According to Inman News more VC money is being used to fund real estate startups. That could be great news if you’ve been thinking you need more capital. So, what’s behind the trend, and what do you need to do to get a piece of the pie?
While the hype about startups, entrepreneurship, disruption, and VC money has quieted down a lot over the last year, it appears that VC firms have been putting a lot more of their money into real estate startups.
According to Inman, during the 12 months ending in August 2017, 111 real estate startups received $502M in funding. This is addition to many other companies going IPO, growing or receiving investment which have strong connections to real estate. That includes Amazon and its offline stores and HQ2 PR bonanza, WeWork moving into co-living spaces and schools, and Goldman buying a house flipping lender. That on top of all the institutional money that is coming down the pipe, or is at least available through lending conduits and crowdfunding platforms.
There is a lot of capital out there looking for a home. It needs to be invested for better returns, and real estate still looks safer than most other options. If you want the money, it is out there.
Should you raise money for your startup?
Do give it some thought.
Some just want to start a business for the purpose of raising capital and then selling it for millions. Others just think they need more money to get going, survive, or get to the next level. Though many don’t really think it all through before they try going down the path to getting funded.
Why?
There are two why questions to answer here. The first is why do capital investors want to invest their money with people like you? What’s in it for them? Secondly; why do you want it?
Is it to speed things up, shore up cash flow shortfalls, make partnerships and connections you couldn’t otherwise, or to develop something which is going to require a lot more money than you have?
Know your why.
Will it help, or hurt?
Will more money and its strings or requirements really help or hurt? Will it help or hurt your profitability, stress level, and mission?
Sometimes making money is easier if you’ve got money. Other times it just magnifies flaws. It can even cause trouble between co-founders and partners.
What will you have to give up?
What will bringing in capital mean you have to give in return?
It could mean a loan which comes with high repayment demands each month. It could mean added pressure and less freedom over your own schedule, design tastes, and how you treat your customers. It will likely mean giving up some control and share of the profits. It may mean that you are no longer the boss, and can even be fired.
How to get started with fundraising
If fundraising is for you and your real estate business, there are some steps you’ll need to take.
This includes:
- Laying out your strategies for growth and getting funded
- Planning timing of PR and expansion
- Building your network
- Positioning yourself to be fundable
- Learning what investors are looking for
- Conducting early funding rounds i.e. friends and family
- Preparing pitch and marketing materials
- Providing proof of concept
- Serious market research
- Creating realistic projections
- Getting comfortable with the paperwork
Alternatives to VC Money
There are alternatives to trying to raise venture capital firm money. Especially for those in real estate. Perhaps all you need is a couple of peer partners. Or banks and mortgage lenders, or credit line providers may give you all the liquidity and financing you need, with less hassle and upfront investment. Or it could be individual angel investors and private lenders that are the best fit for your needs.
Summary
Capital appears to be plentiful for real estate investors, startups, and businesses. VC money may be a great match for some. It is all about getting the preparation right in order to land it. Do give some careful thought to it before you leap though. There are always other alternatives if you are not ready for VC money, or are not sure it is right for you.
