JF2287: Raising Capital Using Crowdfunding Platforms With Chris Rawley #SkillsetSunday
Chris has been a real estate investor for more than 20 years, investing in single-family, multifamily, commercial properties, and income-producing agriculture. He’s the CEO of Harvest Returns, a platform for passive investments in agriculture.
Chris Rawley Real Estate Background:
- Full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture
- Has been an investor for over 20 years
- A previous guest on JF1665
- Portfolio consists of single-family, multi-family, commercial properties, and income-producing agriculture
- Based in DFW, TX
- Say hi to him at: https://www.harvestreturns.com/
Click here for more info on groundbreaker.co
Best Ever Tweet:
“If your putting together a syndication before you go and pay an attorney a lot of money, just look into crowdfunding platforms” – Chris Rawley
Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’re speaking with Chris Rawley. Chris, how are you doing today?
Chris Rawley: I’m doing great Theo, thanks for having me on.
Theo Hicks: Oh, absolutely, and thank you for joining us again. So Chris was previously interviewed on this show by Joe. And that episode is 1665. Make sure you check that out to learn about Chris’ background. As a refresher, he is a full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture. He has been an investor for over 20 years and has a portfolio of single-family homes, multifamily, commercial properties, and income-producing agriculture. He is based in Fort Worth, Texas and his website is harvestreturns.com.
Today is Sunday, so we’re doing the special episode of a Skillset Sunday. And the skillset that we’re going to talk about today is raising capital using a crowdfunding platform. But before we talk about that, Chris, do you mind telling us what you’ve been up to since we interviewed you about a year and a half ago?
Chris Rawley: Yeah. I primarily focused on building our business and developing new agriculture deals and bringing on new investors. We recently passed over six million dollars that we’ve raised to help farmers across America, and actually across the world. So that’s kind of our passion, it’s helping farmers continue to farm, as well as providing investors a way to get into that asset class.
Theo Hicks: Perfect. Let’s talk about the skillset. So I’m going to let you say what you want about the best way to raise capital on a crowdfunding platform, and then I’ll ask some follow-up questions to dive more into details on that. So take it away, Chris.
Chris Rawley: Sure. So at some point during our investment careers, if we’re investing in real estate or whatever you’re investing in, you tend to run out of your own money. That’s when we start to look for other sources of capital, and one of the ways to get capital is you can reach out to your friends and family members… But those wells run dry after a while as well, so then you might want to look up a larger pool of investing.
Since around 2015, there have been a number of real estate and other equity crowdfunding platforms that have sprung out all over the country, and dealing with all sources of asset classes. So just looking at the real estate side, you have everything from people who want to raise money to do single-family fix and flips, you have more established investor syndications that are doing multifamily or large commercial office buildings, you have people that are doing notes, you have — in our case, we’re doing agriculture. So pretty much any kind of asset class, any type of real estate you can think about, there is a real estate crowdfunding platform out there. So if someone decides they want to raise money on one of these platforms, the first thing you need to do is a little bit of research and decide, “Okay, this is what I do. I’m a fix and flipper, or I’m a wholesaler etc. Is there a platform that can help me put together a project and raise funds for that project?” So do some research, you’ll see that there are literally dozens and dozens of platforms. Some of them have different criteria for investors, so the best thing to do is to reach out and say, “Hey, what’s your criteria for someone who wants to put together a syndicator project?”
They’re going to provide you with a lot of guidance along the way, but just in general there are some things you need to put yourself in the right mindset… And the first thing is, what are investors looking for? So chances are if you’re raising money with a crowdfunding platform, you’ve probably invested yourself, so you kind of understand that. But four things that people are always thinking about before they write someone they don’t know potentially a check is, “What is my risk here?” So identify your various types of risk. People don’t like to lose money, first and foremost. What are my returns? Is this sponsor capable of producing returns that he or she is promising? Is this project viable based on location and timing, the plan, what they intend to do? And also, what are potential tax benefits? How is it structured? How am I going to save money on capital gains or income? Am I going to receive various sorts of beneficial tax laws? It’s that sort of thing. And people are also looking for a connection.
