I never thought I’d see the day, but one of the crowdfunding behemoths is closing down.
Today I received this email from RealtyShares
To our platform investors and operating partners:
Five years ago, RealtyShares was founded with a mission to connect capital to opportunity. With over $870 million invested across more than 1,100 projects, we have built one of the top online real estate investment platforms. We’re helping investors meet their financial goals and deploying capital to real estate operating companies to execute value-add and development strategies for properties across the U.S.
As an early stage company, we have relied upon venture capital to fund our operations. Over the past six months, RealtyShares aggressively pursued a number of financing options to continue growing the business. Unfortunately, despite our best efforts, we were unable to secure additional capital. As a result, we will not offer new investments or accept new investors on the RealtyShares platform.
From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management. This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.
We are committed to serving our existing investors and sponsors and have a team dedicated to supporting our ongoing operations.
It seems that RealtyShares has not gone bankrupt, and who knows, maybe it will come back someday.
But, for now, they are no longer taking on new investors, funding new projects, or growing their platform.
How Does This Impact Crowdfunding in General?
While RealtyShares was by no means the largest crowdfunding company, they were one of the larger ones. At least, as best as I can tell.
But, crowdfunding in the real estate niche is changing and growing as the market matures. Don’t forget, crowdfunding was just made legal in 2012 and the SEC took a couple years to even publish regulations on it.
It seems that RealtyShares did not have the vision needed to adapt and grow.
On the other hand, other platforms appear to be flourishing, such as Fundrise with it’s innovative and easy to use allocation tools to invest in broader real estate funds, or EquityMultiple which is more focused on connecting investors to good syndicators and taking on much lower costs and risks.
Does This Mean The Real Estate Market is Going to Correct?
A lot of people are concerned that real estate is at the top of the market cycle. Some think it’s going to correct soon.
While these are valid thoughts and concerns, this news about RealtyShares does not appear to be related to changing conditions in the real estate market.
It simply appears that venture capital chose to invest in other areas or platforms rather than in RealtyShares. Perhaps they couldn’t produce the returns VC wants, or perhaps VCs see something in the market the rest of us can’t see.
It reminds of how Fundrise did an iPO (or what they called an “internet public offering”) a year or two ago. The platform massively changed and has grown tremendously since then.
Perhaps they also could not get VC funding but chose to raise capital from the investors in their platform.
So, I don’t believe that it has anything to do with real estate in general, but more about the company itself.
Difference Between VC Funding and Raising Capital For Real Estate
Venture capital invests in businesses. Their end goal is to have the company either sell or go public because those are the two primary ways the VC can get paid back.
A company that doesn’t have the potential to sell out or go public simply won’t get VC funding.
RealtyShares focused on finding capital from investors and putting that money into real estate. There is very strong demand for that.
I think it is unlikely that its platform will sell to another company. Perhaps going public wasn’t really viable for this kind of company.
So, the underlying business can have strong demand, but VC capital may not be interested. They may be more focused in other companies that have the potential to pay back their returns.
While this is a very interesting day in the real estate crowdfunding niche, it is hardly the end and there isn’t much to read in the tea leaves.