Crowdfunding Rules & Procedures Have Changed
If you are seeking to raise $10 million+ in capital financing for your new construction project or acquisition, then a review of how to apply the new rules to maximize your probability of success odds is definitely warranted.
As much as commercial real estate developers crave OPM (“other people’s money”), they crave surety of outcome even more. The reason is simple: commercial real estate development entails huge risks and capital financing is the biggest one.
Crowdfunding commercial real estate finance transactions now offers the highest overall probability of success odds in the space due to the new rules enacted by the SEC in November, 2020.
Crowdfunding Commercial Real Estate Overview
The crowdfunding approach to capital financing focuses on accessing the capital markets in essentially the same manner as is routinely done with an initial public offering, with similar probability of success odds (est. 1 in 1.47 for crowdfunding and 1 in 1.35 for IPOs). Compared to bank financing (1 in 5.55 overall), commercial real estate developers and other businesses would have to make a compelling case in the mirror as to why they would consider any other method in light of the numbers. Crowdfunding rule changes now provide a construct wherein an integrated securities offering approach may be used to leverage up to $75 million in capital financing, while the offering pre-issuance out-of-pocket cost expectations would be approximately $400,000 – whether you seek to raise $10 million or seek to raise up to the full $75 million. That’s pretty hard to beat.
Overview of Accelerator Program Key Points
Key Crowdfunding Commercial Real Estate Leverage Concepts
You now have more choices. The new rules and reporting disclosure requirements make the argument that access to the capital markets may be undertaken before the project development tract has even completed the pre-construction phase due diligence requirements that would otherwise attend a bank financing or other funding approach.
Earlier access opportunities changes things in a very dramatic way, with the expectation of a resulting internal rate of return owing to the developer’s capital of being potentially doubled or even tripled as a result.
The rules also change how we can market and advertise our capital financing needs. The “test the waters” provisions owing to Demo Day events and pre-offering solicitations create two (2) new important opportunities for obtaining capital financing that did not previously exist as being sustainable under the previous crowdfunding rule construct.
Impact Focused Promotion in Advance of Offering Election…
Now, every deal has the opportunity to beat the expected 16-week funding period by virtue of twin marketing tracts that run parallel to the offering process itself and in support of the offering process itself.
Key Steps in Crowdfunding Commercial Real Estate Transactions
In planning your commercial real estate project crowdfunding, keep in mind the following 20 general plan elements:
- Obtain Site Control.
- Create Project Team.
- Complete Intended-Use Due Diligence.
- Complete Initial Design.
- Create Market, Finance & Operations Proof-of-Concept Due Diligence.
- Engage Demo Day Sponsor (i.e.: Rainmaker Analytics).
- Scope Capital Budget for Advance Release Solicitation.
- Create Advance Financing Proposal.
- Have Transaction Pre-Screened (Arm’s-Length).
- Schedule Pre-Event Advertising for Demo Day Program.
- Generate Offering Circular Due Diligence.
- Select Intermediary Platform.
- Run Demo Day Event Solicitations.
- Run Concurrent Advance Release Email Campaign.
- Aggregate Prospects.
- Complete Demo Day Event Program.
- File Crowdfunding with SEC.
- Launch Offering on Platform.
- Script Mini-Side & Close Escrow.
The key milestone event steps are based upon the results of our Monte Carlo simulations analysis of the capital markets opportunity that assumes a 23-week maximum program execution timetable having a probability of success approaching 96%. While this is not a guarantee of outcome, it is pretty darn close to being a gut-cinch.
The INVIZEN Step-Up Business Accelerator Program
The INVIZEN Step-Up Business Accelerator Program is designed to support entrepreneurs, commercial real estate developers and other business sponsors to create the necessary conditions to enable them to maximize the opportunity for rapid growth and raising capital in a series of defined steps (hence the term, “Step-Up”).
The changes in the rules and regulations owing to the securities industry by the SEC have conspired to create an unprecedented opportunity for these sponsors to undertake an accelerated program of growth and capital financing access. The mission of The INVIZEN Platform is to be the catalyst to achieving these goals thru our exclusive suite of programs and services.
Regulation Crowdfunding (“CF”): The First Step
The INVIZEN Business Accelerator’s initial focus for the sponsor is to complete the tasking necessary to qualify and execute a registration-exempt securities offering pursuant to the Regulation Crowdfunding exemption for the $5 million limitation. These funds are the spark that powers the entirety of the rest of the growth program and access to future capital financing. The changes created the new Rule 206 and Rule 241 that have the potential to create compliance issues for everything from what you say to even a business plan submitted to a funding provider. The INVIZEN Business Accelerator Program captures the essence of these requirements.
The Clear Path Forward – Before & After the Regulation CF Offering
The Accelerator approach includes a comprehensive package of services and program opportunities designed to quickly prepare the sponsor for the capital market process, create pre-offering investment interest in the pending issue, then select the resulting offering exemption based upon market response. This could maximize the opportunity for a successful outcome and clear path forward.
The next step outcome goal is qualifying the business or project for a Regulation A Tier I or Tier II registration-exempt securities offering. The Regulation A offering requires the value creation steps proceed to the threshold of commencing actual asset Acquisition, Development & Construction (“ADC”) activities. When successfully implemented, achieving this state of readiness creates a potential valuation point in the lifecycle of the business or project that can be correlated to capital market investment preferences to support the offering valuation. The INVIZEN Business Accelerator provides the component investor portal information center (known as the “Digital Investment Information Portal”) where all of the due diligence documents, exhibits and information supporting the next offering are lodged in one convenient, easy-to-navigate place that can be tracked as to when, who and what was accessed for the record. The issues owing to the concept of “integration” – as the term is applied in the securities regulations – must be carefully considered by the sponsor and the sponsor’s legal advisor(s). The resulting documentation has to provide full disclosure of financial and non-financial matters.
The Next Step – Post-ADC or More ADC Financing?
The next step in the process is determining what the growth requirements of the business or project will reasonably require in light of the rules and regulations regarding capital financing market access. The SEC rule changes provide a new level of potential opportunity to effectively reduce the cost of capital, eliminate the reliance upon debt financing to create investment leverage, and create potentially powerful investment outcomes for the benefit of the sponsor, the investing-public and the resulting business operations. This requires careful attention to the attending issues, regulatory requirements and emerging capital market investment preferences. All of these issues are part of the overall systemic approach of the Business Accelerator.
Exit Scenario Support
The Regulation D offering approach is the expected outcome capital financing event that can be structured to serve as the final exit opportunity and profit-taking opportunity owing to a given project or business (typically thru the Rule 506(c) registration exemption. The Business Accelerator services program supports these securities offerings and is also the exit point in which the Business Accelerator typically supports a given sponsor. To find out more about the INVIZEN Step-Up Business Accelerator Program please contact our offices.