Why 15 Venture Capital Firms are

Playing the Real Estate Crowdfunding

Game

by David Drake

According to a report by the

UCLA Ziman Center for Real Estate, #crowdfunding through online

platforms, in general, has grown from $1.5 billion in 2011 to around $5 billion forthe first half of
2014 and is projected to touch $10 billion by the end of this year. These trends in the global
market are getting the attention of VCs. This global growth is expected to accelerate in the future.
By 2025 the market could be worth $90 billion or more which would make it almost twice the size
of the entire global VC business today.

Early this year also, Massolution released a report on the global real estate crowdfunding industry.
The report indicates that in 2014, real estate crowdfunding market has reached nearly $1 billion.
This year 2015, the industry is predicted to reach the $2.5 billion mark. Talk about a billion dollar
industry in less than 3 years since crowdfunding for real estate started. With these recent trends
also comes the increased activities of VCs in this space.

VC activity in the real estate crowdfunding industry can be measured by their investments on real
estate crowdfunding platforms. By far the biggest deal was with Fundrise, which raised $31 million.
The money came mostly from a group of investors led by Chinese social networking company
Renren and executives from New York-based Silverstein Properties Inc., which owns the World
Trade Center. This Series A funding round and additional new investors including Guggenheim
Partners and the president of Rockrose, Justin Elghanayan, have taken the total to $38 million.
After surveying the real estate crowdfunding field, VC firm Renren liked Fundrise because of its
focus on the community. Renren believes that real estate is the next frontier of crowd-based
financing. Silverstein executives invested on Fundrise for they were also impressed on the firms
vision and execution, noting that it has cracked the code to do real estate crowdfunding well.

Early in 2014 Realty Mogul (headquartered in Beverly Hills) raised $10.1 million in a funding round
led by Canaan Partners which contributed $9 million. Realty Mogul has already invested more
than $70 million in 226 different properties located in 19 different states. Hrach Simonian, partner
at Canaan Partners, notes that VCs have poured their money into the platform because the public
have become comfortable with participating in crowdfunding sites. Another reason for a VC such as
Canaan Partners to like niche crowdfunding startups is because data builds up on these platforms,
and the data can be used to predict better performance of assets.

AssetAvenue, which is a platform for borrowing and investing in commercial real estate, had
raised $3 million in 2014 from investors led by Matrix Partners and NetEase. These were high
caliber investors, with Matrix having backed powerhouses such as Apple and JustFab, while
NetEase is one of the largest publicly traded companies in the internet and technology space in
China. Josh Hannah of Matrix Partners notes that real estate crowdfunding platforms are
addressing the needs of an underserved market not met by banking solutions. In addition, this
year 2015 the platform has further raised an additional $11 million from DCM Ventures and from
earlier investors, NetEase and Matrix Partners. DCM Ventures General Partner, David Chao, notes
the reason why it has invested on the platform: it believes that AssetAvenue can change the
commercial real estate landscape in terms of how lending is done.

Other notable recent fundraising exercises include RealtyShares and Patch of Land. RealtyShares
has raised $10 million in a Series A round led by Menlo Ventures, which also incorporates
participation from the previous investor General Catalyst. Patch of Land, a platform based in

California, was able to raise $23.6 million in a Series A round. SF Capital Group led the Series A
funding round. Prosper, with Ron Suber at its helm, also invested in this round. Patch of Land is
considered to be one of the most well funded real estate crowdfunding platform in the United
States.

This VC activity has not been confined to the US alone. UK-based Property Partner, which gives
investors the opportunity to invest for as little as 50 in the flourishing UK buy-to-let housing
market, has raised 1.25 million in seed capital. The round was led by Octopus Investments and
included well-known European funds and investors such as Seedcamp and Better Capital founder
and venture capitalist Jon Moulton. The business was founded by BSkyBs former head of
commercial development Daniel Gandesha to take advantage of residential property which is the
largest asset class in the UK valued in excess of 5 trillion. Buy-to-let transactions are estimated to
be in excess of 20 billion annually.

Along with other recent deals not mentioned, these successes clearly indicate that real estate
crowdfunding is going to be a force to reckon with in the future.

Note: This article originally appeared on Investor Intel with this

link http://investorintel.com/market-analysis-intel/why-15-venture-capital-firms-are-playing-thereal-estate-crowdfunding-game-2/ on June 12, 2015.

David Drake is the Chairman of LDJ Capital, private equity advisory; Victoria Partners, a 110 family
office

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