Real estate crowdfunder Fundrise has bagged $31 million in a funding round that represents one of the largest in recent memory for any early-stage tech startup in the real estate space.
The Series A funding round also marks the latest vote of confidence in real estate crowdfunding, the practice of pooling money from investors online to purchase properties. In March, Fundrise competitor Realty Mogul nabbed $9 million in funding.
“This raise represents Wall Street’s and commercial real estate’s embrace of crowdfunding as the future of real estate finance and investment,” Fundrise co-founder Ben Miller said in a statement.
The funding round was led by Renren Inc., a leading social networking Internet platform in China; Marty Burger and Tal Kerret, the CEO and CIO of Silverstein Properties; and the Collaborative Fund. Fundrise hadn’t previously raised money from outside investors, Miller told Inman News. It “self-funded” $2.5 million to operate since launching in 2010, he said.
Fundrise’s Series A funding round isn’t just a head-turner in the real estate space. It also represents the largest ever for any “equity crowdfunder” (a crowdfunder that lets people buy ownership in something, as opposed to lending money) worldwide, the company said.
What sets real estate crowdfunding apart from its offline predecessor, “real estate syndication,” is that it brings more access and transparency to the marketplace.
By putting investments online, real estate crowdfunders including Fundrise, Realty Mogul, RealtyShares, Prodigy and iFunding are able to attract more potential investors and sell shares in properties that cost only a few hundred or thousand dollars, instead of hundreds of thousands.
Real estate crowdfunding also makes it much easier for investors to keep tabs on their investments.
Fundrise’s online portfolio, for example, lets users view updates including monthly leasing updates, photos of a property, construction invoices and geotechnical reports. The crowdfunder even shows investors the identities of their co-investors, serving up headshots of them (linked to LinkedIn profiles pages).
“Have you ever heard of an investment when you know who else you’re investing with?” Miller asked Inman News in a previous interview.
Fundrise — which offers shares in single-family homes, apartment buildings and commercial properties to consumers, in some cases for as little as $100 — stands out from other startups in its nascent industry because people who aren’t rich can participate in some of its investments.
The company says it’s funneled more than $15 million in investments put up by more than 1,000 users of the platform into 30 real estate deals in cities across the country. Money is now flowing into deals at the rate of about $1 million a week.
Most real estate crowdfunders permit only accredited investors — investors who are worth at least $1 million or have made at least $200,000 a year for the last two years — to contribute cash to their investments opportunities.
The Securities and Exchange Commission allows companies to raise money from investors without filing for a public offering (a move that is cost-prohibitive for small companies) only if companies use a securities exemption.
And the securities exemption real estate crowdfunders generally take advantage of is one that is relatively cheap to use. The exemption comes with a catch, however: It allows companies to raise money only from accredited investors.
But Fundrise has raised cash for a number of deals using a different securities exemption that actually lets average joes get in on the action. That exemption, however, is much more expensive to use because it requires producing vast amounts of paperwork and acquiring direct approval from the SEC.
Fundrise may have been willing to pony up the cash necessary to make those deals over the last few years in order to be first to market in the event that the SEC implements crowdfunding-friendly regulations that may make raising money from nonaccredited investors much more affordable.
Though the crowdfunder offers investments to the public, however, most of its offerings are still open only to accredited investors.
That’s because most of the Fundrise’s “sponsors” — the real estate companies that actually buy property using the money that Fundrise raises — see more money to be made in deals that are available only to accredited investors, Miller said.
Companies that choose to sponsor investments open to everyone, on the other hand, are more interested in the “marketing and political value” of raising money from thousands of everyday people, who typically live near the properties they are investing in, he said.
Fundrise says it will use its pot of cash to expand its offerings to institutional investors and build its presence in major U.S. cities “so that every citizen can build a real estate portfolio and access diverse, high-yield real estate opportunities through a streamlined online platform.”
The funding round is one of the largest closed by an early-stage tech startup in the real estate space.
The only recent raise that comes close was a $20 million round closed by next-generation brokerage Urban Compass in October. Shortly after closing that round, the company raised an additional $5 million in funding under the same terms as the previous round.