February 23, 2015

Why Does Walmart Carry Brands?

When you walk into Wal-Mart, it’s very comforting to see the well-known brands that dot the American landscape on their shelves. Consumers feel at ease with brands. They trust them, they know them, they like them, they ask for them by name. And for all of those reasons, stores carry brands. Although, they tend to make a little more money with off-brands or with house brands, some consumers still the big name products.

The same is true about the way people make investments. Stock market equity investments are frequently but not necessarily made by brand, although lots of people like to stay with the well-known companies or blue chips. But in the private placement business, the vast majority of investors are looking to place their money not so much into a deal – because they don’t have the ability to underwrite the deal professionally – but they believe that in the hands of capable promoters they know, trust, and can identify with, they can feel comfortable. It’s the brand that the promoter creates over time that is so critically important to the successful execution of transactions and it’s what gives the branded promoter the ability to raise money for deals.

So if this is the case, and consumers are looking for private placement opportunities that are sponsored by people that have a track record, a brand, and a name, then why are so many of the portals supporting issuers that don’t have a brand? In fact, in some cases, the name of the promoter is withheld all together.

Worse, in the age of the Internet and disintermediation, some of the larger portal companies are trying to be the brand that consumers count on to vet the operator of the deal. There seems to be some irony in an Internet company disintermediating so they can be the intermediary.

If you look at the portals that are CrowdFunding right now, you’ll find is a lot of one-off opportunities and deals that are not being structured by well-known, professional syndicators. A professional syndicator wouldn’t use a portal the way that the portals are currently set up because the most important tool that a professional syndicator has is his or her professional raising capital arsenal is each individual investor. And although the portals are implying a shortcut to the fund raising process, the truth is that most of these portals don’t ever give the promoter any insight or information about the investors that are going into the deal. The problem with that is that the promoter is then forever shackled to the portal or other source for raising their capital.

One can’t tie up their business and their ability to succeed in business by giving that much power to a third party. After all, part of the reason that people go into business is so that they can be independent, and people who want to remain independent need to have their own means of production. If you don’t retain control of your own means of production, which is in this case the ability to raise capital, then you can’t be independent and successful in business for yourself for very long.

So it’s my supposition that the portals have this backwards. The portals need to promote brands. They need to promote or provide a platform for seasoned and sophisticated syndicators to continue to find investors in a new way. Now, some people would say those are exactly the people that don’t need to find new investors. But precisely the opposite is true. All promoters & all dealmakers always need to find new opportunities, new investors, and new capital. Andy it’s those promoters that should be show-cased in a platform. That makes a lot of sense to me.

It’s for this reason that Bullseye Capital MarketPlace Partners has structured its portal, not around deals, but around dealmakers. Where other platforms are curating deals, we’re curating dealmakers because we believe that the brand that the dealmakers have created is ultimately what makes the most sense.

It’s not a scalable of a model for these portals to curate and manage and underwrite every single deal and toss out 99 out of 100 of them, but what is sustainable is to vet and understand what the dealmakers are about and then give the dealmakers great latitude in their dealmaking process using the skills that they bring to the table.

Not long from now, the model will shift away from curating deals to curating dealmakers. And we intend to be on the forefront of this transition.

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The Bullseye Capital Fund is an opportunistic buyer of multi-family and commercial real estate that partners with accredited investors who participate in profits. Using our expertise, vast network of resources and experience, we select, fix and profit from distressed assets nationwide. The Fund generates revenue in three ways. Our Value-Add Group optimizes, renovates or otherwise adds value to real estate projects where profit can be realized within one year; our Arbitrage Group uses technology to find and flip parcels for small, but frequent and immediate profits; and our non-performing loan group buys, modifies or repositions non-performing loans for resale. These strategies, combined with our property picking and negotiating skills enable us to produce strong and consistent returns for our investors and partners. For more information, please go to: www.bullseyecapfund.com.

