Category: JOBS Act

Our Experience With Regulation A – by Ben Miller, Co-Founder of FundRise

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Crowdfunding Real Estate, Guest Blog, JOBS Act, Regulation ALeave a comment

To improve the user experience, I am inviting guest bloggers. The first is Ben Miller, a Co-Founder of Fundrise, who explains how he and his brother Dan invented Crowdfunding through Regulation A.

Please let me know if you would like to post. I’m looking for content like Ben’s – interesting, informative, educational.

-MARK RODERICK

____________________________________________________________________________________

By: Ben Miller, Co-Founder of Fundrise.

My brother Dan and I were in the real estate business for a long time, developing commercial and residential projects in the Washington, D.C. area, before we thought about crowdfunding. We got some of our capital from the same place many real estate developers get their capital: from investment funds in New York or even outside of the country.

Most of them had little connection to the places we were building and often had never even heard of the neighborhood. On the other hand, our friends and neighbors, people with real connection to the projects, couldn’t invest with us.

fundriseWe started to imagine a world where everyone could invest in high-quality real estate deals, which were then limited to professional investors. We thought about ordinary people investing in their own communities, creating a win-win for the community and business owners. Like every other developer, we’ve had our share of battles with local zoning agencies. We imagined how that process might change if actual investors from the community showed up at council meetings to support the project.

This was before crowdfunding or the JOBS Act were on the table, and every lawyer we spoke to (and we spoke to plenty) told us that our idea was impossible.

Finally we discovered SEC Regulation A. Although Regulation A had been around since 1936, before we came along it had been used very rarely, which probably explains why the lawyers hadn’t heard about it. In all of 2012 fewer than a dozen companies had used Regulation A to raise capital across the whole country, as compared to more than 7,000 Regulation D offerings.

We soon found out why. Although Regulation A allows you to raise money from anybody, including from non-accredited investors, first you have to file a disclosure document with the SEC and with the state securities regulators in any state where you offer the security, and get the regulators to approve your offering. Regulation A is nothing like the new Crowdfunding under SEC Rule 506(c), which is simple and streamlined by comparison.

Once we figured out how to file the disclosure document, which is really like a mini registration statement, we learned that neither the SEC nor the state regulators had ever seen a real estate development project offered under Regulation A. We spent hundreds of hours and way too much in legal fees working through all of the issues. We were literally doing something that had never been done in the history of the U.S. capital markets, and at the same time paving the way for everyone else.

After lots of work, lots of frustration, and lots of conversations with regulators, we succeeded. Our Regulation A filing was approved and we raised $325,000 for the project. I won’t even tell you how much it cost to raise that $325,000, but we were okay with it because we saw the experience then, and still do, as an investment in our future.

We have completed three Regulation A offerings since then. Each time we’ve gotten better and faster, not to mention that the regulators have learned along with us.

Here’s what it took to complete our most recent Regulation A offering:

reg a breakdown

Our most recent filing:

fedex

Fundrise has branched out since those early days. As the leading real estate portal in the world we offer not only Regulation A projects but Rule 506(c) investments under the JOBS Act. And we’re very excited about the new Regulation A+. Regulation A+ improves on Regulation A by allowing us to raise up to $50 million of equity from non-accredited investors (subject to a limitation on how much each person can invest) and further streamline the process by filing only with the SEC, and not with state securities regulators. Fundrise has always been a pioneer, and we expect to pioneer the possibilities of Regulation A+ as well as soon as it becomes available.

Whatever the future holds for Fundrise, and we believe our future is unlimited, we’ll always remember that Regulation A allowed us to open the door into the world of crowdfunding and give unaccredited investors the chance to invest in real estate for the first time in history.

Follow @BenMillerise and @Fundrise on Twitter.

 

The Federal Basis For Intra-State Crowdfunding

On By crowdfundattnyIn Intra-State Crowdfunding, JOBS Act, SEC, SEC Rule 147, Title III, Title III CrowdfundingLeave a comment

Texas is the latest of a half dozen states to propose an intra-state Crowdfunding law. Typically, these laws allow issuers to raise money from non-accredited investors, even before Title III of the JOBS Act comes into effect, as long as all the investors are residents of the state in question and the offering satisfies requirements that vary from state to state.

At the Austin event, an audience member asked a very good question: If I comply with the Texas law, do I also have to comply with a Federal law? The answer is a qualified Yes.

Federal law begins with the proposition that securities may not be issued unless registered under the Securities Act of 1933. However, section 3(a)(11) of the Act provides an exemption for:

Any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.

