Leaders of the Crowd: Conversations with Crowdfunding Visionaries and How Real Estate Stole the Show

173 Pages·2018·2.58 MB·English

by  Adam Gower

LEADERS
of the Crowd
Conversations with Crowdfunding Visionaries
and How Real Estate Stole the Show
ADAM GOWER
Leaders of the Crowd
Adam Gower
Leaders of the Crowd
Conversations with Crowdfunding
Visionaries and How Real Estate
Stole the Show
Adam Gower
National Real Estate Forum
Beverly Hills, CA, USA
ISBN 978-3-030-00382-1 ISBN 978-3-030-00383-8 (eBook)
https://doi.org/10.1007/978-3-030-00383-8
Library of Congress Control Number: 2018963984
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland
AG 2018
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To my sons Oliver, Simon, and Felix: the future leaders of the crowd.
Now brush your teeth and go to bed
Acknowledgments
I had a blast writing this book primarily because it involved having discussions
with some of the brightest, most inspirational people in the country: those who
have seeded the new industry of real estate crowdfunding—whether it was their
intent to or not. Naturally, therefore, I start by thanking those I spoke to for this
book and who shared with me their incredible stories: David Weild IV, Jenny
Kassan, Dina Ellis Rochkind, Doug Rand, Woodie Neiss, Ben Miller, Eve
Picker, Ian Ippolito, Jason Fritton, Jilliene Helman, Harold Hofer, Nav Athwal,
and Andy Green. Thanks also to Rod Turner at Manhattan Street Capital for
supplying some amazing market data that underscores the dominance of the
real estate industry as the primary beneficiary of JOBS Act regulations.
Though it may seem an unlikely facet of writing a book, there were some
technical and communication challenges for which I am most grateful to
Nichole Elliott, Judy Mahan, and Cory Karpin for their assistance each time
I invaded their offices. Thanks to editor Cindy Draughon, and particularly to
Sharon Goodman for her detailed feedback on the introduction and conclu-
sion sections when I most needed it. Tula Weis and Jacqueline Young are, as
before, great partners who make working with Palgrave Macmillan a tremen-
dous pleasure.
Thanks are also due to my friends for their encouragement, bordering
though it sometimes did on disbelief that I should be writing another book:
CT Bell for always being prepared to lubricate the wheels of thought with me,
Quintin Lever despite his united approach to crowds, and Adam Herz for the
courteous epithets with which he always addresses me.
Most of all, thanks Debbie for having the confidence that I will, eventually,
get it done, and to Oliver, Simon, and Felix, who will have to read the rest of
the book to discover if they are mentioned a third time.
vii
Contents
1 Introduction 1
Chapter Overview 6
2 Inception: David Weild IV 13
The Collapse of Small Cap Liquidity 16
Thought Leadership 21
3 The Letter: Jenny Kassan 27
4 Advocate: Sherwood Neiss 33
5 Senate Lead Staffer: Dina Ellis Rochkind 45
On-Ramp, 506(c), Regulation Crowdfunding 51
Most Impactful Component 53
The Lobbyists 54
6 Investor Protections: Andy Green 57
7 The White House: Doug Rand 69
The Lobbyists 78
Event Planning 80
Concerns 81
8 Rich Uncles: Harold Hofer 83
Long-Term JOBS Act Potential 90
ix
x Contents
9 Fundrise: Ben Miller 93
10 RealtyShares: Nav Athwal 103
11 Investor: Ian Ippolito 115
12 RealtyMogul: Jilliene Helman 125
13 Patch of Land: Jason Fritton 131
14 Small Change: Eve Picker 143
Complicated Finance 145
15 Conclusion 153
Glossary 161
Index 165
1
Introduction

Crowdfunding is nothing new; it was prohibited in 1933 as an antidote to the
Great Depression and revived in 2012 as a cure for the Great Recession.
Indeed, post-civil war America was built on crowdfunding during an era when
the entire financial system rested on a foundation of investment from ordi-
nary Americans who could freely invest, without limitation, in anything they
wanted to by buying stocks and bonds through syndications—the crowd-
funding of the day.
The earliest syndicates were created by the financial institutions that domi-
nated the American landscape. The financial titans of the late nineteenth and
early twentieth centuries syndicated the issuance of stocks and bonds to the gen-
eral public through expansive hierarchies of distribution channels to finance the
© The Author(s) 2018 1
A. Gower, Leaders of the Crowd, https://doi.org/10.1007/978-3-030-00383-8_1
2 A. Gower
railroads, the steel industry, and all the infrastructure development in America.
Corporate principals and the financiers who assembled the syndicates that pro-
vided the necessary capital created deal structures that almost eliminated risk to
themselves by pushing it onto the general public. Issuers in America’s early
crowdfunding landscape hid financial arrangements from public view, manipu-
lated markets, had no limitations on how they advertised, or to whom, or what
they did or did not disclose, which meant that those least able to shoulder the
burden of risk were those who unwittingly did. Indeed, prior to the Securities
Act of 1933, there were no restrictions on how much anyone could invest, how
wealthy they were, or what they needed to know before making an investment.
However, this unrestrained marketing of securities by issuers and their con-
sumption by investors contributed to an exuberance for stocks that ended in
1929 with the biggest financial crisis and stock market crash the world had
ever seen. To ameliorate the risk of this happening again, policymakers sought
to protect investors by regulating how those in need of capital could solicit
investment from the general public. Four years after the stock market crash
that led to the Great Depression, Congress shut down crowdfunding, passing
the Securities Act of 1933. The Act created a sharp dividing line between
public and private sectors. Companies could solicit investments in their shares
from the general public, but now they were subject to extensive disclosure
requirements that ensured they provided everyone with the same information
they would were they soliciting all they needed from one influential sophisti-
cated investor. To “go public,” issuers would now have to submit to stringent
regulations restricting how they advertised and what they said, and would be
subject to tight oversight and strict disclosure and reporting requirements.
There were exemptions from these regulations, however. The Act continued
to permit capital raising by companies without such onerous restrictions
under two conditions. One, a pre-existing relationship was necessary between
the person or entity raising the money and the investor; and two, the investor
must be wealthy enough to withstand the loss of their investment.
Real estate deal sizes, too small to warrant the kinds of public offerings
contemplated by the Securities Act, caused developers to gravitate instead to
utilizing the regulatory exemptions, preferring to raise capital only from
wealthy investors they already knew. Consequently, as legislators had been
primarily focused on restricting investor solicitation by companies and finan-
ciers and had not specifically targeted the real estate industry when they passed
the 1933 Act, the effect of their actions was to push capital formation in real
estate into exclusive private enclaves of wealthy, well-connected investors. As
the decades went by, these closed circles became wealthier, and as the cost of
real estate development increased, the minimum requirement to invest in a