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February 18, 2015

Don’t Be Stupid

Every entrepreneur that’s ever started a business probably had to boot-strap that business in some way or another. That means making compromises – sometimes bad ones and sometimes stupid ones – in order to get the job done.

In the long run, doing what you have to do is not stupid – if it works out. Unfortunately the odds do not favor decisions that are less than optimal.

For example, how many people try to get others (especially sales people) to work for free on a commission only (i.e. pay on success basis) because they don’t have any money to pay in advance? The problem with that formula, first, is that you usually don’t get the best sales people. Number two, you probably don’t get the full and undivided attention of the sales people. Their priority is not your priority, because you’re not paying them to make your business their priority.

I understand why people do this, and I’ve done it myself. But I’ve also done it where I’m capitalized in advance. Let me assure you, that being capitalized in advance is better.

The tactic’s ironic. Young companies will generally employ salespeople on commission with very high payouts. The more mature the business becomes, the lower the payouts go until the point where companies rely on media and advertising and pay little or no commissions at all. Ironically, at the end of the day, commissions are the very most expensive form of compensation for moving product. And at the end of the day if you have you have the volume to support it, media advertising is far and away the cheapest.

This is not a criticism of doing what you have to do nor of making compromises. Rather, I hope readers will try to organize themselves so they can be smart – providing the best chance of success.

As I watch the new CrowdFunding industry unfold, I’m watching the businesses of undercapitalized operators trying to take a stab at this burgeoning industry. Most are going to fail. Some are going to fail miserably. Many already have.

There are several reasons. First, almost all of the operators who are setting up portals and other facilities to help other people raise money are undercapitalized. That means before they even get out of the gate, they’re making business decisions that are stupid. They’re not stupid on purpose: they just don’t have any other choice. And if they had some capital, I can assure you they’d be making other (hopefully better) decisions. They’d be hiring people. And they wouldn’t be running around parading a patchwork of unpaid or undercompensated individuals, who may or may not be well suited for the job that they’ve been awarded.

Think about it: businesses in the business of helping people raise capital are undercapitalized. How is that for irony?

The second reason that many of these CrowdFunding companies are going to fail is because the securities rules governing the way the capital raising works, prohibits the payment of upfront fees to most of these companies. Those rules are making it very difficult for many of these upstart portal operators to be successful in the short run so they take participation interest on the backend. And because they’re undercapitalized, they can’t wait until the long-term to get their backend interest.

So most portal operators are doomed to be out of business before they start. Further, because they’re undercapitalized they may or may not have much of a following, and they probably don’t have the capital to secure a substantial database of investors which is what the dealmakers, who list on their site, want to have. For all of these reasons, most of these companies that are out there purporting to be portals will either fail or fail miserably.

But there is a solution. And the solution involves being properly capitalized and curating the right part of the deal cycle. Most of the portals that are  curating deals. Because of our Syndication and Hedge Fund Symposium program, and because of the 450 syndicators that we have in our network, we don’t need to curate deals. We want to curate “dealmakers”. If you’re a strong dealmaker, we want you to be part of our network and our process. We are properly capitalized. We do have the ability to get income long-term. And we do have a business model that doesn’t levy fees on people up front and further allows us to get into the long-term and participate the way that so many dealmakers want us to participate.

If this type of structure sounds attractive to you, then we would like you to be in touch with us so that we can share with you a new type of CrowdFunding portal that’s designed to work for dealmakers. This is not for somebody who makes an occasional one-off transaction which is what so many of the other portals are targeting whether they recognize it or not.

We look forward to hearing from you.

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January 26, 2015

Bullseye Capital Fund Makes Acquisition: Enters Note Business

In a business transaction that was finalized at the end of December 2014, Quartz Mountain Note Workout Fund I, LLC of San Antonio, Texas has been acquired by Bullseye Capital Real Property Opportunity Fund, LLC of Agoura Hills, California.

