In 2000, Microsoft had become the most dominant technology company in the world. Among Microsoft’s ambitions was to reinvent the encyclopedia with multimedia, a company they called Encarta. Using the best experts, technology, and graphics, this half-trillion-dollar corporation threw its resources at replacing Encyclopedia Britannica as the world’s foremost information source.
No one could have predicted that less than 10 years later, Encarta would be discontinued and the giant Microsoft would have lost the battle for information to the world’s first crowdsourced encyclopedia. It still sounds almost impossible. Nevertheless, Wikipedia, the free encyclopedia written by its own users, has become the largest information repository in human history. Crowdsourcing investment is similar to Wikipedia except instead of providing information, people provide capital — anyone and everyone can invest. The crowdsourcing of funding was popularized by Kickstarter, a website that allows people to donate to creative projects they want to support.
Crowdfunding: In the Beginning
Like a blog mimics a personal journal, crowdfunding resembles raising money from a personal network. Just like a successful blog can reach a far larger audience than a traditional journal, crowdfunding magnifies a potential investor base beyond what would be possible using conventional methods.
Our story illustrates crowdfunding’s potential. Before our old development company WestMill Capital started crowdsourcing its investments using Fundrise, we had about a dozen or so individuals that invested with the company. In order to raise money for a real estate deal, we had to either spend weeks meeting with potential investors, or convince a single private equity fund to partner with us.
In a little over a year of raising money through Fundrise, our investor network has grown to almost 1,000 people — almost 100x larger than where we started. Without crowdsourcing the investments, we would never have been able to raise so much, from so many, in such a short period of time and with so few staff.
This exponential growth in our investor base speaks to the vast potential of crowdfunding. It doesn’t take much imagination to envision hundreds of thousands of people—if not millions—crowdfunding investment online. As a point of comparison, Kickstarter raised more than $480 million in donations from 3 million people during 2013. It is exciting to imagine what millions of people investing together will look like. As people start to engage more with the environment around them, will they begin to rethink how cities get built? Will they fund new skyscrapers or more affordable housing?Green buildings or co-working offices? Could they change the nature of urban growth forever? We think so.
The Future of Real Estate Crowdfunding
As we start a new year, we continue to evolve. Just as with Wikipedia, the power of Fundrise increases as more people become more involved. Now every real estate company in the country can build their own investor network and connect directly with individuals. Each investor has the ability to choose and analyze their own investments. Market knowledge can be aggregated and combined for the benefit of the entire community.
However, the primary risk to crowdfunding is complacency. Together we must work vigilantly to drive quality and transparency for the benefit of both investors and companies raising capital. Through our joint effort, combined resources, and shared excitement we can remake the financial system and transform the world around us.