For those in the world of Equity Crowdfunding, today is the real “May Day” -- Monday May 16th, where after many long years of waiting, Title III of the JOBS Act finally goes “live,” allowing the retail, non-accredited investor to participate in private placement equity offerings from startups and small businesses. For example, now a local business can raise equity from its own community members.
This will open new landscape to raise capital-- where everyone can be a part of a “Sand Hill Road” without having to match a typically much larger and more exclusive angel investor threshold of financial investment. Instead, they can participate in smaller increments, say $1000 or $5,000. This also means that companies seeking funding don’t necessarily have to make the trek to the actual Sand Hill Road in Silicon Valley to find their venture capital.
As we raise our own glass with those celebrating today, we want to point out that Patch of Land will be doing business the same way we did it this past Friday the 13th -- which is to say, we will not be adopting the provisions of Title III ourselves, but rather, staying with Title II Regulation D 506(c), which maintains that our investors must be accredited.
With Title III, a company soliciting investors is limited to raising $1,000,000 in a 12-month period. Patch of Land routinely funds loans to borrowers in 4-10 business days, and our average loan size is around $440,000. We also recently broke our platform funding speed record when $1.5 million was funded on the platform in one hour. Our business is about speed, consistency and financing large asset-backed real estate investment loans.
While it may be disappointing to some that Patch of Land is not adopting Title III, it simply does not give us the flexibility to raise capital for our projects and our borrowers. The limitations in Title III are not conducive to our business model and the strong value propositions that we’re known for, and have carefully developed. These include, among other things:
- Short duration real estate debt investments.
- Lending only to established, experienced real estate professionals.
- Repeat borrowers who come back several times per year for their financing needs.
- Loans secured by real assets with a 1st position lien.
- A best-in-class legal note structure with added investor protection: http://landing.patchofland.com/legal.
- An asset management team led by a veteran with 30+ years of experience, that can take over the property and complete the investment objectives if, for some reason, the borrower becomes unable to do so.
- Redundant and diversified sources of capital including over 90% of funding by the crowd.
- Diversification of investments across property types (residential, multifamily, commercial), loan duration, yield curve, geography, and loan type (fix and flip, purchase, refi, rental).
Patch of Land’s co-founder Jason Fritton was heavily involved in early JOBS Act activities to help push the legislation through congress and we celebrate this expansion of investment opportunities through Title III-- with its ongoing emphasis on innovation, transparency, and accessibility for both investors and new businesses.
For those whom Title III’s model fits, and for those million-dollar start-ups that will continue to grow after finding their financing, we applaud you and welcome you to the paradigm-changing world of crowdfunding!