In our case, we do farm projects, so people like being part of helping somebody raise something or grow something, produce, be part of the food system. And the same thing can be true with just about any other kind of real estate; it’s like, “Hey, I want to help this local community. I want to help this person bring jobs to this particular neighborhood.” That sort of thing.
The next thing you need to kind of dig into is looking at your numbers. The crowdfunding platforms are going to go into various types of due diligence; it might be as basic as, “Just put up your listing on a platform and pay us and we’ll promote it to our investors” to “We’re going to really dig into a sponsor’s background, we’re going to dig into the numbers, we’re going to dig into your track record, we’re going to dig into your structure.” It’s always easier to raise if you’ve already done it before. So before you come to a crowdfunding platform with, “Hey, I need to raise five million dollars,” it’s probably best that you put together a smaller sort of syndication on your own or with some other partners, or piggyback with someone who has done this before.
And you’ve got to have a team. Most people don’t want to invest with a single person, because if there’s risk there. So whether that team consists of your CPA and your attorney, that’s important; or you know, other sorts of business partners. But having a team is something that investors really look for.
So then it comes down to what does the crowdfunding platform wants you to do. Sometimes they want to put your deals in front of these particular investors that are qualified, and that comes into what sort of regulations you’re going to do. And this is kind of the beauty of crowdfunding platforms, and I strongly recommend this. If you decide, “Hey, I just want to put together a real estate syndication on my own,” the first thing you’re going to have to do is understand securities and security regulation. And there’s a number of different entities that are involved with that. The SEC, the IRS, FINRA, state security agencies… And there’s a whole new definition; you’re going to have to go out and hire a security attorney, and spend a lot of money upfront putting together your private placement documents, and things like that… Whereas if you go straight with a crowdfunding platform, they’re going to do that for you or they’re going to help you with that process. And again, it varies from platform to platform.
In our case, we actually have spent all that money upfront with our securities attorneys and we help our sponsors put together that thing, and it saves them a lot of money because we’re essentially amortizing the cost of putting together securities documents. But to me, the two biggest hurdles are getting over the regulatory learning curve, and the second is getting out the pool of investors. The beauty of crowdfunding platforms is that they have a built-in pool of investors, and they’re jumping right into your offering, and it’s getting up in front of their eyes… And hopefully, if you you’ve done all your homework and put together in an appealing plan, they’ll be able to raise the money rather quickly.
Theo Hicks: Thank you for that detailed breakdown. So I want to go back to start from the beginning, and then work my way through. So the first thing you said is to find the right platform. So I’m a fix and flipper, I am obviously not going to want to go on an agriculture crowdfunding platform and vice versa. You mentioned that there are a lot of fix and flipping crowdfunding platforms out there. I’m sure there might be a little bit less when it comes to agriculture, but I would imagine that for a lot of these more common strategies like multi-families, there’s going to be a lot of different platforms. So I Google it, I’ve got a list of 20 different platforms… How do I pick the right one?
Chris Rawley: Great question. You’re going to have to do some digging. There are some sites where you can do reviews of crowdfunding platforms, but they’re mainly designed for the investor side, not the sponsor side. So dig through a few that look like they might be right, and then just definitely reach out to them and their sales or marketing team will get out to you and give you basic criteria. And some list very specifically, like “Hey, we only want to work with these types of sponsors who are doing these types of projects, and maybe have this track record.” And it’s all going to really vary there. Some of them are very specific, some of them are a little bit more open to having conversations; a lot of that depends on how long they’ve been in business and how large they are. The more established platforms are going to tend to have more formal criteria for listing a project.
Theo Hicks: So basically reach out to them and figure out if you even qualify for that platform. But for the one that I do qualify for, is it just whichever one I’ve got a good feeling about? Is it based off of some metric they have, that they’ve got this many investors looking at it? Am I allowed to list it on multiple crowdfunding platforms? Am I only strictly stuck to the use of one?