“The combination of these two companies creates a powerful, non-performing loan (NPL) business,” says David Jacobs (formerly with Quartz Mountain), Partner and newly appointed Director of NPL Business for the Bullseye Capital Fund, “It leverages the existing NPL business of Quartz Mountain and the strategic resources and capital-raising capabilities of Bullseye Capital.”

Joel Block, CEO of Bullseye Capital, feels that together, the two companies will provide strength and an opportunity for both businesses to accelerate growth, “Bullseye Capital will provide resources such as infrastructure and capital, so Quartz Mountain can focus on what they do best: buying defaulted loans.”

Quartz Mountain Capital will have more support, personnel and capital. “NPL buyers now have access to even more high-quality loans,” says Block.

This merger is creating a new era for the business to grow and sales to take off.

David Jacobs agrees: “the focus of the new business is velocity and value.  We will be very strategic about our purchases, provide significant value-add, and aggressively sell a quality product with transparency and integrity. We believe small to mid-sized NPL buyers will come to rely on us for their purchases.”

Interested loan buyers may visit https://m262.isrefer.com/go/bncr/joelgb7/ for more information.

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The Bullseye Capital Fund is an opportunistic buyer of multi-family and commercial real estate that partners with accredited investors who participate in profits. Using our expertise, vast network of resources and experience, we select, fix and profit from distressed assets nationwide. The Fund generates revenue in three ways. Our Value-Add Group optimizes, renovates or otherwise adds value to real estate projects where profit can be realized within one year; our Arbitrage Group uses technology to find and flip parcels for small, but frequent and immediate profits; and our non-performing loan group buys, modifies or repositions non-performing loans for resale. These strategies, combined with our property picking and negotiating skills enable us to produce strong and consistent returns for our investors and partners. For more information, please go to: http://bullseyecapfund.com/.

 

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November 23, 2014

What CrowdFunding Is, and Isn’t

I get calls every week from alumni of the Syndication and Hedge Fund Symposium program, advising me that they have a “smoking hot deal” that needs some number of dollars. They ask me for an introduction to one of the big CrowdFunding platforms such as Realty Mogul, iFunding, FundRise and the like. They all want to tap those big databases for the millions they need. I’m quick to advise them it doesn’t quite work that way. You may be disappointed by some of what I have to say.

But not to worry. There is a happy ending.

First of all, these venture backed companies are run by some of the smartest business people on the planet. They’re not about to allow any of us to “borrow” their list of investors, which they spent millions of dollars building, so we can fund our deals. Life doesn’t work that way, and business doesn’t either: especially a new and exciting business like CrowdFunding.

The way most of those bigger portals work is they curate the deals they like. That means they select a few deals from the thousands that cross their table. They pick the promoters and deal types. Deals have to meet rather specific criteria that each portal establishes for itself. One might like high-yield investments, another might prefer land investments and yet another might prefer debt instruments. Every one of those sites has some area of specialization. They’re not random and they demand established operators with solid track records, good net worth and expert deal sense. But even if you qualify, the likelihood of being selected is still extremely low.

The myth of CrowdFunding being the “democratization of access to capital” is nothing more than a myth. Most of big portals will look at thousands of deals, but they’ll pick a tiny number to fund. The number I’ve heard is very close to 1% of what crosses their plates. In fact I saw an interesting statistic: one portal says they have evaluated over $700 billion worth of deals, yet they’ve only actually funded less than $50 million. $50 million is nothing to sneeze at, but when you compare it to the $700 billion they’ve evaluated, you can see they’re not selecting very many deals to fund.

What other choices does a promoter have to participate in the new CrowdFunding arena? I usually suggest the promoters manage and retain control of the “means of production” of their business. In the syndication and hedge fund business, the means of production is capital. It’s the one function you don’t want to outsource.

