September 23rd marks the first anniversary of Title II Crowdfunding. The number of portals has grown exponentially but most or all portals continue to offer investments in single deals, e.g., an apartment building in Austin. Before long, I believe the market will shift to investments in pools of assets. Rather than the single apartment building in Austin, a portal will list a pool of 20 apartment buildings in the Southwest.
Accredited or not, very few individual investors have the knowledge or experience to invest in individual deals. And based on the stock market, most individual investors don’t want to. Individuals have historically preferred mutual funds over individual stocks; a mutual fund is just a form of pooled assets.
An investor can create his own pool, investing $5,000 in each of 20 apartment buildings rather than $100,000 in a single property. On Prosper or Lending Club, I bet most investors participate in multiple loans.
But that doesn’t give consumers quite what they want. What they want is a fund manager, someone who will choose the 20 apartment buildings and also decide when to sell them. A stock market investor who wanted to creat her own pool could buy 20 individual stocks, but instead she buys a mutual fund.
Do Crowdfunding investors view the portals themselves as mutual funds? Maybe investors expect Fundrise, Patch of Land, Wealth Migrate, or iFunding to play the role of the mutual fund manager, selecting only deals worthy of investment. On the advice of counsel, every portal tries hard to disclaim that legal responsibility, but maybe investors ignore the disclaimers, looking for a “brand” for investing.
I certainly expect portals to start offering asset pools. I’ll go out on a limb and say the first portal offering curated pools will have a great competitive advantage, and I’ll go further and say that Crowdfunding won’t reach its potential until pooled asset investments are widely available.
Pooling assets makes things a bit more complicated and a bit more expensive: more legal rules come into play; you have to think harder about giving investors liquidity; and, most important, you have to pay someone to make investment decisions and take the legal risk. But that’s where the market is headed.
Questions? Let me know.
Great comments Mark. I couldn’t agree more with the investor desire to hold multiple assets. This could be especially true for a buy & hold dividend model. As an offerer, I hope to offer a pool of properties that fit a profile and geographic (or a single development) but offers some diversification within the deal. Then, if the integration rules allow, create similar offerings in different geographics.
I’m glad you mention liquidity. I look forward to see what the crowd desires.
Mark, I agree that pooled assets seem like the logical next direction and can attract more investor volume. My company is working on crowdfund marketing now for a group that will give investors the opportunity to invest in the portfolio curated by their crowdfunding portal. This group is also being hands-on regarding the portfolio management. Of course a crowdfund group/portal could develop multiple portfolio options by industry vertical and investment type.I think pooling is inevitable — and exciting!