfund.co
Invest in Big Ideas Near You.

https://fig.co
A publisher where you can get a share of revenue from game sales ‚Äì we bring together developers and communities from all over the world to publish great games.

https://www.buytheblock.com
Buy The Block online investing in real estate with your peers. Pool funds, share knowledge, vote on a property to invest, efficiently manage accounts online.