iFunding receives questions about the activities that our crowdfunding platform performs as part of its services. The services benefit both the investors and the real estate operators, but it’s usually the operators that ask how the crowdfunding company helps administer the deal. iFunding’s intent is to perform most of the financial, legal and investor communication efforts, which allows developers and operators to focus on the quality and speed of their project.
Let’s look at some of the most significant responsibilities and costs we take care of for our project sponsors.
- Entity setup: A series LLC is set up to hold the property, funds and document the relationship between all parties. iFunding inserts any specific considerations for a deal into the legal documents and works with our legal counsel to register a Form D with the SEC. Our executive team is involved in a full legal and registration review. Once funds are being committed, additional steps are taken to register in each of the states in which investors live, where this is required.
- Listing on the platform: For a project such as a home flip, we work with the operator to prepare and clarify the project documents, including the pro forma and listing description, and securely organize and present these documents online. This can take several days of effort. Our graphic designer edits the photos and video to have them display attractively on the site. Larger commercial projects require additional details.
- Promotion: iFunding coordinates and hosts a webinar on behalf of the operator for investor Q&A, sends notifications to its registry of thousands of investors at the time the deal is listed, and writing updates weekly as part of our newsletter. We also often call investors with particular interests to highlight the project to them. For projects with special themes (e.g. particular locations or property types), we also may interview the sponsor and write a multi-page blog post promoting their expertise.
- Potential investor interaction: Because many investor questions may be similar, iFunding handles the first line of support for investor inquiries, and updates the website description to cover recurring questions. As needed, we share new questions with the project sponsors and as needed arrange calls involving the sponsor and the investor(s). When dealing with scores of potential investors examining a deal, this first line of support can save the operator considerable time while they’re focused on preparing their permits and property for work.
- Financial commitments and fund transfers: We use a secure, online document sharing and signature service for each commitment by an investors and take care of the per-signature charges on behalf of the operator. Next, the secure transfer of funds from investors to the project during the commitment stage involves use of an escrow account. iFunding covers the cost of the escrow service, which is a percent of the deal raise, on behalf of the project operators.
- Weekly investor reporting: Investors appreciate having the ability to read timely updates about their investments. iFunding writes and posts weekly updates in text and images and disseminates by email to investors. All updates also reside on a private website dashboard the investors can log into.
- Tax reporting: Our financial team prepares K-1s to send to every investor for every project in preparation for annual tax submissions.
- Due Diligence: There are numerous steps and research services involved in performing the initial due diligence on a property and a project sponsor. These increase investor confidence in your projects and help facilitate funding. They include use of due diligence services such as CoStar, which iFunding pays for on each deal. These will be covered more in a subsequent blog about services we perform on behalf of investors.
Because crowdfunding often involves more investors than a traditional real estate deal, each of the above steps requires extra effort. Fortunately, iFunding has the infrastructure to make these steps significantly more efficient than if a project operator was doing it on a smaller-scale, and iFunding covers the cost outlays in filing and transacting the deal. In fact, the administration fee charged to the investment project is effectively break-even for our crowdfunding service. iFunding believes enough in aligning itself with its investors and operators that profits to the platform mainly come from the last tranche of returns, after a project turns a profit for its investors.
In sum, we believe that many real estate sponsors seeking financing will find it faster, easier and more cost-effective to rely on a crowdfunding platform to reach large numbers of investors. As many of our partners say, “crowdfunding lets my business scale.”