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CrowdStreet opens up the commercial real estate marketplace by connecting developers and investors
CrowdStreet, one of the finalists at Vator Splash Oakland 2015, was founded on the idea that the commercial real estate marketplace had been closed off for too long, and that there had to be a way to bring together accredited investors and real estate developers online.
The company was one of the first to open up that market, and it has been one of the most successful. Now it has raised $3.5 million in Series A funding, it was announced on Wednesday.
The round was led by Rally Ventures, with participation from seed investors Green Visor Capital, Seven Peaks Ventures and Portland Seed Fund. This brings its total funding to close to $5 million.
Launched in 2014, CrowdStreet provides real estate operators, funds and private equity companies a full-service marketplace solution for presenting investments online, marketing opportunities publicly, managing the offer process and maintaining ongoing investor relationships.
"When we launched our marketplace, we had four postings, which was really by design. We could have posted more projects, but we wanted to listen and learn. This was the first time that developers, in their careers, had an online funding raising process. It was new to everybody, since it couldn't exist until regulations had changed," Tore Steen, CEO of CrowdStreet, told me in an interview.
In 2015, the company launched Sponsor Direct, which let enterprise-level real estate sponsors deliver a fully branded experience, accessible from their own website. It enabled investors to view offer information, complete offer transactions, receive post-funding updates and track investment performance.
"The developers were excited to meet accredited investors outside of geographic constraints, and excited by the use of tech to automate an offline process. Fundraising and investor realtionship management became more efficient by doing it online," said Steen.
"Developers began to ask if they could license the tech platform for their own website, to bring on their own investors. They would have 100 to 200 investors who they raised capital from, and they wanted to use our tech to accelerate fundraising process to make the experience better, and they could do that if they had the capability on their own website."
That launch of Sponsor Direct was so successful that the company has now attracted over 40 commercial real estate clients and has managed more than $1 billion in institutional-quality assets through its platform. It also grew from the four postings to 36, a good share of which have come from repeat customers.
The majority of the commercial real estate listings on the site have closed, Steen told me, but there are some are still open and currently fundraising. It is a long process, however, and can take three to five years.
CrowdSteet's first public posting was on behalf of Mainstreet Bloomington. A 66,197-square-foot, care and rehabilitation facility with 100 recovery suites, Mainstreet raised $1.6 million in four weeks, one of the largest raises for a real estate crowdfunding transactions. Steen told me that that property has since been sold, and the investors now get a 14 percent annualized return.
While the idea of bringing commercial real estate online no longer seems as novel, as other companies have also sprung up to do something similar, including Fundrise, RealtyMogul and RealtyShares. CrowdStreet separates itself from those other companies with its business model.
"A lot of other company will form an entity, an LLC, and pool investors, but they'll invest their own dollars, and they'll issue the check and term sheet. We take a different approach to transform the industry, through direct access, and that's an asset that's very inticing, because it has traditionally been closed off," said Steen.
"We needed to create marketplace that was direct to investor and that required transparency. We bring investors together through sponsors and directly into projects. We dont form an LLC, which we think is out of bounds. We think the easiest way is to allow developers to review information in a simple to digest manner, transact online, and to provide an investor room to get updates."
CrowdStreet, he said, doesn't issue any checks, which is part of why the company has raised so little funding as compared to its competitors. Fundrise, for example, has raised nearly $41 million, while Realty Mogul raised $35 million last year, and RealtyShares just raised a $20 million round last month.
"They raise a $30 million Series A so they can invest dollars into those deals," Steen explained. "Our model is more efficient, scable and less capital intensive."
CrowdStreet will use the new funding to build out its team, including sales and marketing, as well as additional developers to build out the product. It currently has 12 employees and plans to double that by the end of the year.
As for the product itself, it plans to add new features based on what its customers are saying they need. For example, they have asked for better CRM and lead management.
"One thing we have seen our customers struggle with is, when they have a new project, and they want to raise capital, they want to attract new customers, so they'd like to build out their network from their own website," he said.
"So we built lead scoring, so developers could see which investors had looked at the opportunity, and if they opened the video, or opened the document. How long were they on the page? Those are good indicators, and the data helps define if an investor is interested or not. That was warmly received by our customers using the software, and they'd like even more CRM that youu'd normally find in larger systems."
The new CRM capabilities will enable developers to bring in lists of prospects based on prospective investors, that they'd like to send announcements to.
"They have certain preferences, and this will allow them to be even smarter about outreach," said Steen. "It will get more investors onto the platform, and with both the marketplace, and our SaaS solution, help them acquire, engage and manage investors."
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CrowdStreet provides real estate operators, funds and private equity companies a full-service marketplace solution for presenting investments online, marketing opportunities publicly, managing the offer process and maintaining ongoing investor relationships. The CrowdStreet solution is enriched by services and business partnerships that empower real estate sponsors to modernize their fundraising processes and embrace online capital formation. Accredited investors, institutional investors and family offices access an intuitively-designed platform to find institutional-quality real estate investments, complete an online offer workflow, track investment performance and build a commercial real estate portfolio. Based in Portland, Oregon, CrowdStreet was founded in 2013 by a team with deep experience in commercial real estate, securities and finance, marketing, consumer Internet and software development.
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RealtyMogul.com launched in 2013 with one mission: simplify real estate investing by connecting real estate companies and investors through cutting-edge technology.
Today we are a leading online real estate capital marketplace, offering commercial equity and commercial debt products nationwide, educating our investors, and building a company that will change real estate investing and financing forever.
RealtyMogul.com brings over 200 years of collective experience underwriting, managing, and acquiring over $5 billion in real estate across asset classes and markets nationally.
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Since our inception, RealtyMogul.com has funded over $190MM, totaling over $700MM in aggregate property value. Our crowdfunding investment platform has grown past 23,000 accredited investors. To date, RealtyMogul.com has returned over $25MM in principal and interest to our investors.
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RealtyShares is an online investment platform that uses crowdfunding to pool investors into private real estate investments. Accredited Investor members can browse a variety of investment opportunities, review details on the investment and invest as little as $1,000. Execution of investor documents and fund transfers are handled securely through our platform, allowing investors to complete the entire transaction process through our site.
RealtyShares targets both residential and commercial investment opportunities. Today we offer both fixed-income investments in the form of first-position loans secured by 1-4 unit residential properties usually yielding between 8-10% as well as equity investments in apartments, retail and office properties. Each investment property is professionally operated and managed by a dedicated Real Estate Company making the investment completely passive to investors.