By James Nelson | Forbes
At the beginning of August, CrowdStreet CEO Tore Steen stepped down amid fire after more than $50 million went missing, as reported in Bisnow. The funds had been raised for deals in Atlanta and Miami by New York real estate firm Nightingale Properties, and they never closed. Both the Atlanta and Miami entities filed for Chapter 11 bankruptcy, per Bisnow.
The recent events raise questions over whether sponsors should consider raising money through crowdsourcing platforms such as CrowdStreet. When evaluating the options, it’s important to note that there are different structures, and some cater to accredited investors while others accept non-accredited investors. The way funds are raised on platforms can vary too. While certain crowdfunding sites enable sponsors to have direct contact with investors, others keep the relationship anonymous.
Looking at the bigger picture, crowdfunding has been on the rise in recent years. Leading platforms have raised significant amounts. CrowdStreet, for instance, has funded more than 750 deals with over $4 billion invested.
Given the recent events, however, it’s important to note that clearly, there will be some challenges ahead as investors grow concerned over the legitimacy of these tools. Sponsors may want to make sure that the funding of their deal is not fully reliant on a crowdfunding raise. It’s also more crucial than ever to carry out due diligence before making an investment.
A starting point could be to check if the platform is open to accredited investors or non-accredited investors. In this article, we’ll look at the difference between these categories, and consider how crowdfunding has opened avenues for non-accredited investors. In the following article, we’ll cover crowdsourcing options for accredited investors.
“Crowdfunding is not the worst option, but it should be the last option for sponsors. Raising money from unsophisticated investors is risky.” – Shruti Gurudanti, Rose Law Group partner and director of corporate law
