Where are the best places to find funding for real estate startups in 2015, and how can founders increase their chances of getting successfully funded?
Capital markets have been extremely active, and 2015 promises to be a great year for new real estate startups. The dust is settling, and as the U.S. property market continues to march on. So where are the funds?
Bloomberg’s round up of venture capital investments in 2014 showed dollar volume growing 60% over the previous year, and the number of deals being funded by VCs rising too. Over $100 billion was put into startups over the last year, with expectations of another strong year in 2015.
Foreign investment capital in the U.S. is expected to run into the hundreds of billions, with Asia, Europe, and other destinations in the Americas seeking real estate and investment opportunities over the next nine months.
While traditional banks may appear to have fallen by the wayside, private investments and private money lending have increased. Then there is crowdfunding, which, according to Entrepreneur.com, is now responsible for financing more than triple the startups venture capital firms have. These can all be viable sources for financing the launch of a new real estate related business, and can even be combined together.
Creating a Real Estate Business Plan
No matter which path to funding is chosen, it all starts with building a business plan. In fact, even those real estate entrepreneurs that are considering sticking with self-funding need to have a well-researched and organized business plan. Without one, there is no compass for staying on track and nothing for potential investors to evaluate. This doesn’t have to take endless months to put together, but should be done well, have realistic numbers, and be well written, with the right balance of sales and fact.
Compiling a Pitch Deck
A ‘pitch deck’ has become a more common introductory pitching tool for fundraising than a full business plan in recent years. This is often in the form of a Power Point that highlights the most notable key facts about the venture and investment opportunity. Consider this a marketing piece that will make or break your chances of getting funded.
Testing
Business ‘ideas’ are great. However, before getting too far in, and before most serious angel investors and venture capitalists will take you seriously, you’ll want to do some testing.
When it comes to real estate investing or sales, there are proven models and systems to adopt. They can remove uncertainty and lend significant credibility versus trying to reinvent the wheel. However, when it comes to disrupting with new technology, products and services, potential investors really want to see what consumers or B2B users are saying about testing.
Decide Your Terms in Advance
Some might say it is better to keep 2% of something, than 100% of nothing, but it’s about more than shares. How much profit and control are you willing to give up, and for what amount of capital? Remember that beyond seed capital, there may be rounds of funding for officially starting up, Series A, and B funding, and even taking on loans. All of these mean giving up some percentage of income or ownership, or both.
There is a lot of money out there. Savvy startups look for what an investor can bring to the table – beyond money. What about connections, mentoring, credibility, and sales?
Most importantly, and why so many startups fail within 20 months of getting funding, is that they build their models on spending and injections of cash. Even some of the largest online real estate portals have made this mistake, and yet still continue to lose money every quarter – despite having raised billions and having close to that in revenues. If you don’t ensure a profitable business model that can operate without constant saving, it will inevitably fail when the charity stops.