Thus, Federal law includes an exemption for some purely intrastate offerings.

SEC Rule 147 (17 CFR 230.147) provides a “safe harbor” under section 3(a)(11). Where all the conditions of Rule 147 are satisfied, the SEC will assume that the offering is exempt from Federal registration:

  • The issuer may neither offer nor issue any securities within the six month period before the first offer or sale of the intrastate offering nor within six months after the last offer or sale of the intrastate offering.
  • The issuer must be incorporated in the state where the offering is made. (Caution: Many lawyers use Delaware entities as a matter of course. Unless you’re in Delaware, don’t.)
  • At least 80% of the issuer’s revenues must come from business within the state.
  • At least 80% of the issuer’s assets must be located in the state.
  • At least 80% of the money raised in the offering must be used in the state.
  • All of the investors in the offering must be residents of the state.
  • While the offering is being conducted and for nine months thereafter, all resales must be to state residents.
  • The issuer must place a legend on stock certificates referencing these restrictions, and take other steps to ensure that the offering remains intrastate only.

Rule 147 is just a “safe harbor.” An intrastate offering that does not satisfy all of these conditions might still qualify for the statutory exemption under section 3(a)(11), depending on all the facts.

Some State Crowdfunding exemptions, Texas included, require that that the issuer satisfies Rule 147. In those States, by definition, an issuer that satisfies the requirements of the State exemption satisfies the Federal requirements as well. In other States, an issuer that dots all the I’s and crosses all the T’s of an intrastate Crowdfunding offering has a very good chance of qualifying under the Federal statutory exemption as well, even if the State exemption does not refer to Rule 147 explicitly.

That’s why the answer is a qualified Yes. An issuer that complies with the Crowdfunding rules of a State still has to qualify for the Federal exemption, but that shouldn’t be hard.

Questions? Let me know.

 

 

 

 

 

Austin Roundup

On By crowdfundattnyIn Crowdfunding Real Estate, Crowdfunding Speaking Engagements, JOBS Act, Speaking Engagements, Title II, Title II Crowdfunding, Title III Crowdfunding, UncategorizedLeave a comment

Austin cityscapeHats off to the folks at Coastal Shows for making the Austin event – officially the CFGE Crowdfund Real Estate Summit – the best Crowdfunding event ever.

The event featured the leading players in the industry:

Title III of the JOBS Act may be flawed, and the final rules for Regulation A+ may be long overdue, but the speakers and panelists agree that Crowdfunding is here to stay, with Title II leading the way. Two days before the conference began, Fundrise raised $31 million of capital in a Series A round of financing. That served as a very useful background, illuminating the potential of a market that promises to transform the U.S. capital formation industry.

Over coffee during the day and beer in the evening, I spoke with dozens of real estate developers and entrepreneurs. Their message came through loud and clear: We’re tired of dealing exclusively with our traditional sources of capital and are eager to raise money through Crowdfunding channels.

Developers are eager for new sources of capital, and individual investors are eager to participate in a market that, until now, has been reserved for institutions and the very wealthy. That’s Crowdfunding, in a nutshell.

What happens in Vegas might stay in Vegas, but what happened in Austin is going to spread across the country. Thanks for a great event, Coastal Shows.

A Solution For Title III?

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, JOBS Act, Title IIILeave a comment

Lots of smart people attended the CFGE Crowdfund Real Estate Summit in Austin last week. On Thursday, there was a wonderful and heated discussion about Title III of the JOBS Act.

Some thought that regular, non-accredited investors should be allowed to invest in whatever they want, whenever they want, without the protection of the government. Some of the more opinionated think that the word “protection” in the preceding sentence should be in quotation marks, or even preceded by the phrase “so-called.”

Title III tries to balance two competing interests: on one hand, giving ordinary people the chance to invest in private deals; and on the other hand trying to protect ordinary people from the risks inherent in private deals.

It does so using the tools of traditional securities laws – namely, disclosure, transparency, reporting, and regulation. These were the tools introduced back in the 1930s at the height of the Great Depression. The Securities Act of 1933 and the Securities and Exchange Act of 1934 cleaned up the cesspool that Wall Street and become, and that approach has served the country extremely well over the last 80 years.

But we’re finding that it doesn’t quite work in Title III. Those traditional tools, which have worked so well for so long, are too expensive, so expensive that they defeat the purpose of the JOBS Act. Specifically, the traditional tools make capital so expensive that entrepreneurs can’t afford it.

