NEW YORK CITY—Recently, Realty Mogul, based in Beverly Hills, CA, revealed its $9-million series A round led by VC firm Canaan Partners. On the same day, San Francisco-based RealCrowd announced a $1.6 million Series Seed round from a group of angel investors. Both of these companies operate online deal syndicates: they find deals and syndicate a portion of the equity from their investor pool (aka “users”), in exchange for a portion of the deal economics. Realty Mogul and RealCrowd are just two of the many companies syndicating real estate deals online.
In less than a year, all these platforms combined have syndicated upwards of $50 million (by my estimates). What's interesting is not the sum (relatively low in real estate terms), but the rapid growth of these startup firms and the validation of their business model. These companies are quickly paving the road for a national non-institutional market for real estate investments. That's a big deal for everyone, especially for middle market operators, who stand to gain the most from the recent relaxation of advertising rules by the SEC (JOBS Act), as well as from the scalable technologies that make it possible for them to replicate what Realty Mogul and RealCrowd are doing.
Moreover, these young companies are proving that marketing and advertising can and does generate enough investor leads, especially when you have the technology to deal with a large number of investors and properties.
On the other end of the spectrum, we have the institutional dinosaurs, for whom nothing has changed. A recent Preqin survey of fund managers found that about 80% of these firms are still on the fence about whether or not to advertise. The reason? They just don't want to be the first mover. They want to wait and see how things evolve before they incur the extra expense and effort. That's the “if it ain't broken…” mentality at its prime. Let's just follow the leader, please.
In short, the larger firms will maintain business as usual until they are proven wrong (and by then it will likely be too late, as emerging players become more powerful, garner the necessary backing and know-how, and start going after the larger assets, too). How long will it take for the bigger players to jump on the advertising and technology bandwagon?
Stefano D'Aniello is co-founder and COO of Groundbreaker. The views expressed in this column are the author's own.
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