The numbers are in and they are very encouraging. In Q4 2014, equity crowdfunding brought in a total of $483 million. In Q1 2015, it brought in $662 million. The rise is attributed to a number of real estate projects that helped to lead the way.
Experts believe that equity crowdfunding has the potential to double year after year in the beginning as investors begin to believe in this concept. Add in the non-accredited investors that will have a chance to get involved as well and the results are exciting for start-ups or those that are thinking about going public.
Who Has Seen the Most Success in Equity Crowdfunding?
The big winners are still within the financial sector when it comes to equity crowdfunding, of which the real estate market is included. More than $170 million has been raised in the last quarter alone. The technology sector and services aren’t that far behind this figure, dominating the industry with the financial sector.
What has made this all possible is the implementation of Title II of the JOBS (Jumpstarting our Business Startups) Act in 2012. Put into place in 2013, it allowed for accredited investors to begin participating in equity fundraising campaigns. That mean investors who made a minimum of $200k in the last two years or have a net worth of $1 million without their primary residence included could invest.
Accredited investors could participate in high risk real estate investments and other projects without the same levels of risk. Exit strategies are a lot easier to develop when crowdfunding as well and project managers get a unique benefit as well. With several investors backing them, there’s a chance for more experience to come their way. Two of the three largest equity crowdfunding projects are in real estate. Why real estate? It’s a tangible asset that many people understand.
New Changes Mean New Opportunities
Now Title III looks to add more to the equity crowdfunding world. It will allow anyone to invest into real estate projects or other equity opportunities if they meet certain financial rules. Companies will be able to raise up to $50 million per year, which is up from $5 million that is currently allowed under Regulation A offerings. Non-accredited investors will have caps on the amount that they can invest annually based on their income and/or net worth.
This means the playing field becomes level so that everyone has the same chances to increase their overall net worth. The risks will also be the same, which is why strong investment caps will be in place for non-accredited investors. The benefit is clear: when Prodigy Network raised $35 million for a real estate overhaul at 17 John Street in Manhattan, non-accredited investors will soon have a piece of that investment pie.
Or they could choose the $25 million project that HLR properties funded for oil and gas prospecting. A $19 million project for three separate real estate investments in Los Angeles by MondayOne would become a possibility. The economic potential has a huge upside.
How Could This Change Investments?
Most Baby Boomers today haven’t saved enough for their retirement. Nearly half of all American households don’t have enough in savings to handle a basic emergency. About a quarter of American households have zero savings and are living paycheck to paycheck. The fact is that the investments these people have access to before Title III goes live are minimal at best.
Savings accounts are lucky to have a 1% interest at best. CDs might hit 2% if they are a long-term item. The returns sometimes are so low that the rate of inflation outpaces the returns that are being received. In practical terms, that means up to half of American households are losing money even as they’re trying to save money.
Equity crowdfunding could be the solution that changes all of this. There is certainly more risk involved in these investments and there will be less cash liquidity. A loss could happen, but when compared to a potential 1% gain against 3% inflation, there really isn’t much to lose for a non-accredited investor with the investment caps that are in place.
Now is the time to get to know equity crowdfunding. It’s soon going to become a $1 billion per quarter opportunity in the United States. If you’re not involved as this industries attempts to double year after year, then you get be hurting your bottom line.