Over lunch I thought of a different approach, one that is more attuned to the times.

Suppose a deal sponsor is raising capital for Project X. I propose that regular, non-accredited investors should be allowed to invest under the following conditions:

  • Accredited investors unrelated to the sponsor invest at least 25% of the capital for the project.
  • Each non-accredited investor is limited to 10% of income or net worth.

That’s it. No cumbersome reporting or regulation.

Why does this work? The whole point of Title II is that accredited investors are smart and sophisticated enough to protect themselves. If accredited investors are taking 25% of the deal, it means that smart, sophisticated investors have decided that it’s an investable deal. Or to put it in modern terms, the Crowd, through accredited investors, have validated the deal. And by limiting the amount of the investment to 10% – borrowing a rule from proposed Regulation A+ – we ensure that regular investors don’t over-invest.

This is a modern solution to a modern problem. It balances investor participation with investor protection through a mechanism that relies on the Crowd, not the government.

I’m interested to hear what others think.

Questions? Let me know.

PPM Or No PPM: That Is The Question

On By crowdfundattnyIn JOBS Act, PPM, Private Placement Memorandum, Regulation D offerings, Title II, Title II CrowdfundingLeave a comment

Crowdfunding Image - XXXL - iStock_000037694192XXXLargeSome Title II Crowdfunding portals use a full-blown Private Placement Memorandum for each offering, while others do not. What’s the deal?

For readers unfamiliar with the term, a Private Placement Memorandum, or PPM, is usually a long document, often half an inch thick or more printed, that is given to prospective investors and used partly to describe the deal but mostly to explain the risks.

The PPM finds its origins in the lengthy prospectus required of companies selling securities to the public in a registered offering. Following suit, Rule 502(b)(2) of Regulation D requires an issuer to provide specified information to prospective investors in some offerings and in some situations – for example, where securities are offered to non-accredited investors in an offering under Rule 506(b).

But where securities are sold only to accredited investors under Rule 506(b) or 506(c), the issuer is not required to provide the information described in Rule 506(b)2) – or any other information, for that matter. The idea is that accredited investors are smart enough to ask for the important information and otherwise watch out for themselves.

Companies like Fundrise that offer securities under Regulation A or Regulation A+ are required to provide specific information to investors. But Crowdfunding under Title II of the JOBS Act involves selling only to accredited investors in transaction described in Rule 506. Therefore, the law leaves to the issuer and the portal what information to provide and in what form.

For them, what are the pros and cons of a full-blown PPM?

The cons are obvious. Nobody but a lawyer could love a PPM. A full-blown PPM is bulky and unattractive, repetitive and filled with legalese. Ostensibly written to provide information to prospective investors, PPMs have, through time and custom, become so daunting that prospective investors rarely even read them. From a business perspective, a PPM creates friction in the transaction.

However, the pros are also obvious. Although Regulation D does not require an issuer or portal to provide any information, an issuer that fails to provide information, or provides incomplete or inaccurate information, may be liable to disgruntled investors under 17 CFR 240.10b-5, the general anti-fraud rule of Federal securities law, or various state statutory and common law rules.

That’s why the PPM exists: to provide so much information to prospective investors (albeit in an unreadable format), and to describe the risks of the investment in such repetitive detail, that no investor can claim after the fact “I didn’t know.”

The question is whether the issuer and the portal can get the same benefit without all the disadvantages. And the answer, in my opinion, is a resounding Yes!

In fact, the trend in private placements over the last two decades has been away from the full-blown PPM and toward a simpler disclosure document. I have been representing issuers in private placements of securities for more than 25 years and never prepare a PPM except where required by law (e.g., with non-accredited investors). None of the issuers I have represented during those 25+ years has been sued for securities law violations – much less successfully – and in my anecdotal experience, claims arising from alleged failures to disclose material information rarely if ever hinge on the presence or absence of a full-blown PPM.

Not only are portals not required to provide a full-blown PPM, in my opinion the question presents portals with a great business opportunity. Given that information must be provided, the manner in which it is provided, in what format, with what visual effects, how clearly and with what explanation, could well distinguish a portal in the minds of prospective investors. With the technology inherent in the platform, not to mention the creative minds in the industry, I expect that the manner of providing information will become one of the key ways that individual Title II portals distinguish themselves from one another and that the Crowdfunding industry in general improves the process of capital formation. Someday we will look back on the thick PPM and ask “Can you believe we once did it that way?”