Let’s say for example you get lucky and get one of those big portals to fund one of your deals. Next time you go back and they change their mind because they’re already busy with other deals, or the new deal you bring them doesn’t fit their evolving criteria. Because you’ve become dependent on a third party to raise your capital, you effectively are out of business. Finally, when you deal with these larger portals, they’re not loaning you the investors to be nice, they’re going to take some very significant portion of the carried interest that the promoter charges for setting up the deal. Plus there may be broker/dealers involved who will charge fees, so the amount of overhead that’s added to the deal is significant, and the amount you will retain will probably be disappointing. Plus from my experience in the venture capital world, if you “fall down and skin your knee” in the execution of the deal, they might take it away altogether to protect the investors. It isn’t going to work out how you think.

Retaining control of the means of production means you probably should be building your own database of investors. In order to do that, you need to have your own portal. The “white label” portals which are typically operated by software companies, can cost $10,000 to $35,000 to set up, and $3,500 and $5,000 a month to maintain and operate. That means the very first year alone, your investment could be up to $100,000. To the large hedge funds that’s a worthwhile investment in order to build a substantial databases of investors. They’ll use the portal to handle the e-commerce portion of document sharing, investor subscription and cash management. It’s very smart.

But for entrepreneurial companies it’s not an option. It’s simply is not economically viable. For those reasons it’s very difficult for entrepreneurs to participate in the CrowdFunding opportunity. This is compounded by the fact that very few entrepreneurs have a pre-existing database of investors to reach out to on the Internet so they are starting from scratch. It’s hardly an enviable position.

As a long-time entrepreneur, I look hard at these kinds of problems. What I notice is that there are thousands of real estate entrepreneurs, who want to promote deals – many have substantial experience in the business. But they’re being boxed out of an industry that’s only one year old, because they either don’t have access to the venture capital, or they don’t have access to the working capital to buy a portal.

For these reasons, Bullseye Capital has established a company that will solve these problems for the entrepreneurs who want to own and control their own databases of investors without the burdens described above. If you want to participate in something bigger than yourself and participate in a company that has the potential for creating enterprise value for all of us, stand by.

First, reply to this piece and let me know that you are interested in learning about our solution. Alumni of our standard-setting Syndication and Hedge Fund Symposium program will be notified about this company in the next several weeks. Others will hear about it early next year.

Finally, the next standard-setting Syndication and Hedge Fund Symposium program will be held in Austin, TX from April 26 to 29, 2015. We hope to see you there.

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September 6, 2014

Piece by Piece, Step by Step

Goal setting is very difficult for many people, in part because they try to swallow the whole elephant all at one time. Sometimes goals are very easy to understand but for whatever reason, they’re very difficult, confusing, and sometimes seemingly impossible to achieve.

In the 1991 movie “What About Bob”, Dr. Leo Marvin wrote a book called “Baby Steps” and that pretty much summarizes the way that goals need to be achieved.

I travel frequently. Let’s say that I’m going to Florida. I don’t focus on going to Florida; I focus on the many steps that it takes to get to Florida. For example, first, I have to get in my car and make sure that the car has gas. Second, I have to get myself to the parking area at the airport. Then once at the parking area at the airport, I have to get myself onto the shuttle bus to the terminal. And once I’m at the terminal I have to get through security. And once I’m through security I get to the gate, board the plane, take my seat, change planes, whatever the next series of steps are. There might be 15 different steps, but when I travel I focus on doing one step at a time until I’ve arrived at my destination.

Business goals, educational goals, personal goals, and social goals all work the same way. Break them down into little pieces.

Sometimes it’s easier to understand sports than it is to understand real life, because sports is so definable. The rules are so clear and well understood. Any game or sporting event is easy to follow if you understand the rules. Everyone on the field understands the rules, and everyone in the stadium understands them too, and for those reasons, everyone knows when a player is making the right move, the wrong move, or if he is completely off course. But somehow in our life, setting goals just doesn’t work the same way.

We have to get in the habit of breaking big and seemingly impossible goals into bite size pieces. For example, writing a book is not a book, it’s a series of chapters. Or maybe the focus shouldn’t be on the whole chapter but rather on a number of pages or a series of paragraphs. And maybe those paragraphs follow a series of outlines that require some research.

