I’m going to break all the rules of journalism and blogs and instead of making you read through paragraphs of fluff I will simply tell you upfront that three of the main reasons why you should crowdfund the marketing of your deal is access to larger investor pools, faster transaction process, and lower costs.
I’ll use a real estate deal as an example although any industry will work here. You have a modest $5 million single location downtown renovation you want to raise capital to fund. You have probably used banks and private money over the years, have the right professional experience and a plan, and have decided that what you’ve heard about crowdfunding sounds interesting but you have some questions….
Banks have restricted loans, tightened processes, increased paperwork and stretched out the approval process. Loans you probably would have qualified in the past are getting denied. I’ll dedicate a whole blog to this in the future around real estate. Mortgage funds have gotten squeamish and risk averse, private monies are responding in kind, and many traditional investors have gotten squirrely around real estate ventures based on the crisis of recent years.
Crowdfunding opens up access to large investor pools where investors can share risk and to a certain degree, compete (timing) for your business. Real estate has started to turn around and we are seeing significant movements back into this space. Instead of putting all your eggs in one basket, crowdfunding reaches out its marketing to wide groups of investors who may wish to sole fund, or join a handful of investors on your project. Whether you pursue equity or debt offerings, crowdfunding opens up the investor pool considerably. Your expertise is your company and where your attention should be. The marketing arm of crowdfunding does its work for you and across larger, accredited investors. Greater access is a real advantage for you.
A less sexy but equally important reason to consider crowdfunding the marketing of your offering is the significantly faster transaction process that crowdfunding brings. Reputable companies follow all the rules and regulations (something you need to be mindful and ask lots of questions during the due diligence process), but following the rules does not have to mean bureaucracy and delays. We live in the digital age and should benefit therefrom. Crowdfuding is as fast as or faster than the old days where your quickest path was through a private investor. Combining access to larger pools of accredited investors with faster transaction timelines gives you two solid reasons to pursue crowdfunding.
Crowdfunding almost always means lower transaction costs. I hate to focus just on this reason (which is why I made it third not first), but when issuers see some of the differences in cost, added to the access to a larger and diversified accredited investor pool and that the process is faster and more streamlined…the offering tends to sell itself. Ask questions, conduct your due diligence and share your successes and challenges with me. I’d like to hear from you.
Dr. Rickel is a Senior Advisor at RAZR with executive experience across multiple industries. Member of CFIRA, NLCFA. Todd can be reached at $Doctor@razr.com.