“If you build it, they will come.” If Field of Dreams took place today, the voice that convinces Ray Kinsella to construct a baseball diamond in his cornfield could just as easily be referring to an online commercial real estate offering. The rise of crowdfunding has turned online real estate syndication into a multibillion-dollar industry. More investors are using CrowdStreet and other digital marketplaces than ever before, and our data indicates they’re hungry for opportunities to diversify their portfolios and grow wealth.
Despite these favorable market conditions, CRE sponsors looking to maximize their online capital raises know they need to do more than list an offering and wait for investors to show up. At CrowdStreet, we’ve witnessed firsthand how certain practices can attract investors—or drive them away. There are a number of mistakes, many of them seemingly small, that can sabotage your marketplace offering. Here are four all-too-common blunders sponsors make:
1. Losing Track of Their Audience by Overcomplicating Things
Sponsors need to focus on their investors from the very beginning stages of an offering to the very end. Every element of the deal matters—not only the way it’s presented, but how it’s structured.
For instance, inexperienced sponsors frequently neglect the needs of their target investors by overcomplicating the distribution calculations. Investors typically see multiple internal rates of return, fees, tiers and provisions as benefiting firms, not individuals. With each additional layer, a sponsor runs the risk of appearing greedy or deliberately obfuscatory. Ask yourself: Could the details be negatively impacting your ability to raise capital? Is the multi-layered structure of the deal worth the effort it takes for an investor to understand it?
2. Assuming All Investors Are the Same, or Ignoring Certain Investor Classes
CrowdStreet’s inaugural Investor Survey found an undeniable appetite for diversity across property types among our investor community. Although the majority (87%) of investors say that multifamily properties with high returns have the greatest appeal, many reported interest in more than one property type. Sponsors shouldn’t assume that they have a universally appealing (or unappealing) offering, nor should they discount new investors who invest at minimum amounts—as these may be high-net-worth individuals who are evaluating portfolio diversification through an unfamiliar deal or firm. Often, we find investors that invest small amounts the first time end up investing a lot more later.
Similarly, don’t take communication with investors for granted. Sponsors who successfully raise capital online know there’s no such thing as an ordinary investor. Accordingly, these sponsors know how to speak at “elementary” and “calculus” levels and appeal to first-timers and veterans alike. They also take each person’s communication preferences into account, leaving busy investors alone while making themselves available for one-on-one phone calls with those who need individualized attention.
3. Undervaluing Their Marketing and Educational Content
Successful sponsors on CrowdStreet put resources behind their content. They start with top-quality images: high-resolution photos and maps, including aerial shots with property lines and nearby amenities (e.g. restaurants, schools, public transportation) clearly marked.
Regardless of the details, the offering needs to be presented in a manner that shows the project in its most ideal state. If a building will be undergoing significant renovation, for instance, lead with a rendering of the completed property.
Make sure to support your capital raise with well-crafted educational content. Successful sponsors host webinars, speak with accessibility and confidence, present a strong investment thesis and back up their approach with real data and metrics. (For an example of a sponsor creating particularly effective content, check out Nicholas Residential’s listing for Park on Spring Creek.)
4. Selling Themselves Short
Investors look at an offering’s detail page with two questions in mind: “What are the returns?” and “What is the risk?” Don’t neglect any opportunity to demonstrate value and leadership by addressing these concerns.
Whenever possible, use numbers. If an offering is a great deal, communicate the discount. Investors love to hear that a property being purchased for $10 million was appraised for $11 million. They also appreciate detailed contingency plans.
That said, it’s important not to let facts and figures completely dominate the conversation. Don’t undersell your offering by overemphasizing your conservative approach. While conservative projections help allay the sense of risk, investors should be excited about a capital raise.
No matter what, a sponsor’s greatest asset is its track record. If you have a history of outperforming projections, show that. In the event that an offering underperforms, use it as a chance to tell a story about the lessons learned and how you’re adjusting your strategy to better serve investors moving forward
Above all, good investor relations are about communication. Speak clearly, professionally and with rigor and confidence—and make sure to do it consistently. A consistent, investor-centric communication strategy is the key to online fundraising success.
CrowdStreet is Here to Help
Whether it is your first time raising capital online or your fifth, CrowdStreet is here to support your firm and your fundraising. We utilize our experience across 220+ offerings to help you structure your deal, help you craft your story and help you execute successfully.
In other words: if you build it, they may come, but with CrowdStreet’s help the ones who show up are much more likely to invest. Request a demo to learn more.