Building a fund or syndication works the same way. First define the asset to acquire, then produce the marketing material, then the disclosures for the Private Placement, then the fee structure, then make the other business decisions that guide the relationship between the promoter the investors and finally put the word out to your prospects. Each part has numerous sub-parts, but you get the idea.

We’ll go over lots of these sub-parts at the upcoming Deal Making Symposium and Syndication Seminar.

One way or the other, you have to ask yourself, “what are the pieces that will eventually get me to the place I want to go”? And by asking that critical question, you will eventually get yourself to the goal line. It’s very tough to get through the Red Zone to the goal line. The first 80 yards are pretty easy, but once you get into the Red Zone, those last 20 yards, the field is short, players are on their guard and there just isn’t a lot of margin for error. The Red Zone is where most of the fumbles take place but it’s also where the points are made.

Taking the ball 90% of the way down the field isn’t good enough because you don’t get any points for 90%. You have to cross the goal line. You have to identify your goals, you have to understand the objectives, and you have to really be clear about what it is you want to do and why you want to do it. When you understand what the outcome is going to be and what the reward is to you when the job is done, it gets a lot easier to plan the work and break the job into lots of little pieces.

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August 24, 2014

The Backstory of the Crowdfunding Business – Part 2

Last week, I shared how the crowdfunding business has evolved from a donation-based model that has been largely taken over by business users who found that the donation-based crowdfunding rules provided a great way to skirt the commerce and securities rules. But one company did such a good job that they may have poisoned the well for everyone.

In 2013, a company called Oculus invented some kind of video goggles. They were very unique, they were 3-D, virtual reality, and had all sorts of other bells and whistles, and they told the gaming community that for a $250 donation, they would get a pair of these glasses once they were invented. They were completely straightforward and they told the donors exactly what would happen – when the product was ready to go to market.

Everybody did exactly what they were supposed to do, everything was working beautifully. In fact, it was working so beautifully and Oculus was receiving so many orders for these glasses on a donation basis, that Facebook got wind of what was going on.

Facebook then calls Oculus and asks, “what’s happening, we see you’ve invented some interesting glasses and we’d like to know more.” Facebook ends up purchasing the company for $2B. The donors had no expectation to participate based on their contributions, above and beyond receiving a pair of the glasses once they were invented. But now, they’ll probably never be invented and the donors will either get their money back or they’ll get something of comparable value. But had the donors actually been investors, they then would’ve received something like $40,000 per share, for every $250 that they would have “invested” instead of donated. For this reason, some people have become very unhappy with the crowdfunding model on a donation basis.

Something similar was announced this week. It was just two years ago when home-automation company SmartThings began life as a Kickstarter Project. With an initial goal of $250,000, it raised $1,209,423 from 5,694 backers. The company then raised an additional $15.5 million in venture capital, including a $12.5 million Series A round of funding. On August 14, 2014 Samsung scooped it up for a reported $200 million dollars. How do you think those donors feel?

Not related, but concurrently, the Congress of the United States passed legislation making a new kind of crowdfunding legal for the first time in United States history. From now forward, securities-based crowdfunding would become legal. That means that regular people, meaning people who are not accredited, (i.e. people who are not high income earners or millionaires) would have access to opportunities that are not public on the stock market but rather, in the incubation stage.

Rather than making a donation, the crowd can contribute capital in exchange for stock or even a debt instrument. Think about this…

Maybe you know somebody who has invented the next Facebook or the next Twitter or “The Next Home Run”. Going forward, those companies would be able to solicit early stage investment capital from regular people. And regular people can get stock that could potentially explode. (Or not).

Professional investors know that the real money is not made when a company goes public – that is when the game of Musical Chairs begins. The real money is made in the private placement phase – a phase that until now, has been controlled by accredited investors. But not for long.