Chris Rawley: Great question. Can I answer your last one first? Generally, most of them are going to only want a single raise, just for regulatory purposes, on their platform. They’ll sign some sort of exclusivity agreement, unless you’re doing a very large deal that has institutional money and other slices of capital. But for a first-time person reaching out to a crowdfunding platform, you can ask for a reference. So say, “Hey, can I talk to another sponsor that had a good experience?” And we definitely do that for our new sponsors that come to us, and any crowdfunding platform that wouldn’t give you a reference, I would be suspect of.
Theo Hicks: Okay. And the next step was to determine what the investors are looking for, and you broke it into four different steps – the risk, the returns, the tax benefit, and I think it’s the connections, or being helpful. Is the reason why they’re doing this is because ultimately this information has to be included on an offering posting? …like, you can have like four sections, an FAQs type of thing. Or is this more “You need to know because these people are going to ask you questions about this, and if you can’t answer it they’re not going to invest with you”?
Chris Rawley: It’s a little of both. When they set up [unintelligible [00:13:02].13] but when they set up your offering on their platform, there needs to be some way to distinguish it from all the other offerings. Most platforms are going to have multiple offerings running at the same time, so if you’re an apartment complex in Oklahoma City, that’s different than a commercial office building in South Florida, which is different than a fix and flip in the West Coast. So those basic facts need to be up there, and [unintelligible [00:13:27].20] platforms are going to tell you what they need. They may ask for a business plan, or a pitch deck… And those things are similar whether you’re raising money for a fix and flip, or whether you’re doing a start-up and you’re creating some sort of app or something, and there are some platforms for those as well. So if you’re not a real estate person but you want to raise money on a crowdfunding platform, there are also platforms for those start-up types of companies.
And then the other part is they want to be able to just tell the investors what they’re getting, and as many details as possible. If the crowdfunding platform asks for it, it’s important. And you will get questioned. And once the raise is ongoing, that’s kind of the next piece. Some platforms, they do it all for you, some want the investor to be more actively involved, some will want you to do a webinar, depending on how big your offering is.
We do a lot of webinars, and they tend to work well with presenting some sort of tangibility with the deal… Because you can kind of see the numbers on the thing, but unless you hear the sponsors voice and you see how this is a real person or he’s got a real team, you have more confidence in trusting him with your money.
Theo Hicks: I did want to ask about the listing… So you kind of gave us a few examples, but is there any secret sauce that people can do to make their listing stand out compared to all the other listings that are on there? Or is it just doing what the crowdfunding platform wants you to do and just stopping at that?
Chris Rawley: It really depends on what you’re trying to raise money for. In our case, our farms can be very unique. I tell people that if you’re kind of seeing one multi-family apartment complex syndication, you’ve seen them all… But with farms, if you’ve seen one farm, you’ve seen one farm. These are very unique, and not only are we talking about different crop types and different locations, but different ways of growing things.
So, if you’re on a real estate platform, people are looking for returns, but they’re looking for the track record. I know when I invest on a real estate crowdfunding platform I have more confidence — location is important in a specific marketplace; there are some places I just want to invest. But assuming you are in one of the places that I’ll invest, I generally want somebody who’s got an experienced track record, and that takes some time.
Theo Hicks: So crowdfunding is not for someone who’s just getting started, right? In the beginning, you said they start out with their own money, they go through that, next is the family and friends, and once they’ve gone through that, then they consider crowdfunding?
Chris Rawley: I think that’s important… We’re all going to make mistakes in our investing career, and putting together a deal or a career. As an investor, I’d rather not invest in somebody else’s mistakes, I’d rather them have a little bit of a track record. Let’s say you’re a fix and flipper. “Hey, have you done a handful? Okay, maybe I’ll trust you with my money if you seem to have a pretty good track record of doing that.” So, it’s hard work as well all know; there’s no free lunch in investing or putting together real estate deals.
