As with any disruptive new industry, equity crowdfunding – for real estate or growth-company investments – has its detractors. It’s understandable that casual observers of equity crowdfunding are a bit skeptical about this new market. It’s not understandable, however, for them to disseminate damaging and ill-informed information.
A common (and reckless) contention of many is the argument that the issuers of crowdfunded securities are largely scammers, only interested in acquiring money from ‘duped’ investors.
Case in point: A recent article on Entrepreneur.com headlined Crowdfunding is More Like Crowd-Frauding referred to online investors seeking returns as “greedy people” who make “good suckers” for being “ripped off” by online capital raisers, who could be “criminals, fraudsters, or scam artists.”
The author of the piece neglected to back up any of his claims with data, sources, or examples, so his perspective lacks credence. (And for the record – no investor is “greedy” by virtue of the fact that he or she aims to make money.) Nonetheless, the writer’s comments promulgate the idea that private investment crowdfunding is a “wild west” – an unregulated space where no rules apply. And that’s an unfair mischaracterization of the market at large.
How so? For one, all crowdfunding investment opportunities, whether for real estate deals, growth companies, or other equity or debt capital raises, are either Regulation D Rule 506 securities offerings or Regulation A+ “mini-IPOs.” Both rules involve investor protection provisions, including one that bars issuers from utilizing the securities exemptions if any of their covered persons are “bad actors” with problematic criminal or legal histories. Issuers on real estate crowdfunding portals and other investment crowdfunding sites are required to complete “bad actor” disqualification checks and disclose the information to potential investors.
That’s where the online nature of the investment crowdfunding process is clearly beneficial. Since crowdfunding platforms house all of an issuer’s compliance-related documents and details inside a secure portal, they actually make it easier for investors to review such information.
Beyond that, all platforms in the real estate crowdfunding industry recognize the fundamental importance of weeding out fraud and protecting investors. It’s only logical: Real estate crowdfunding portals provide value to investors by giving them a tool to make safe, secure investments – and ultimately earn return. A single instance of fraud would destroy a platform’s reputation at zero benefit to the business.
That’s why access, trust, transparency, and vetting are the core values of EarlyShares. We partner with CrowdCheck, the most trusted name in crowdfunding compliance, to carefully screen each issuer’s background and track record. Then, we apply our decades of expertise in commercial real estate to take a critical look at the potential sponsor’s projections, terms, and financials to make sure the deal meets our high curation standards. (For more on our selection criteria, click here.)
And that vetting factor is proving to be a key benefit to us. While we expect all real estate investors to conduct their own research and due diligence on opportunities to decide if they’re right for their portfolios, we also expect them to utilize our own thorough (and easily accessible) screening intel to assist with the decision making process.
We’ve heard from multiple investors that our in-depth vetting makes a difference. As S.A. Lawrence, an investor in Park East Apartments, put it: “The due diligence EarlyShares conducts helps you invest with confidence.”
All skepticism aside, the best way to invest in any sector or industry is to work with a trusted partner. We hope you’ll partner with EarlyShares to grow your real estate investment portfolio.