Legislation known as the Jobs Act became law in 2012 and was enacted by the Securities and Exchange Commission in 2013. It allows for general solicitation of investors if they are accredited, but it also provides for a mechanism for “regular people” to participate too. We are currently waiting for the SEC to layout the regulations.

I will continue to bring more info on this topic because it is potentially the biggest business game changer in 80 years. Keep your eyes on it. This one is BIG.

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August 17, 2014

The Backstory of the Crowdfunding Business – Part 1

The concept of crowdfunding is not new. In fact, it dates back to the beginning of the industrial revolution, over 200 years ago, when the earliest industrialists needed to pool capital to take their businesses to the next level. I can just imagine Henry Ford sitting around in the country club, at the bar in the early 1900s with a bunch of his wealthy friends (his crowd), explaining the new concept that he’s come up with — the idea for a factory and an assembly line, to produce automobiles. Several of those guys probably each chipped in a sizable number of dollars; shares were issued to each of the investors, and the investors in that company and their families have been set for well over a century.

The whole stock market is based on the concept of pooling capital, which is a form of crowdfunding. But the form of crowdfunding that we refer to now really relies on the digital world and the use of the Internet to generate both leads and dollars from investors.

The earliest forms of current crowdfunding are five to eight years old, with the advent of “donation-based” or “rewards-based” crowdfunding platforms. Systems like IndieGoGo and Kickstarter turned these platforms into a sizable business that currently generate over $1 billion a year. Under the donation-based or rewards-based model, entrepreneurs such as filmmakers, artists, and others can go to a community of fans who like the product that the promoter is producing and solicit donations.

For example, for $20, a person might put the money in with the expectation only that they would receive a DVD of the finished product, if and when it was ever completed. If they put in a little more the reward would get better so perhaps they would receive a theatrical poster with the DVD. Or if they put in even more, maybe the poster would be signed by the star of the movie. But in every case, it was a donation with no expectation of anything material in return, especially if the project became successful. These projects have worked great, and lots and lots of different businesses have been funded in this way.

It didn’t take long for the business community to catch on. And once the business community got involved, everything started to change. As most of the readers of my column understand, for most inventors and entrepreneurs, the hard part is getting the seed capital to get the project rolling.

What’s difficult is producing the very first product, or sometimes even the prototype. In most jurisdictions in the United States, making sales without having a product that’s available and ready to ship is against the law. So, there’s a real conflict for the entrepreneur. How does one get the capital to produce the product? If they could just produce the product, or if they could just pre-sell the product first, then producing it wouldn’t be so bad. Unfortunately, that leads to all kinds of problems, Ponzi schemes included.

But in a donation-based or rewards-based crowdfunding model, entrepreneurs are able to create products and services by taking in dollars first, and producing the product second. They do that by taking donations for the product, and once the donations are in, they can reward the donors with a copy of the artwork or the product that the money was donated for, thereby skirting the commerce rules that limit so many traditional companies. It’s a complicated formula, but using this crowdfunding model has solved a lot of problems for a lot of entrepreneurs. Unfortunately, there was one project that was so successful that it has really soured the water for everybody who has come since then.

I’ll finish this post with that story in a few days.

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June 17, 2014

Is Crowdfunding Going Institutional Already?

You may have heard that some of the large, well established, crowdfunding portals are raising tens of millions of dollars to support their transactions. There’s a lot of excitement about this, but I believe that few people understand what the ramifications of this might be. My sense is that if these organizations raise millions with the specific intention of being able to pre-fund a deal that’s brought to them instead of waiting for the crowd to fund it, the portal will be in a position to act like an institutional investor with a tremendous amount of power.

We already know that if 100 deals are brought to these well-funded portals, they will pick 3 for due diligence and select one for funding. It sounds a lot like the venture capital model.

It might sound like a great deal for the real estate promoter who brings the deal to the portal, to get a guarantee of funding rather than wait for the crowd to act, but in reality, these deals might not be crowdfunded at all. If the portal strokes the check (from the millions they raise plus more in lines of credit) and then crowdfunds their “reimbursement”, the real estate promoter won’t actually be crowdfunding the deal at all.

