How to burn through $63 million without really trying? Heavily funded crowdfunding platform Realty S
Updated: Sep 8, 2023
Platform fails to raise money, reportedly could not find a buyer, fires most of staff and shuts down new investments. Some investors claim they're not surprised.
(Usual disclaimer: I'm just an investor expressing my personal opinion and not a financial advisor, attorney or accountant. Consult your own financial professionals before making any financial decisions. Code of Ethics: We do not accept any money from any sponsor or platform for anything, including postings, reviews, referring investors, affiliate leads or advertising. Nor do we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members.).
----------------------------------- 11/8/2018 Latest Update: Investors say they've been told by RealtyShares staff that existing investments will not be serviced by RealtyShares, and instead by a 3rd party administrator: NES. This apparent about-face is less than 2 days after RealtyShares had sent out a mass email to all investors claiming: "from this point forward, RealtyShare's focus will be servicing our existing investors" and assets. More details are expected in the future. You can follow along with the latest developments in the private investor club thread: (Note: club membership is free but requires verifying that the person is not affiliated with a sponsor or platform, and also agreeing to sign a nondisclosure agreement to keep information private). -------------------------------------
RealtyShares, a platform that had raised $63 million from various venture capital firms, announced today that it failed to raise money to continue operations and is shutting down all new investments on the platform. In a letter to investors and partners, it claimed it tried to find ways to finance the company but couldn't. The Real Deal reported that they urgently tried to find a buyer for the company but could'nt, and were forced to fire most of their staff.
The platform claims that it will continue to service the existing investments under management which it says are valued at $400 million. However it did not explain the economics of how they would be able to do that in their investor email. The platform typically takes a 1 to 2% per year fee on investments, so theoretically this might produce up $4 to $8 million of revenue to continue operations. How much they might pay in expenses (and how much the people who put $63 million into the platform might expect out of this revenue stream) are unknown.
The news was not entirely unexpected to some investors. "They have been acting strange for the last several months. It seemed like something was up." claimed one. Realty Shares was fairly unique in that it was one of the few platforms that acted as an intermediary between the sponsor and the investor. So when the sponsor pays an investor, it funnels it through Realty Shares first. However, several investors on several deals claimed that in the last few months this process appeared to be breaking down. "The sponsor said my cash had been sent to Realty Shares. So I was expecting to receive it like normal. But nothing." Some claim to have emailed customer service many times over weeks or months before getting their money. "They said the delay was due to reconciling the payments. But that's pretty quick to do and shouldn't take that long", claimed one. The Real Deal appeared surprised by the news and said "Its downfall would be a heavy blow to the young crowdfunding industry, which still harbors ambitions to revolutionize real estate finance." However, those on this site and others closer to the industry knew that before this announcement, RealtyShares was already one of the most complained about platforms in the rankings. Investors claimed numerous issues with it's unusual intermediary structure: from problematic tax returns to frustration with getting no good answers about deals that had gone badly. Due to so much negative investor feedback RealtyShares was placed "on probation" in the last rankings and given just 3 out of 10 stars.
Here is the official announcement:
To our platform investors and operating partners:
Five years ago, RealtyShares was founded with a mission to connect capital to opportunity. With over $870 million invested across more than 1,100 projects, we have built one of the top online real estate investment platforms. We’re helping investors meet their financial goals and deploying capital to real estate operating companies to execute value-add and development strategies for properties across the U.S.
As an early stage company, we have relied upon venture capital to fund our operations. Over the past six months, RealtyShares aggressively pursued a number of financing options to continue growing the business. Unfortunately, despite our best efforts, we were unable to secure additional capital. As a result, we will not offer new investments or accept new investors on the RealtyShares platform.
From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management. This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.
We are committed to serving our existing investors and sponsors and have a team dedicated to supporting our ongoing operations.
The RealtyShares Team