A portal that gets it right – and there will be more than one way to get it right – will also create some protectable intellectual property interests and the accompanying breathing space vis-à-vis its competitors and additional valuation on exit.

Questions? Let me know.

Crowdfunding And The Life Sciences: An Evening With The Experts

On By crowdfundattnyIn Crowdfunding, Crowdfunding Speaking Engagements, Entrepreneurs, Investing, Investor, JOBS Act, Life Sciences, Portals, Technology PlatformsLeave a comment

Last night I had the honor of moderating an all-star panel hosted by Pharmaceutical Consulting Consortium International (PCCI) in Philadelphia, focused on Crowdfunding in the life science space.

Our panelists:

  • Don Skerrett, the President of PCCI and a serial entrepreneur, who spoke from the perspective of an early-stage life science CEO
  • Barbara Schilberg, an experienced life science investor, the CEO of BioAdvance, a leading life science fund that has invested in almost 60 companies – leading to $1.7 billion of additional financing – and a senior executive in four active life science businesses
  • Darrick Mix, a shareholder at Duane Morris and an expert in Federal and State securities laws
  • Samuel Wertheimer, the Chief Investment Officer at Poliwogg, a Title II portal devoted to the health care industry and one of the most exciting and innovative portals of any kind in the world

Among the issues discussed:

  • The advantages and disadvantages of Crowdfunding from the perspective of a life science company
  • The nuts-and-bolts mechanics of Crowdfunding
  • The role of portals
  • The due diligence process for life science companies
  • The legal liability of life science companies and portals
  • The effect of Crowdfunding on the life science market specifically and the capital formation industry generally

The panel agreed that while Crowdfunding in the real estate market is very active, with more than 100 real estate portals already in operation, Crowdfunding in the life science market is at a very early stage. How the market will develop, how much capital it will provide to life science companies, how existing capital sources like BioAdvance will coordinate with new capital sources like Poliwogg, whether the life science market will divide into sectors as the real estate market is doing – these questions are all unanswered. But the panel also agreed that Crowdfunding holds great opportunities for the life science sector even if the details have yet to be worked out.

Thanks to those who attended, to PCCI for making the event possible, and especially to our excellent panelists for making the event so informative and worthwhile.

Questions? Let me know.

A Downpour Of #CrowdfundingRealEstate Advice And Ideas

On By crowdfundattnyIn Crowdfunding, Crowdfunding Real Estate, Entrepreneurs, Harvard Business School Club of New York, Investing, JOBS Act, Real Estate, SEC, Securities Exchange Commission, Title II Crowdfunding, Title III CrowdfundingLeave a comment

Thank you to the panelists and audience members who braved a biblical downpour to attend the SOLD OUT Harvard Business School Club Innovations in Real Estate: Crowdfund Investing program last night at the UJA Federation of NY Conference Center. Former New York Governor David Paterson kicked off the evening with his typical wit and insight before our panel of Crowdfunding industry experts shared their experiences and knowledge with an extremely engaged and thoughtful audience.

Our panelists:

  • Jason Fritton of Patch of Land and William Skelley of iFunding, two of the earliest Crowdfunding innovators and most successful Title II portals
  • Elvin Ames of Golden Eye Investments and Erin Wicomb of Mavrix Group, two experienced and successful real estate developers who have recently turned to Crowdfunding to raise capital
  • Scott Lichtman, a real estate investor who has himself invested in Crowdfunded deals and did a super job putting the conference together

Thus, all sides the Crowdfunding triangle were represented: portals, developers, and investors. And Jason, William, Elvin, Erin, and Scott – not to mention Governor Paterson – acquitted themselves with flying colors, demonstrated why they have been so successful generally and specifically why they have been leaders in Crowdfunding.

Some of the issues discussed:

  • The build-out of the Title II portal market, and how it is likely to segment into verticals
  • How portals successfully distinguish themselves
  • What investors look for in a portal and a project sponsor
  • The legal basis for Crowdfunding, and its significance in the marketplace
  • Why Crowdfunding is attractive to developers
  • How portals can participate in community development and “do well by doing good”
  • How portals market and price their services
  • How developers distinguish their projects
  • What due diligence means in a Crowdfunded environment

Judging by the number and quality of questions from the audience following the presentation, there are likely a few dozen more Crowdfunding entrepreneurs this morning than there were yesterday. Including one statistician, who asked about the standard deviation of Crowdfunding investments.