Several of these larger portals use a model wherein the real estate promoter never knows who the investors are, because the portal creates a joint venture with the operating partner (the real estate promoter). So you can imagine the portals are going to be taking enormous bites out of the opportunities that come to them from real estate promoters who are looking for capital. The capital is going to come at a tremendous cost, in many cases 50% of the “promote” or of the promoter’s carried interest.

Anyone looking to do crowd funding should be extremely careful about how they move forward in this new world.

The opportunity to use the crowd is tremendous, but it seems that some companies are already suppressing the crowd – to control the transaction themselves, crowdfunding only the reimbursement of their own capital, and not actually crowdfunding the deal itself, even though the investors that put their money into the reimbursement would be paid alongside, or as a result of the deal that they’re investing in.

No one can say these portals (backed by the venture and institutional guys) aren’t smart.

Since these large portals only deal with a very tiny percentage of all the promoters that come to them (about 1 out of 100) the 99 other promoters will need somewhere else to go. Bullseye Capital is working on the solution for the 99%. We’ll keep you posted as that develops over the next couple of months.

In the meantime, keep your eye on crowdfunding – because it is a game changer.

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If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers.

Joel G. Block is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is also CEO and founder of the Bullseye Capital Real Property Opportunity Fund, LLC which acquires distressed real estate nationwide. The Fund partners with accredited investors to accomplish its goals.

We also offer standard-setting seminars to show others how to raise or syndicate capital to acquire properties. Knowing how to pool funds to purchase real estate investment, whether single family, multi-family, commercial, or industrial is the key to wealth creation. For more information and complete details, please go to http://www.syndicatefast.com/.

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June 4, 2014

Has the Storm Has Arrived in Your Inbox?

Some months ago, I wrote that with the advent of the JOBS Act and with the implementation of Crowdfunding that deal promoters would be filling our email boxes with prospective deals. That is happening now.

Every day, my inbox is filling up with opportunities to invest. Just over six months ago there weren’t any deals in circulation. Now there are tons.

All over the country, the crowdfunding industry is getting organized. I am speaking on the topic regularly and last week I addressed an audience in Austin, TX. The speakers are sharing technical details while the attendees try to glean hidden treasures and secrets. But I have a strong sense that most people are missing the big picture.

The deal business is about the deal.

Just like e-commerce isn’t a new product line, it’s a different form of mail order selling. It’s a new channel for marketing but it is fundamentally a sale like we are all used to.

Crowdfunding is somehow perceived as a panacea for those looking for capital. And for some, maybe it will be.

I see it differently though. To me, crowdfunding is the front end of the capital formation business. It is a new way to find leads for investors. It is a way to remove brokers from the mix. It is a new way to begin an investment conversation.

But at some point in the discussion, the hard question comes up. And if you can’t answer this basic, 4 word question, you will never close a sale. Investors want to know, if they give you a check, “what do they get?

Prospective promoters are scrambling to understand crowdfunding, but they don’t understand the deal business. Not a word about the need to organize, structure or manage deals is part of the crowdfunding conversation – which is why 90% of those who are looking into it will never be successful.

With all the deals floating around in the new “public solicitation” environment, how will anyone notice your deal? Will you stand out? Will you have the best answers to the investors’ questions? If not, pack up and go home.

The deal business is about deals. Once you have your deal and the opportunity organized, crowdfunding will be a great mechanism for finding investors. But if you aren’t organized, don’t bother looking for investors because they won’t say “yes”.

How will you get organized and put forth the best deal in the marketplace? If you don’t know, then make it your business to join us at the upcoming Deal Making Symposium and Syndication Seminar to learn all you can about crafting a competitive and compelling offering for your prospective investors. You can bet that your competitors are building out strong deals.

Hope to see you in Las Vegas.

