YieldTalk news and links - 23 August 2022

Worth Reading this Week

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

The data presented in this breakdown of where the wealthiest Americans made their fortune is certainly interesting, though I’d prefer if they made a distinction between “private investments” that are actually company founders and those done by non-founders. That quibble aside, it’s a nice reminder of the asymmetric upside potential in early-stage investing:

For starters, the barrier to entry for private investments can be higher than for stocks and bonds. But for professionals whose clients have the necessary assets, private investments such as real estate, hedge funds, private equity and venture capital are more than worth it. Because, as our Fortune 400 folks have demonstrated, the best opportunities to build wealth are in real estate and private investments.

***

I like to periodically include stories about investment fraud and scams as a reminder that while most companies operating in the alternative investment ecosystem are on the up-and-up, there are bad actors out there, and the old adage about not putting all your eggs in one basket is as true as ever:

A Pennsylvania-based investment advisor was sentenced to five years in prison after pleading guilty for a Ponzi-like scheme defrauding investors of more than $7 million, according to the Department of Justice. One official said the accused advisor used the funds for “everything from car payments, to country club fees, to payouts to previous investors.”

***

This post from the folks at MicroVentures is a concise summary of the common cognitive biases we all face when making investment decisions. It’s hard to avoid their influence altogether, but knowledge is power when it comes to understanding your own psychology and limiting their impact.

***

The U.S. Federal Reserve recently issued additional guidance for banks considering activities involving cryptocurrencies, emphasizing that firms must notify the Fed beforehand and make sure whatever they do is legally permitted:

The Fed said in a statement that while cryptocurrencies could present “potential opportunities” to banks, firms needed to make sure they had systems in place beforehand to ensure the volatile assets did not threaten safety and soundness or consumer protections.

Real Estate

A pandemic-fueled binge on industrial real estate projects may be coming to an end as large institutional investors (including sovereign wealth funds) shift capital en masse into Treasuries:

In the second quarter of 2022, industrial investment sales volume totaled $35.4 billion, an 8 percent increase over the same period in 2021, according to real estate data firm MSCI Real Assets. While positive, that growth was far behind the 40-plus percent increases in multifamily and retail sectors. In addition, the number of industrial properties trading hands declined by 24 percent year-over-year, to 1,939.

***

Is Housing a Bubble Waiting to Pop? The difference between a healthy correction and a bubble waiting to be popped in the housing market.

***

Research from WMRE shows how rising interest rates and macroeconomic concerns are affecting multifamily investors’ ability access to capital:

Although 41 percent see no change in the availability of equity compared to 12 months ago, 37 percent think it is less available and 16 percent said it is more available. On the debt side, 38 percent said there was no change in availability compared to 42 percent who consider it to be less available and 15 percent who believe it is more available than 12 months ago. With the exception of 2020, respondents have the most negative view on the availability of capital in the history of the survey.

Startups/Venture

A disappointing analysis from Crowdfund Capital Advisors reveals that the majority of Reg CF investment crowdfunding offering issuers are behind in their annual reporting requirement:

[T]here have been 2,232 issuer that have raised up to $5 million under Reg CF as of December 31, 2021; 54% have NOT filed at least one annual report (FORM C-AR) nor a notice to terminate reporting. So effectively, these companies are out of compliance with the federal rules.

***

As another sign of investor caution amid economic headwinds, profitability has displaced growth as the major driver behind valuations among public software companies. Growth, growth, growth has been the rallying cry among startups for some time now, and a shift in focus toward profitability isn’t a bad thing:

Net income has surged to the highest correlate of a public software company’s multiple surpassing revenue growth. Narratives published in newspapers trumpeting the importance of profitability correctly assess investor sentiment on stock exchanges.

***

Venture capital investment in the youth wellness and mental health space spiked by 1,376 percent in just four years, ballooning to $871 million in 2021, up from $59 million in 2018.

Crypto/web3

Via the Crowdfunding Professional’s Association, this post dives into how many crypto offerings are simply end runs around SEC regulation, with predictable consequences for many investors:

What’s happening with crypto assets is that companies that usually issue shares in early ventures have taken to giving crypto tokens as a proxy for equity (called shadow equity) in companies. This lets them raise capital from investors without safeguards or regulations around securities issuance. And to add insult to injury, these unregistered crypto securities are immediately liquid with no lock-up period before they can be sold, and they can be sold directly to the public before the company achieves any measure of traction or success.

***

Where Is The Crypto Market Heading? The recent crypto market plunge and the subsequent bear market have made many investors very skeptical of its long-term outlook and growth opportunities.

Litigation Finance

The folks at LexShares have published their latest quarterly outlook on the litigation finance industry, which includes insight into the growing number of secondary market transactions:

We believe there are a myriad of deals ripe for secondary transactions and continue to be an active participant in the secondaries market. Secondary funds are commonplace in maturing asset classes such venture capital, private equity, and real estate.

Odds and Ends

• StartEngine and Indiegogo Team Up to Help Startups Raise Capital from Ideation to Series C
• Netcapital Announces Fiscal Year 2022 Financial Results
• A Message From The FarmTogether Founder: The Next Chapter
• EquityMultiple Growth Update - Q3, ‘22

Notable Offerings

Selected investment offerings from around the investment crowdfunding ecosystem.

• Tower Place Apartments. EquityMultiple is pleased to offer an $8.9M common equity investment (the “Investment”) in the acquisition and repositioning of Tower Place Apartments, an existing 204-unit institutional quality multifamily property in the Center City neighborhood of Philadelphia, Pennsylvania (the “Property” or “Tower Place”). The Property was originally built in 1959 as an office building and was redeveloped into a luxury apartment building in 2012 consisting of 204 one and two-bedroom units. Minimum investment is $10,000. Open only to accredited investors. Find out more at EquityMultiple  👈
• Optimist Park Multifamily Development. Cadre is partnering with Jefferson Apartment Group (“Sponsor”) to develop Optimist Park Multifamily Development, a Class A multifamily asset located in NoDa (short for North Davidson) - Charlotte’s arts and entertainment district. We were attracted by the potential to execute on a shovel-ready development alongside a best-in-class sponsor in a burgeoning location within one of the fastest growing markets in the country. Minimum investment is $25,000. Open only to accredited investors. Find out more at Cadre  👈
• Flint Creek and Rosemount Campgrounds. Invest in a first mortgage loan position that will facilitate the acquisition and repositioning of two campground resorts located in Middlesex, NY and Tamaqua, PA. The Properties benefit from strategic positioning as they are located under a three-hour drive from New York, Pennsylvania and D.C, representing over 40M in population concentration. Proceeds from the Investment would fund an interest reserve for the first mortgage loan and a light value-add business plan associated with the redevelopment of the two campgrounds to ultimately optimize the property for its highest and best use. Minimum investment is $10,000. Open only to accredited investors. Find out more at EquityMultiple  👈
• Maybe. Maybe is modern financial planning, investment management and retirement planning. Minimum investment is $100. Open to all investors. Find out more at Republic  👈
• Aquipor. AquiPor is planning to advance a new permeable concrete technology disrupting two significant markets - stormwater infrastructure and concrete production. These two pillars of AquiPor could create a green solution to stormwater pollution and flooding in our cities, provided in a low carbon process that creates concrete from reclaimed materials. This innovation has been thoughtfully designed to hopefully meet the needs of a changing climate. Minimum investment is $250. Open to all investors. Find out more at StartEngine  👈