How do the crowdfunding sites make money?

9 Replies

They get listing fees from sponsors and some get fees from investors.  Some get a 1% to 2% fee per year from investors.  Some charge a yearly accounting fee to investors.  Some get part of the sponsors promote.  The 506c sites (RealCrowd and CrowdStreet) usually only get a listing fee.  The 506b sites charge some or all the above fees. Debt platforms will keep the origination fee and some of the interest that is paid to investors.

Some will offer white label services and charge a yearly fee for a crowdfunding website.  Bottom line is it depends on which site.

Thanks for the responses. You all know where I can read about / find the exact fee structures. Looking for some real life examples on how this works for the sites. I understand that it varies but looking for real sources or specific examples. Thanks!!

@Zachary Taylor @Mark Robertson 's site is a great place to start, and you can usually find details on each site itself within the FAQ section or elsewhere. (Though some are clearer and more disclosive than others). For example, this post from EquityMultiple is quite thorough (though you should always recognize the platforms will highlight the positive things about their particularly fee structure while minimizing the downsides).

As @Mark Robertson pointed out, whether the site offers 506(b) or 506(c) investment can make a difference as well, and it's also important whether or not the site is registered broker-dealer or not (many, like Equity Multiple, are not broker-dealers themselves, but have contractual affiliate relationships with broker-dealers to offer the actual securities). 

Anyhow, it's still very early days -- "public solicitation"for accredited investors is only 4 years old, and the full span of JOBS Act changes, including Title III and Title IV (Reg A+ and Reg CF respectively) have only come online in the last couple years. Expect continued experimentation and innovation with fees and business models (IMO a good thing), though that does put some extra burden on the investor to parse and understand the particulars before proceeding.

@Ian Ippolito 's site is also a helpful resource.

This post has been removed.

Depends. Are their doing their own deals? Listing others' deals? Are they doing equity? Debt? Like people said, there are a ton of different ways, depending on a platform's specific business model.

Thanks everyone. Really trying to brain storm on starting my own crowdfunding platform where I (and my team) would source and underwrite the deals and manage the properties. I would be seeking to crowd fund equity investors for long term holds on cash-flowing multi-family properties. I'm at the beginning of this journey. May get a few more deals under my belt first. Appreciate everyone's input... (I'll fill in my BP profile and upload pic soon)

Zack

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here