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Australia’s crowdfunding scene recently took the spotlight with the news that CoAssets
, a Singapore-based real estate crowdfunding platform, would publicly trade shares on NSX
, an Australian stock exchange. On the investment side, Aussie real estate crowdfunding platform Estate Baron
has recently secured backing of note: from Benni Aroni, founder of WaterSun Homes
and lead developer for Australia 108 and Eureka Towers, among the tallest towers in Melbourne and Australia; and Adrian Stone, founder of Angel Cube, a local Melbourne tech accelerator for startups modelled after TechStars and Y Combinator in the United States.
Currently, Estate Baron has $ 560,000 of funds invested, 312 investors and two live projects. Estate Baron’s co-founder, Moresh Kokane, recently shared the platform’s latest updates with Crowdfund Insider.
Midori Yoshimura: How much did Angel Cube founder Adrian Stone invest?
Moresh Kokane: I have been chasing Adrian to invest in this since the inception of the company. He had refused about 8 months back, but I secured seed from someone else and kept him posted on the progress we were making regularly over the next 6 months. He also served as an informal adviser for me.
Eventually he was satisfied that we had made significant progress and he decided to invest.
Benni Aroni is an introduction from Adrian and and he has been a tremendous source of strength for us. He has taken an active interest and is opening a lot of doors for us.
While I cannot divulge the exact breakdown of the investment, I can tell you that we achieved a 2M valuation with a 400K raise.
Midori: How will you use this capital injection?
Moresh: Marketing, sales and tech development. We took some of our part timers full time and this also gives us some much needed muscle to push our marketing. Note that our promotions are limited only to Melbourne as of now. So you wont find any ads running if you are in Sydney, Perth or other cities.
My logic is simple. Real estate crowdfunding is embryonic in Australia. People are not going to go click click click and invest 10K in an online platform. They would still want to know who is standing behind these projects, we personally meet every investor and conduct a lot of meetups. Also having local investors and local projects gives investors the opportunity to visit the project personally if they wish to which should help shore up credibility.
Six months down the line we will have enough credibility and tech maturity to facilitate the processes online.
Midori: What are your thoughts on the competitive environment for real estate crowdfunding in Australia?
Moresh: We fully expect a lot of new players to enter the area. We would be worried if there was no competition. However it must be noted that both BrickX and Venture Crowd Property are essentially arms of existing financial firms rather than pure scrappy startups.
But we believe that with our retail license coverage and underwriting capabilities plus local focus we have a strong competitive advantage on the others.
In Australia currently you can only raise upto 2 million from a maximum of 20 retail people per offer in 12 months. Most real estate deals are above 500K. Which means that the minimum you need to raise from one retail investor is atleast 25K (which is not a small amount). So when we hear claims that you can buy a brick for $100 or invest with only $66 it is essentially misleading advertising. What they are really saying
that you can make an offer to invest $100 but we will probably not end up accepting your offer.
The only way you get beyond this is do a full retail Public Disclosure which is expensive and time consuming. But it has to be noted that Fundrise early on did the same thing to be able to reach a wider audience.
Midori: What are your thoughts on the recent announcement by CoAssets to move into Australia?
Moresh: CoAssets is going to face the same regulatory challenges as everyone else. It will help educate the market.
Midori: Are you considering expanding your platform into other countries?
Moresh: China already has some strong players. Wanda Dalian has made a foray in this area. But we are exploring ways in which we could connect Chinese investors to deals in Australia online. There are some regulatory hurdles we will need to cross for that. Separately India is a great opportunity, but the regulatory hurdles there are even bigger. We want to tap the large and wealthy Indian diaspora who are not governed by local regulations but yet can invest and purchase property in India. But for now we are focused on Australia, and even in that primarily Melbourne.
Midori: How many deals / amount of transactions have been completed since the platform launched?
Moresh: Completed, two. Three are about to go live.
Midori: How is deal flow?
Moresh: We have possibly the strongest partner you can ask for. Benni is handling deal flow and due diligence. You have to remember he played a key role in both Eureka and Australia 108. There is no shortage of project developers seeking finance, our focus is primarily on securing the investors interests.
Midori: What are your thoughts on the regulatory environment for new finance in Australia?
Moresh: Some deregulation is expected and it is being discussed that we will take the New Zealand route so that there will be no limit on how many people can participate upto raises of 2 million. While I think that would be a great thing for small businesses and startups who are often cash starved early on it would be a mistake to expand it to other financial investments including property. Australians love property and we have a special class of people here who evangelize about property known as “Spruikers”. Unleashing spruikers on unsuspecting mom and dads is dangerous. All property deals need to go through full disclosure documentations.
Midori: You are commenting that no other crowdfunding platform in Australia also has a retail Australian Financial Services License? Why was it important for Estate Baron to pursue this? What are other distinctive characteristics of Estate Baron?
Moresh: As mentioned earlier under current Australian law you are allowed to raise only 2 million from 20 people in a year. All the other competitors are facing this limitation. There are also severe limitations on what you can promote for such offers.
In order to achieve true crowdfunding the only real option is to do a full public disclosure which removes both the restrictions on promotions as well as allows any number of retail investors to participate. This allows us to have people invest as little as $2000, we could go lower but admin cost starts getting high beyond that.
Note that we don’t have the license ourselves but have an access through our fund manager partners.
The other key thing we decided to do was this. In a real estate deal you put a deposit and settle 30, 60, 90, 120 days depending on what you negotiate. In this period the developer needs to raise the remainder or he looses the deposit. If the fund raising fails the developer will be in trouble. So we partnered with a major bank here who will underwrite every project we participate in.
This would mean that every project listed on Estate Baron is essentially prefunded, and carries no risk of fundraising failure. This is the same model Fundrise has employed and we are essentially emulating them. This is again a key differentiator for us.