Thanks again to everyone. I hope to stay in touch with all of you. Questions? Let me know.

Crowdfunding Seminar In Mamhattan Today With Harvard Business School Club

On By crowdfundattnyIn Crowdfunding, Crowdfunding Speaking Engagements, Entrepreneurs, Investing, JOBS Act, Real Estate, SECLeave a comment

The Harvard Business School Club is presenting Innovations in Real Estate: Crowdfund Investing from 6:30 pm to 8:15 pm today at 130 E. 59th St. I’m honored to be moderating for this panel of industry leaders as well as former Governor David Paterson. Other panelists include: Elvin Ames, Golden Eye Investments; Jason Fritton, Patch of Land; Scott Lichtman, Heartland Real Estate; William Skelley, iFunding; and Alex Twining, Twining Properties.

Please join us for what promises to be a very exciting and informative evening. If you’re unable to attend and still interested in listening in on the conversation, follow the hashtag #crowdfundrealestate on twitter or send me a tweet @Crowdfundattny.

Tickets can be purchased here

Event Overview:

Learn how crowdfunding will affect fundraising by developers/operators, alternative investment opportunities for individuals, and community development initiatives in cities. HBSCNY, with the Harvard Business School Alumni Angels of Greater New York, and the Harvard Real Estate Alumni Organization, invite alumni and all interested individuals to an evening panel and networking event, where real estate operators, entrepreneurs, an investor and attorney discuss the impact of real estate crowdfunding.

The federal Jumpstart Our Businesses (JOBS) Act has made it easier for web entrepreneurs to facilitate wider participation in private investments. As a result, over a dozen websites are in a race to become leaders in the RE crowdfunding space. Real estate is poised to join consumer lending, angel funding and other asset classes – which together generated over $5 billion in online transactions last year – that are that are undergoing fundamental changes in fund-raising.

Though promising, RE crowdfunding will no doubt face questions along the way. Do the newer investors appreciate the risks they are taking on? What will happen when a project first undergoes foreclosure? How do the projects’ operating agreements, as well as the corporate structure of the crowdfund websites, affect future performance? And, which sites will emerge on top? The evening is an entrée to meet those leading this field and understand opportunities for participation.

Innovations In Real Estate: Crowdfund Investing

On By crowdfundattnyIn Crowdfunding Speaking Engagements, Entrepreneurs, Investing, JOBS Act, Real EstateLeave a comment

Attention New Yorkers! On Wednesday, April 30th, I will be moderating an expert panel hosted by The Harvard Business School Club of New York, Inc. to discuss the rapidly-growing market of Crowdfunding in NYC.

The event, “Innovations in Real Estate: Crowdfund Investing,” consists of a panel of heavy-hitters in the Crowdfunding industry.  Tickets are cheap and can be purchased here.

Below is more information on the event. Please contact me directly if you have any questions.

Date:

Wednesday, April 30th, 2014

Time:

6:30 -8:15 pm

6:30 -7:00 pm registration

7:00 -8:00 pm panel

8:00 -8:15 pm audience Q&A

Venue:

The Conference Center, 130 E. 59th St. (between Park & Lexington Avenues)

Price: $15/Members of the HBSCNY, HBS Angels, Harvard Real Estate Alumni Organization $15/Member guest (limit one) $35/Non-member alumni $50/Non-alumni

RSVP:

Click here to register!

Event Overview:

Learn how crowdfunding will affect fundraising by developers/operators, alternative investment opportunities for individuals, and community development initiatives in cities.  HBSCNY, with the Harvard Business School Alumni Angels of Greater New York, and the Harvard Real Estate Alumni Organization, invite alumni and all interested individuals to an evening panel and networking event, where real estate operators, entrepreneurs, an investor and attorney discuss the impact of real estate crowdfunding.

The federal Jumpstart Our Businesses (JOBS) Act has made it easier for web entrepreneurs to facilitate wider participation in private investments.  As a result, over a dozen websites are in a race to become leaders in the RE crowdfunding space.  Real estate is poised to join consumer lending, angel funding and other asset classes – which together generated over $5 billion in online transactions last year – that are that are undergoing fundamental changes in fund-raising.

Though promising, RE crowdfunding will no doubt face questions along the way.  Do the newer investors appreciate the risks they are taking on?  What will happen when a project first undergoes foreclosure? How do the projects’ operating agreements, as well as the corporate structure of the crowdfund websites, affect future performance? And, which sites will emerge on top?  The evening is an entrée to meet those leading this field and understand opportunities for participation.

