Fundrise expands abroad in big move for crowdfunding industry

Real estate tech startup Fundrise expanded to Australia, Britain and Canada, becoming the second leading U.S. crowdfunding platform to tap into overseas capital markets.

“We know capital flows are global, but our fundamental thesis is that capital flows will slowly shift to be based on the Internet,” Fundrise’s co-founder Ben Miller told The Real Deal. He said Fundrise will continue to solely fund U.S. real estate projects, but has begun raising capital through its website abroad.

The move is a further sign that the future of U.S. crowdfunding may lie beyond the country’s borders. New York-based Prodigy Network, founded by Colombia native Rodrigo Nino, has already raised more money than any other U.S. real estate crowdfunding platform by relying heavily on overseas investors.

Meanwhile, crowdfunding platforms have sprung up in a number of countries. The model is especially popular in China, where traditional capital markets are more restricted, and Ben Miller said he expects Chinese platforms to begin funding U.S. real estate projects soon.

Crowdfunding platforms help fund real estate projects by raising money from retail investors online – often in small sums – and packaging it into mezzanine loans or equity investments. But this traditional crowdfunding model has proven increasingly problematic: a scarcity of U.S. investors often makes it difficult to raise funds in time, frustrating potential borrowers. As a result, more and more platforms are tapping into institutional capital. Winning over more investors abroad offers an alternative solution.

But going global also has its challenges. “You need to know your customer and know your source of funds. As a result, every investor you take there’s a heavy amount of research,” Miller said, pointing to the burden of complying with U.S. anti-money-laundering legislation and financial sanctions. Also, other countries have different laws governing crowdfunding, adding another layer of difficulty.

“Put all that together, and the easy conclusion is you want to do this in countries that have very similar regulatory regimes and no language barriers,” Miller said, explaining why he chose Britain, Australia and Canada.

Fundrise, founded in 2012 by brothers Dan and Ben Miller, has raised more than $60 million for real estate projects to-date. Its offerings include bonds for Silverstein Properties’ planned office tower 3 World Trade Center.