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April 19, 2014

Can The People Dismantle Wall Street?

The new crowdfunding rules are taking everyone by storm, and they’re bound to have impact in ways that can only be guessed at so far. And only in the imagination of the most “crazy” of us, can we look down the road even a couple years.

We don’t know exactly what’s going to happen with crowdfunding and its implementation, but one thing is for sure: there are a lot of parties who are nervous about it – and well they should be.

For example, the banks. Banks are not friends to consumers. Granted, we all need a place to park our money, but is it really likely that most consumers are going to get loans from these institutions? They barely help businesses. They rarely help homeowners get financing to make purchases or refinances. To be fair, this is partly because of government regulation but it also reflects their own risk tolerance. These giant institutions, which were declared “too big to fail”, are too big to be in business and they are about to get a haircut.

It’s only The People that can take them down.

The new crowdfunding rules are attacking the banks head-on. Since banks won’t make loans, new organizations have sprung up that are making loans to consumers in record numbers and in record time – like never before. Companies like LendingClub and Prosper are taking in small increments of dollars from regular people (investors), pooling them together and making loans after implementing a fair underwriting process for the borrowers. This is providing consumers and small business owners with access to limited the amounts of capital to meet their needs.

I was speaking with the CEO of Prosper recently who told me that he believes young people will probably never have a need to walk into a bank. I believe that he’s right. My kids, for example, take pictures of their checks; they use ATMs to get cash and they use the Internet to move their money around. They have a pretty good sense that a bank will never loan them any money, so they might as well go to one of these peer-to-peer, “P2P”, lending services if they need capital for a business, car purchase or other item.

It’s the way of the new world. What’s ironic is that banks are more profitable than ever but the post-bail-out profits are not coming from loan interest. Much of it is coming from fees they unscrupulously charge on overdrafts, bounced checks and other account-related services.

The other who is desperately concerned about the implementation of the crowdfunding rules are the Broker/Dealers (BDs). Broker/Dealers are organizations mandated by the Securities and Exchange Commission (SEC) to oversee and employ stock brokers. The concept of a Broker/Dealer means these companies both broker other people’s securities as well as dealing in product that they own (do you sense the conflict of interest?). Stock brokers and Broker/Dealers are paid a lot of money, but unfortunately, only a few add much value. Most of the rest are just a drain on your accounts.

I want to repeat: just a few are really good.

The amount of regulation they have to deal with from the government is tremendous, and consequently, the amount of value and service they can deliver to consumers is low. Worried about crowdfunding, the Broker/Dealers have been pushing the SEC to create very strict guidelines around the new processes. They want to make sure that “the fence” they have around financial transactions stays intact.

As brokers and intermediaries, they want to be in the middle of every transaction but if the Internet has taught us anything, it’s that nobody gets to be in the middle. The Internet is the great enabler that makes it possible for people to manage their own affairs. But at the present time, the Broker/Dealers want to make sure that all the money being raised in these crowdfunding arrangements runs through them. Some of it will, some of it won’t, but clearly they’re worried that their monopoly on capital raising and money management is at risk.

By the way, most Broker/Dealers have never heard of crowdfunding and most of those who have are laughing at it – at least for now.

Crowdfunding is clearly the democratization of access to capital. There are still many rules that need to be revisited and revised. But at least for now, a lot of the old rules are being assaulted – and this is going to work out well for consumers.

Maybe the Banks and Wall Street have finally met their match. The government can’t control them but my bet is that the citizens of our country can. Go People.

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Joel G. Block is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is also CEO and founder of the Bullseye Capital Real Property Opportunity Fund, LLC which acquires distressed real estate nationwide. The Fund partners with accredited investors to accomplish its goals.

We also offer standard-setting seminars to show others how to raise or syndicate capital to acquire properties. Knowing how to pool funds to purchase real estate investment, whether single family, multi-family, commercial, or industrial is the key to wealth creation. For more information and complete details, please go to http://www.syndicatefast.com/.

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