Speaker Biographies:

Mark Roderick, Flaster/Greenberg PC:  Flaster/Greenberg (flastergreenberg.com) is a full-service commercial law firm with offices along the mid-Atlantic corridor.  Markley Roderick concentrates on representing entrepreneurs in technology, real estate and other fields, and is an acknowledged expert in crowdfunding, with a blog at www.crowdfundattny.com.

Elvin Ames, Golden Eye Investments:  Via roles as a broker, loan officer and most recently a real estate developer, Elvin has completed more than 300 real estate transactions.  This includes over 60 house refurbishments he has led. He also owns leased properties, with a focus on New Jersey.  The company does business via webuyraggedyhouses.com.  Mr. Ames is a US Marine Corp. veteran.

Jason Fritton, co-founder and COO, Patch of Land: The company (patchofland.com) is a pioneer in the real estate crowdfunding industry, focused on highly-attractive debt investments.  Jason oversees the company’s due diligence practices, legal compliance and client services. Previously, Jason ran digital marketing at a national retail company and managed a major technology project for the US army.

Scott Lichtman, Heartland Real Estate: Scott is a real estate investor and software entrepreneur.  He has invested in five properties through crowdfunding, interviews crowdfund CEOs for a blog at realheartland.com, and serves in a user-feedback role for several of the sites.  Scott has worked at Oracle, Deloitte and startups involving online collaboration and research.  He graduated from Harvard Business School, the London School of Economics and MIT.

David Paterson, former Governor of New York, and Director of Community at iFunding: David A. Paterson became New York’s 55th Governor in 2008, the state’s first African-American governor and only the second legally-blind governor in the nation’s history. Throughout his career, Governor Paterson has achieved bi-partisan change, leading the charge on issues ranging from renewable energy to championing minority and women-owned businesses.  He currently works with the crowdfund company iFunding on matters of community outreach and development.

William Skelley, CEO of iFunding: The company (ifunding.co) is a crowdfund leader that focuses on institutional quality deals with commensurate returns, scalable investment amounts and asset types, and global access.  Prior to founding iFunding, William was a principal at Rose Park Advisors, a hedge fund founded by Harvard Business School professor Dr. Clayton Christensen.  He also has worked at General Electric and Bain Capital.

Alex Twining, CEO of Twining Properties:  The company (twiningproperties.com) is a developer focused on urban use green projects at transit nodes of the Northeast Corridor.  They have over 4 million sq. feet under development and are pursuing a first deal with crowdfund participation.  Previously, Alex was CEO of MetroNexus, a Morgan Stanley real estate funds enterprise, and a director at AvalonBay Communities, a $4bn REIT.

Questions? Let me know.

There Is A Future For Title II Portals

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, JOBS Act, Title II CrowdfundingLeave a comment

Imagine that!

CircleUp just raised an additional $14 million of capital (for itself, not for its portfolio companies) and RealtyMogul an additional $9 million.

Both of these Title II portals were early to the starting gate and RealtyMogul was the first portal to recognize the value in segmenting the market, i.e., limiting itself to real estate. Given that Crowdfunding represents the most significant change in the U.S. capital markets since the Great Depression, with the potential to channel a river of capital through Title II portals, it is not surprising that investors would be keen on the prospects of these two market leaders.

CircleUp, RealtyMogul, and a handful of others saw the opportunity early and, more important, have successfully executed their business plans. At the same time, these new investments likely are as much about the potential of theTitle II market as much as they are about individual companies.

In an industry as young as Crowdfunding, the term “market leader” doesn’t mean as much as it does in a mature industry. When Title II became legal on September 23, 2013, just six months ago, it was as if millions acres of vacant land were suddenly opened for development. The names CircleUp and RealtyMogul are deservedly well-known among the cognoscenti, but far from household names. You might say that the market leaders of today have staked claims but that the malls and office buildings and skyscrapers are yet to be built.

To me, it seems reasonable that within 10 years at least one Title II portal will be large enough to buy Morgan Stanley. And business being business, the chances are that this portal has yet to be formed.

There are at least two lessons from these new investments.

The obvious lesson is that it’s a great time to create and develop Title II portals.

The less obvious lesson is that creating a successful Title II portal takes real money. CircleUp and RealtyMogul don’t need $23 million of new capital to build websites. They are building businesses, building brand names, trying to stay on top of the Crowdfunding wave. To compete, others must do the same.

Questions? Let me know.