Crowded House

Lippiatt notes that the Propellr staff is 100% involved in every aspect of any real estate transaction Aristone does, and the company expects to do the same with other vertical managers. “We’re not necessarily going to audit their due diligence capability, but we have a good feedback channel. People here have worked at investment banks and know what investment numbers should look like, what good and bad deals look like.”

Propellr, as a manager of managers, makes sure that the issuer, the vertical manager, is in every deal for 10 cents of every dollar it raises on Propellr in order to ensure strict alignment of interests between the issuers and the investors. “Skin in the game is incredibly important to us,” says Lippiatt.
And as with AA, fees and commissions paid to middlemen are eliminated.

Accredited Investors
Both AA and Propellr are geared toward accredited investors. When they sign up on the Web sites, investors generally self-accredit, attesting to their own status. The SEC requires those who do this to observe a brief “cooling off” period, after which they can see investments on the site.

Neither AA nor Propellr generally solicits investors, though Lippiatt is considering doing so in the future. The JOBS Act of 2012 allows general solicitation, but attaches stringent requirements—for instance, that investors must provide personal financial information, something many are disinclined to do. Moreover, says Manshoory, “our sponsors want only accredited investors to participate.” UC Berkeley’s Swart adds that many lawyers are advising clients to stay away from general solicitation because the exact requirements are unclear.

None of this has stopped accredited investors from joining the two crowdfunding sites. “We started with 100 investors and have a list of 500 more with very little advertisement on our part,” says Lippiatt. “We’re looking to grow our investors with more high-net-worth individuals, and some smaller funds invest directly with us as well.”

Manshoory says AA started with 500 investors and expects some 5,000 by midyear. In addition, several institutions and private equity groups have approached the company about investing in some of its online real estate opportunities, he says.