Theo Hicks: And then I’m sure you talked about this in your other episode with Joe. I would like to ask just a few questions about agriculture. So I’m someone who’s interested in investing in agriculture, obviously. I’m not going to be able to do this myself, I don’t know anything about it. So a crowdfunding option is a good way to go. What types of returns should I expect when investing in agriculture? In my mind, I can compare it to fix and flipping and multi-families, I’m more familiar with.
Chris Rawley: Yeah. On our platform, it’s fairly similar. In fact, given that I was a real estate investor before I was an agriculture investor, we tend to structure the deals quite similarly. So we have debt deals, so think of like a hard money lender, and those are 7% to 12% on the debt side, roughly. On equity deals, you’re going to be talking teens. And then we have another category that I could classify as your AgTech, that are more high risk, but potentially higher return, where we could see a 20%, 30%, 40% IRR based on just what the type of project it is.
So we do a number of indoor agriculture projects; this is like vertical farms, hydroponic farms… It’s a very big space right now and growing space, because people are realizing that, one, they want locally grown produce, because they want to know how it’s grown, and it’s also a sustainable way to produce. But two, after COVID, people are seeing that “Wow, the food supply chain is not all that robust as we thought it was, and trucks don’t always run, and supermarket shelves can empty of meat and produce”, and having food produced closer into where people live makes a lot of sense. So with those you’re going to see a higher return.
Theo Hicks: And then I know for crowdfunding the minimum is really low. Is that the same for your crowdfunding platform? Or do I need to have a hundred grand? Or can I invest with five grand?
Chris Rawley: Our starting minimum is five grand. Most deals are about ten thousand minimum ticket size. We have people that will invest a hundred thousand or two hundred thousand on a specific deal, but we would like to keep that low, because we believe in diversification, not only across asset class, but across offering. So if you invest a single platform or multiple platforms and you have many small investments, that’s a really good way to diversify your portfolio, whether it’s real estate, or agriculture, or any other asset class.
Theo Hicks: Alright, Chris. Is there anything else that you want to mention about raising capital using a crowdfunding platform or any other call to action you have before we wrap up?
Chris Rawley: Just obviously if there are any farmers listening to this and they want to talk to us, we would be happy to talk to them about how we can raise money. But if you’re putting together a real estate syndication, before you go out and pay an attorney a lot of money – you’ve probably seen in, there are a lot of seminars out there – just look into the crowdfunding platforms, because you might be able to save yourself a lot of money and heartache and leverage the work that somebody else has already done before you put that investment in yourself.
Theo Hicks: Awesome, Chris. Well, thanks for joining us again and walking us through some of the tips for raising money using a crowdfunding platform from the perspective of the sponsor, obviously. So we talked about you start with your own money, and then you’ll go to your family and friends next, and then after that, once that money has run dry, you’ve got the experience. The next potential step would be to raise money on a crowdfunding platform. And then you walked us through the things to think about.
First is to do research to find the right platform, because not every single platform is going to cover all investment types. For most of these platforms, you initially reach out to someone and see what their criteria is, and you can find websites that do reviews, which are kind of the perspective of the investors, but still it could be helpful. And then you can also ask them for a reference. You can talk to another sponsor and see how were they able to raise money from this website, how was the process, things like that.
And then you mentioned that you can typically only have your deal on one website at a time; you can’t have your deal on 30 different crowdfunding platforms. From there, the next step is to determine what your investors are asking for regarding risk, returns, tax benefits, and the connections. Make sure you’re including that in your listing.
Obviously, you want to look at the numbers and make sure that the deal makes sense, because the crowdfunding platform might actually go into a lot more due diligence on you and your deal. Plus, it’s easier to raise money that way. And then make sure you haev your team in place, and then make sure you understand what the crowdfunding platform wants you to do. So, Chris thanks again for joining us. To learn more about Chris, you can go to harvestreturns.com. Best Ever listeners, as always thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.
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