posted May 24, 2013, 8:45 AM by Andrew Manzo
updated Jun 7, 2013, 9:03 AM
|Last week, a young startup called Realty Mogul took home top honors at “Founder Showcase,” a Silicon Valley pitch competition and networking event hosted by TheFunded.com, in which eight early-stage startups showed off their wares in front of 400 investors and founders.
Realty Mogul won the top prize from a pool of over 50 seed-stage companies, beating out email optimization startup Embarke, which came in as the runner-up. This isn’t the first time that Realty Mogul has caught the attention of investors or judges at a pitch competition — or of those at accelerators.
The startup is a graduate of both the Founder Institute and Microsoft/TechStars’ accelerator in Seattle, and recently announced its $500,000 seed round raised from a handful of angel investors, including Gust CEO David S. Rose, Gordon Stephenson and serial entrepreneur Sky Kruse. Not only that, but Realty Mogul also won the HATCH Pitch Competition at SXSW in early March, where it was selected as the top startup from over 100 applicants.
Why the buzz? The Los Angeles-based startup has been attracting attention of late for its mission to make real estate investing simple and accessible to all. At least, that is the startup’s long-term goal. As Anthony wrote at the startup’s launch last month, as of now Realty Mogul is a platform where accredited investors “can pool their money to back real estate deals” and buy shares of pre-vetted investment properties, including apartment buildings, office buildings and retail centers. Accredited investors can invest as little as $5,000, without having to worry about the rest of the hassle that come with being an investor in those properties.
The company is currently working with over 1,000 investors, who are using the platform to access a dashboard where they can manage their investments, browse a marketplace of potential investments, sign paperwork and submit payment for deals they want to be involved in and are charged only if the total funding goal is reached. Once reached, investors can track their investments using the site’s dashboard.
And, yes, as Anthony wrote, Realty Mogul is focused exclusively on accredited investors at this point, and qualifying as an individual will require a net worth of more than $1 million. But co-founder and CEO Jilliene Helman thinks that the excitement over equity-based crowdfunding has big potential and that the startup’s model could work beyond this set of accredited investors.
After all, it’s one of the ways that investors can still see returns on their investment, she said, as investments can begin providing returns in the short term (in a few months, via rent checks or loan payments), rather than over years or decades. As to its own cash flow, Realty Mogul makes money by way of administrative fees associated with these investments and by giving real estate firms access to a pool of pre-qualified (and vetted) investors.
When we asked Helman to tell us a little bit about how Realty Mogul is looking to stand out from the competition — from related sites like FundRise and Prodigy Networks, she tells us that, in comparison to the former, Realty Mogul is working with operating partners who have local market knowledge within specific property types, whether that be multifamily, retail or office, for example. Fundraise thus far has raised money for all their own development projects, she says, and while “they are in the acquisition and development business, we are in the business of curating best-in-class operating partners.” Realty Mogul investors can diversify across locations, operating partners and property types, she continued.
In turn, while Prodigy Networks has a sexy product and looks to invest in “trophy properties,” she says, “we are more interested in properties that kick off healthy cash-flow and provide steady returns for our investors … we are 100 percent cash-flow investors and look to provide distributions to our investors in the first quarter after they invest in a property with us.”
The other big difference, the CEO says, is that Realty Mogul allows investors to invest in both loans secured by real estate and equity. In loans, the investor is “always in a first lien position,” which is the safest position position to be in on debt, and the startup’s loans pay fixed interest payments, while its equity transactions pay preferred percentages and allow investors to participate in appreciation and upside.
Furthermore, in terms of traction, Realty Mogul has invested over a quarter of a million dollars since launch, and just closed a transaction in Washington that involved a loan “paying 8 percent to investors on annual basis,” she says.
And, in terms of targeting that wider audience? Hellman says they’re still waiting on the final regulations to be determined by the SEC on equity crowdfunding, but “we’re interested in opening this model to a wider audience” as soon as they can.
Founder Showcase runner-up, Embarke, which also impressed the panel of investors at the event, is an email optimization product that analyzes individual user behaviors and interests (as opposed to aggregate user data) in order to ensure delivery of the right message to the right person at the right time. Embarke has created over two million user profiles and is sending over 13 million emails a month, helping marketers to increase opens and clicks by 10 percent to 25 percent, the company says, and counts SendGrid as an integration partner. The startup is based in San Diego.
Below you'll find Realty Mogul’s pitch from Founder Showcase. Let us know what you think.
COMMENTARY: I tend to agree with the panel of investors that Realty Mogul can become a very successful crowdfunding marketplace for raising capital for real estate investments. Real estate is a very popular form of capital investment with high potential returns. There are 7 million accredited investors to pick from, and the market for privately-owned real estate exceeds $150 billion, so there is a huge upside.
Realty Mogul has eliminated most of the investment risk, too. Realty Mogul runs background, criminal and credit checks to mitigate the risk of fraud and reviews every transaction in-house. Realty Mogul provides no assurances to investors that investment objectives of any given investment will be reached, but only a small percentage (we estimate less than 2%) of investments we review will be included in the Realty Mogul marketplace.
Realty Mogul allows investors to become equity holders in real estate opportunities that were historically difficult to access. Through the use of the Realty Mogul web platform, investors can browse and screen real estate investments, view details of an investment and sign legal documents online. Here's how Realty Mogul works:
#1 - Create an Account -
A Realty Mogul membership is free and gives you insider access to invest in real estate that is pre-screened by the Realty Mogul team. You will also benefit from low minimums, starting at $5,000, compared to $50k - $100k for traditional real estate investments. Realty Mogul is currently open to accredited and international investors. To be an accredited investor requires a minimum income and/or net worth. The signup process for Realty Mogul verifies the accreditation of its members.
#2 - Select an Investment -
Members of Realty Mogul can browse the marketplace and learn more about specific investments. For every opportunity, there is detailed information including estimated length of the investment, estimated annual return, property and location information and a profile for any companies or individuals involved in the investment. Realty Mogul also moderates a Q&A forum and provides email updates.
#3 - Finalize your Investment -
Once you decide which investment you are interested in, you can easily and securely sign legal paperwork online and submit payment for your investment via check or wire. Realty Mogul may also request additional information to verify that you are an accredited investor.
#4 - Wait for the Funding Process to be Completed -
In order to finalize your investment, the full amount for the opportunity must be reached. Realty Mogul will keep you up to date via email and your investor dashboard. In the event the investment is oversubscribed, the first investors who have funded their portion of the investment will have preference.
#5 - If Funds Raised -
A - Reach Goal -
You are officially an investor and can expect to receive frequent updates and your share of cash distributions. You will also have access to your investor dashboard to watch how your money is working for you and receive exclusive invites to Realty Mogul events.
B - Do Not Reach Goal -
100% of your money will be returned to you with no fees or hidden charges.
Whether a sufficient number of accredited investors will be satisfied sharing an 8% return on real estate investments is questionable, so I can understand Javelin's concerns. Many angels and accredited investors prefer 25% and 30% annual returns. You are not going to get those kind of returns on returns given the nature of today's real estate markets.
There are some definite advantages of being first in the market, but if Realty Mogul's business model proves successful, it will take very little time before competitors enter the market. The JOBS Act was been signed into law in early 2012, and investors are waiting for the SEC to issue final regulations. Once this happens, crowdfunding is going to really takeoff, so Realty Mogul better be ready.