NEW YORK CITY-When I learned I had to write a series of articles on “real estate crowdfunding” for Globest.com, I called my business partner to brainstorm ideas. We approached this the same way we approach our company's blog content. Then we came to realize something that most people in a small and emerging space have difficulty coping with: we are in an irrelevant niche and the world has managed without us ever since real estate finance was invented (roughly when mortgages first appeared). A basic Google Adwords query tells the whole story: 720 Google users searched for “real estate crowdfunding” last month. That, Dear Watson, puts us deep into the realms of “niche.”

So, we decided I should start from the beginning. What the heck is real estate crowdfunding? You may have heard of crowdfunding. It is the collection of funds, typically through the Internet, from multiple parties in order to finance a particular project or venture. There are two flavors of crowdfunding: donation crowdfunding and investment crowdfunding. The former seeks to fund charitable, artistic, or other worthy projects in exchange for personal satisfaction or non-financial rewards. The latter… yeah, you guessed it: it is just another form of online investing. While there are many worthy causes out there, we will only focus on investment crowdfunding, which is my field of expertise and an increasingly relevant subject for Globest.com readers (and I will explain why on later articles).

One could argue that crowdfund investing (which I will call crowdfunding, for simplicity's sake) has always existed in the US. An IPO, for example, is a government-sanctioned way to raise funds from a “crowd.” The difficulty has traditionally lied on the expense and restrictions imposed by our legal regime. Raising money through the sales of securities (i.e. interests in companies that invest in real estate) requires registration with the SEC unless an exemption is available.

Registration is costly and time-consuming; it is only practical for larger REITs. When people say “crowdfunding,” they are not referring to SEC-registered securities. There are a few exemptions from the registration requirements of securities: sales within a state, private offerings, etc. There are two things that the most commonly used exemptions (in real estate, at least) have in common: a ban on general solicitation and advertising of the offering and the requirement that investors meet certain income or net worth thresholds. This meant that sponsors seeking funds for a real estate project had to stay within their network of pre-established affluent relationships (or those of their broker) and approach them on a one-on-one basis; the good 'ol country club.

Over the years, however, market forces and technology have put tremendous pressure on these “private” fundraising methods. Networks are growing larger and there are now new and more efficient ways to communicate and interact with thousands of people. (Are your 2,000+ Facebook “friends” really your friends?) These market and technological pressures gradually turned the old regime obsolete and impractical.

Stefano Zaccaria d'Aniello, co-founder and COO of GroundBreaker. The views expressed in this column are the author's own.