NEW YORK CITY-Many investors think that a deal being offered online raises a red flag. "Quality deals should get gobbled up fast without ever going online, right?" Wrong. It's about time we do away with this misconception.

There is a category of deals that are too small for institutional money and too big for friends and family investors. The equity for these deals is usually $7 million or less. I call this deal category the "equity dead zone."

The Institutional Problem

To the North of the equity dead zone are institutional investors. Institutional investors have large mandates (usually 9-10 digits). These funds need to deploy a fair amount of money quickly to achieve their target double-digit returns. They want to do this with an efficient and streamlined operation so they can maximize profits.

Institutional investors have to devote the same time and resources to a $3 million investment as to a $30 million investment. An institutional investor will therefore want to avoid the deals in the equity dead zone: if I need to deploy $300 million dollars, I rather do it across 10 deals than across 100. The latter would just be an administrative headache and would cost me a great deal of money in operations.

A second reason why some institutional investors do not invest in smaller deals is the lack of audits, which many of them require due to the nature of their LPs, but that small deals cannot afford (the cost is prohibitive).

The Friends and Family Problem

To the South of the equity dead zone are friends-and-family networks. The problems with these are more obvious. A developer's network may be limited because:

• He is still establishing his business.
• He may be raising funds for a larger-than-usual project.
• His network may already be tapped out (e.g. he has too many projects going on at once).
• He may be an amazing developer who happens to enjoy staying at home and reading stories to his kids rather than meeting new investors.
• He may not have gone to the right school, joined the right country club, etc.

The Bottom Line

The equity dead zone is a very nasty place: too small for institutional, too big for friends and family. This brings us back to our initial question: why are these deals not getting funded quickly and are going online instead? It's not because of lack of quality but because these entrepreneurs (a) do not have a sufficiently large audience of friends and family investors and (b) are consistently being ignored by the big institutions. They are in the equity dead zone.

Now, look around you: most structures are dead-zone deals (small buildings and single-family homes). Being in the dead zone is a commonplace problem for most real estate entrepreneurs, independent of deal quality. And this is the gap that crowdfunding can fill. Yes, it is a big deal.

Stefano D'Aniello is co-founder and COO of Groundbreaker. The views expressed in this column are the author's own.