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Portfolio > Alternative Investments > Private Equity

RCAP's Crowdfunding Site: A Smart Move?

By Janet Levaux

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RCS Capital (RCAP) introduced a platform in September called We Are Crowdfunding that lets accredited investors and others buy public and private offerings online by pooling their resources.

“With a focus on high-caliber, institutional-quality investments and access to expert advice and support from the over 9,700 financial advisors on the RCAP retail advice platform, We Are Crowdfunding goes beyond the traditional limited choices currently available,” said RCAP Executive Chairman Nicholas Schorsch, in a statement.

The firm launched We Are Crowdfunding with the hope that high-net-worth individuals will use it to start or boost the investing they do with RCAP’s affiliated advisors. Industry observers say that this strategy could work if the offering helps RCAP stand out in the crowd.

“It definitely sounds like an innovative product [launch],” said executive-search consultant Mark Elzweig in an interview. “If it works, it could give RCS a competitive advantage that could help them attract advisors and keep them from leaving. Thus, it could be a big positive for RCS.”

There are already more than 500 websites for those interested in buying property and other alternative investments via crowdfunding, such as RealtyShares.com and RealtyMogul.com.

But it’s a big market—and growing. Some industry research estimates the crowdfunding business is worth roughly $5 billion and should double to $10 billion within the next 12 months.

New crowdfunding sites are popping up on nearly a daily basis. PeerStreet, a mortgage financing platform developed by former Google and TripAdvisor executives, is in the beta testing phase.

“Crowdfunding is a cutting-edge idea at the moment,” said Elzweig, “and the [RCAP] reps should view it as positive.”

RCAP says its crowdfunding platform has something for everyone, meaning both accredited and non-accredited investors looking for public and private investments. It includes Regulation A and Regulation D offerings, mutual funds and closed-end fund offerings with different liquidity features and investment minimums, for instance.

Plus, the company says it has the industry expertise investors want in a crowdfunding platform, noting that RCAP and its subsidiaries have raised over $20 billion of investment capital in net lease properties, health care facilities, New York real estate, hotels and other sectors.

“Through We Are Crowdfunding, we believe RCAP is positioned to lead the crowdfunding revolution,” said RCAP President Michael Weil, in a statement. “Unlike many platforms, We Are Crowdfunding connects investors to advisors, streamlines the qualification process, provides access to educational and independent research materials, and offers a wide range of options and investment minimums.”

Industry experts agree that it does seem like a natural fit for RCS Capital.

“This seems like the obvious synergy between the traditional RCAP business of real estate investments and its newly acquired independent broker-dealer firms,” said Chip Roame, head of Tiburon Strategic Advisors, in an interview. “Plus, they acquired other alternatives firms, so it’s real estate plus other alts through IBDs.”

It’s hard to see a negative in the strategy, noted Elzweig, since the platform is “bringing in well-heeled investors willing to take risks.”

But as Roame pointed out, every new strategy involves risks.

“I see this as akin to the strategy Advanced Equities Financial Corp. followed when it offered access to alt investments through IBD reps. It’s a differentiator. Now, Advanced Equities ultimately gave up.”

The scope of Advanced Equities’ alternatives business—late-stage private equity finance for tech companies—was much narrower than that of RCAP, so this isn’t an apples-to-apples comparison. (Calls to RCAP were not returned as of press time.)

And, interestingly enough, a brokerage firm that was split off by Advanced Equities—First Allied—is now part of RCS Capital. Lessons from that experience, then, may have been learned.

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