A lot of times, it’s a blessing when a competitor screws up. But when you’re navigating a new, complicated category, a high-profile blunder can end up being a black eye for the entire industry, negatively impacting all startups in the space. (For example, remember when someone flew a drone near the White House? Two months after that incident, the FAA tightened regulations and announced that all drone owners must register their devices).
In the same vein, real estate crowdfunding (and crowdfunding in general) took a major hit following a disastrous episode of Shark Tank. In February, Tycoon Real Estate, a Los Angeles-based startup, appeared on the hit ABC show, pitching a platform that aimed to crowdfund real estate investments. It didn’t go well.
The celebrity Sharks tore the idea and founder Aaron McDaniel apart, calling it “horrible” and “risky and uncomfortable.” After the episode, Pacific Standard piled on both Tycoon and the industry, writing that the space is populated with businesses that are “underdeveloped” and “sketchy as hell.” The article basically damned the whole industry, stating that “The idea is very, very bad in large part because McDaniel is far from the only one selling this kind of snake oil.”
The industry disagreed.
“It’s fundamentally unfair to demonize an entire industry based upon one lousy pitch session,” said Jordan Fishfeld, CEO and Founder at Peer Realty, a Chicago-based real estate crowdfunding startup. “After the Tycoon episode, there was a lot of talk in the industry about how we can get the general population to understand that diversification through online investing is not dangerous; it’s a really good thing.”
So, instead of distancing themselves from Tycoon, the industry decided to turn its black eye into its white knight.
This week, Peer Realty, along with crowdfunding platforms American Homeowner Preservation, Patch of Land, CrowdFranchise, and EquityRoots, announced that they have come together to acquire Tycoon Real Estate. The consortium plans to transform the site into an educational platform for the industry, complete with videos, materials, and white papers. (Four of the five startups are Chicago-based and the fifth, Patch of Land, was launched in the city before relocating to Los Angeles in 2013).
“We realized that crowdfunding needs one centralized voice,” said Fishfeld “This acquisition allows longstanding industry leaders to work together, while also using the opportunity to change the portal into an education platform to show the world why the Sharks were wrong about the industry.”
Added Patch of Land CEO Jason Fritton, “There is a larger awareness of real estate crowdfunding thanks to that Shark Tank episode. Though it didn’t turn out well, we have an opportunity to set the record straight about the regulatory environment that allows for crowdfunding and how successful companies are leveraging the JOBS Act and SEC regulations to crowdfund hundreds of millions of dollars in real estate.”
Two of the biggest “misconceptions” that the new site hopes to address first is that these platforms do not target “grandma’s last dime” – currently, they’re legally only open to accredited investors – and that it’s about making “sound investments, not sexy ones.” Tycoon will be run collaboratively amongst the five startups, with each company providing content and design resources for the platform. Terms of the deal were not disclosed.
Summarized Bhavik Dani, Dealflow Organizer at EquityRoots.com, “We are excited to join the four other platforms because we share a common vision: that online capital formation is efficient, effective, and a great way to involve the community.”
(Image via abc.go.com)