YieldTalk news and links - 15 November 2021

New/Updated Platform Reviews

Real estate investment platform Roofstock, a marketplace for buying and selling single-family rental properties, has launched Roofstock One, a way to invest in fractional shares of a portfolio of single-family rental properties. Investors can tune their portfolio across multiple markets based on investment goals. Roofstock’s marketplace model is open to everyone, but Roofstock One is limited to accredited investors. Our rating: Excellent.

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Fundopolis is an investment crowdfunding platform using Reg CF to offer investments in startups and small businesses to anyone, and with relatively low minimums (usually $500). Selection is limited, but some investments offer a novel revenue share that may appeal to investors looking for cash flow. Our rating: Good.

Notable offerings

🖼️ YieldStreet (read our review has launched an Art Equity Fund, which “will own a portfolio of blue-chip and mid-career Post War & Contemporary artworks”. The target annual net return is 15-18%, with a projected hold time of up to 5 years. Find out more at YieldStreet.

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🎉 As a reminder, Hedonova is still offering YieldTalk readers a $50 sign-up bonus for new investments in their alternatives hedge fund, which is effectively an immediate 5% return on a $1,000 investment 📈. Click here to claim your $50 bonus 👈

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👋 Before you make your next investment, do what we do at YieldTalk and track your net worth and investment portfolio (including alternatives and crypto) in one place with Money Minx.

Worth Reading this Week

A roundup of insights and interesting links from around the investment crowdfunding ecosystem.

In the context of the ongoing Theranos trial, here’s a handy list of 5 red flags to watch out for when evaluating a seemingly hot startup. Hint: if the company declines to demo the product, you might want to dig a bit deeper:

Theranos, investors charge, resisted product demonstrations. Bryan Tolbert, an investor, testified that in 2013, Hall Group invested $5 million in Theranos despite lacking “a detailed grasp of the start-up’s technologies or its work with pharmaceutical companies and the military.”

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The internet is full of many silly things, but it also drives a massive amount of economic activity. The NFT landscape is also full of many silly things, but this HBR piece notes it would be a mistake not to notice the underlying potential for economic (and investment) activity:

As the name “non-fungible token” suggests, each NFT is a unique, one-of-a-kind digital item. They’re stored on public-facing digital ledgers called blockchains, which means it’s possible to prove who owns a given NFT at any moment in time and trace the history of prior ownership. Moreover, it’s easy to transfer NFTs from one person to another — just as a bank might move money across accounts — and it’s very hard to counterfeit them. Because NFT ownership is easy to certify and transfer, we can use them to create markets in a variety of different goods.

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Along with the trend of institutional investors buying up single-family rental (SFR) properties, another disruptive force in the SFR market has been the rise of “iBuyers”, who have used technology to scale up the ability to make quick cash offers on houses. The most prominent (but certainly not the only) iBuyer was real estate juggernaut Zillow, but following mounting losses they’ve shuttered their iBuying operation (and laid off 25% of their workforce). iBuying is here to stay in one form or another, but Zillow’s experience offers useful insight into the challenges of bringing liquidity to an idiosyncratic market:

Zillow bet big on its house-buying operation anyways, biting off more than they could chew. They purchased aggressively in the first half of 2021 after slowing during the onset of the pandemic the previous year. Now, they’re sitting on an inventory of roughly 9,800 houses that they will attempt to sell in the first half of 2022. They can only hope their value will go up.

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The vast majority of investment crowdfunding platforms are legitimate businesses run by reputable entrepreneurs. But as with any industry, there will be some bad actors out there. The founder of defunct platform RealtyeVest has been sentenced to 21 months in federal prison for defrauding investors:

When several Realty E Vest crowdfunding projects failed to fully fund, Summers intentionally kept the investors’ money and misappropriated it to fund the ongoing operations of his companies, including paying employee salaries. Summers gave these victims the illusion that they had successfully invested in these projects by paying investors purported investment returns for the failed projects via mailed checks or wire transfers. Summers also repaid the investments of some victims who had complained after learning the crowdfunding projects had failed to fund. However, the money funding these payments was not derived from the real estate developers or any legitimate investment activity; instead, it was derived from victims’ principal investments in other crowdfunding ventures and equity investments Summers solicited in E Vest Technology.

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Interesting data from KingsCrowd in their chart of the week on the average age of startup founders raising money with Regulation Crowdfunding:

Although there are more founders aged between 30-to-39 years-old, they are not the highest performing. Instead, founders in their 50s and 60s are raising the most money from online investors. On average, these two ranges raised around $472,00 and $480,000 respectively. Founders in their 20s raised $447,000 on average.

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Equity Crowdfunding (where backers invest capital with the expectation of a future financial return) is distinct from “rewards crowdfunding” (where backers pre-fund products and projects without receiving any equity, popularized by platforms like Kickstarter and IndieGoGo), but there is certainly some overlap in the models. So it’s notable that IndieGoGo recently announced they’ll be more aggressive in screening campaigns on their platform. It’ll be interesting to see whether continued growth in the equity crowdfunding space prompts platforms to revise their screening criteria as well:

“Candidly, we have not always lived up to our backers’ expectations,” said Will Haines, vice president of product and customer trust at Indiegogo. When the company launched in 2008, there were few restrictions on would-be entrepreneurs seeking to raise money from like-minded backers. But Haines says that “open” isn’t what the crowdfunding community really wants now, more than a decade later.

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Rents continue rising across the board, a harbinger of inflation (and a reminder of why it’s a good idea to include rental properties in your investment portfolio!):

The Zillow measure is up 9.2% YoY in September, up from 8.4% YoY in August. And the ApartmentList measure is up 15.1% as of September, up from 12.5% in August. Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase in rents.

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Investment crowdfunding and private-market platforms like EquityZen is reshaping the venture capital landscape, and this piece from James Ledbetter (ex-Sequoia) talks through how traditional VC firms are adapting their model:

For most of the half-century during which modern VC has existed, there was no easy, systematic way for anyone but the heaviest of hitters—pension funds, university endowments—to get in the startup game without becoming a limited partner in a traditional VC fund. It’s tempting, and not entirely wrong, to attribute that exclusion to “elitism,” but more fundamentally, the hurdle was legal: until quite recently, financial regulators looked at early-stage investing as far too risky to allow the vast majority of Americans to participate.

Odds and Ends

• Investment platform Republic (read our review here) announced they’ve acquired Arora Project, a media agency specializing in helping companies run equity crowdfunding campaigns.
• Real estate platform Fundrise (read our review here) reports “remarkable” Q3 results, with some investments jumping by as much as 50%.
• Sherwood Neiss from Crowdfund Capital Advisors produced a handy 8-minute video recap of Q3 in Reg CF fundraising