How to Develop a Crowdfunding Plan for a Hotel

Crowdfunding has recently emerged as a dominant force in the real estate financing market. Quick stock or debt raises with little direct investor contacts are an attractive financing option for deals. The idea appears too good to be true when you consider that you can launch a hotel crowdfunding campaign in a matter of weeks.

Technology has unquestionably improved the effectiveness of real estate syndication. Still, you'll need to put in some time and effort to ready your platform for a fast rise. The good news is that it is not hard to develop a hotel crowdfunding plan that can regularly yield returns.

Please be aware that the data shown here are for illustrative purposes only. There is no intent for this text to provide legal or accounting advice. Seek the advice of an expert who can help you choose which offer is best for your circumstances.

Stage 1: Educate Yourself

To expand your real estate firm and take on additional ventures, raising stock from outside investors is a wonderful strategy. Because of the stability that real estate gives, it is the best asset to use when investing with OPM. In addition, investors depend on your knowledge to help them find opportunities and carry out their real estate investment strategy.

Crowdfunding in the hospitality industry consists of a tenth sales and marketing and a ninth legality. In other words, you should devote the most of your time and energy on attracting investors and demonstrating your competence.

Let’s start with the simple part.

Finance and Securities Law

Multiple regulations governing real estate syndication are enforced by the Securities and Exchange Commission (SEC) and state authorities. Investors want to know the potential downsides to each financial investment they make, as well as any expected returns.

It is costly and time-consuming to comply with the regulations for a complete public offering. They make it difficult to obtain funding, even in tiny sums. Therefore, the government established exclusions in order to guarantee the free flow of domestic private capital markets, provided that two main requirements are met.

Please refrain from "general solicitation," or advertising your transaction publicly.

Accredited investors only (those with significant wealth or experience) should be solicited for funding.

Due to the JOBS Act of 2012, contemporary syndication, often known as crowdfunding, is now possible. The ad sponsor must only accept authorized investors and must verify their status before including them in the syndication. New mechanisms for raising cash were also authorized under the legislation.

Not just hotel crowdfunding, but private placements in general fall under these guidelines.

The Exceptions to Registration Requirements

The following are current exemptions from real estate syndication registration:

The typical "Reg D" exemption, Section 506(b), does not permit mass solicitation but does let investors to self-certify their own accreditation.

506(c) – The current “Reg D” exemption that allows for broad solicitation, but requires that a third party validate accredited status of each investor

Regulation A – Considered a mini-IPO, the “Reg A” exemption permits you to raise up to $50 million per year for a single asset or a portfolio of assets from investors big and small – not only accredited investors – but it needs SEC permission and expanded reporting

Laws and Rules of the CF - Similar to Regulation A, but with less stringent reporting and regulatory requirements, you can only fund $1 million.

Although Regulation D remains the most often used exemption for capital-raising, the real estate industry is beginning to embrace the other exemptions as well. Fundrise was an early adopter of Regulation A for a family of low-entry-barrier REITs aimed towards the general public. Even if such a venture would be too ambitious for many potential backers, it is a stunning example of the potential of real estate syndication.

Both online and offline real estate syndications typically employ the Reg D exemption when seeking investors.

The New Rules and Regulations

Mutual funds, private equity funds, hedge funds, and other firms that invest securities for others are subject to the rules of the Investment Company Act of 1940 ('40 Act). If (1) your syndication controls a majority of the common stock stake in your transactions and (2) there are less than 100 investors.

If (1) your syndication controls a majority of the common stock stake in your transactions and (2) there are less than 100 I This, however, should be verified on a deal-by-deal basis with your securities attorney.

Each jurisdiction's securities agency has its own standards and regulations. In order to solicit and receive investment funds in their state, you must comply with "Blue Sky" legislation. They also mandate the reporting and disclosure standards applicable to fundraising in their jurisdiction.

It is important to check with a securities expert to ensure compliance with Blue Sky rules, as hotel crowdfunding campaigns sometimes entail marketing in numerous jurisdictions.

If you need advice on securities, consult an attorney. It doesn't matter how much schooling you obtain, the assistance of a competent attorney is invaluable when laying the groundwork for your plan.

It used to be the case that sponsors of Business Development Agreements would promote their platform rather than individual deals. During a "cooling off period," they confirm accredited status and investor fit before pitching transactions to the investors in their database. Under the new rules, you may now immediately propose a business offer instead of going through the traditional courting process.

While the new guidelines make it easier to attract customers, the tried-and-true sales funnel approach remains strong for the long haul.

In contrast to marketing, which relies on broadcasting messages to a large audience, sales involves interacting directly with potential customers. Both are necessary if we want to establish credibility.

For a business development professional working in acquisitions, the goal is to convince a building's owner to sell. Investor relations work toward the same end: securing a steady flow of capital for ongoing and future investment.

There is a lot of waste in the private capital markets. Finding a good bargain is challenging, so the first step is to raise brand awareness. As more and more people learn about your investing techniques, the pool of potential investors will become less and smaller. And as people move through the funnel, you will strengthen your relationship with them.

One of the most important aspects of any hotel crowdfunding platform is undoubtedly the sales and marketing funnel.

A healthy funnel depends on your ability to be everywhere at once. Common methods of raising brand recognition include content marketing, search engine optimization, Facebook advertising, public relations, and even good ol' fashioned cold calling. Attract enough interest to fill the top of your sales funnel with potential customers. The next step is to gradually push them into making an actual financial commitment.

You probably won't need much help from anybody else. In contrast, hiring a seasoned marketing consultant will provide the greatest return on investment. Start learning the basics of digital marketing so you can evaluate your marketing consultant effectively.

Stage 2: Prepare the Groundwork

One of the most important factors in the success of a crowdfunding platform is its capacity to maintain interest among its investment base. As a result, they can quickly and easily secure funding for any contract that comes their way. Stories of instant success, such "$4 million raised in 24 hours," are rarely true. That type of accomplishment requires months of establishing credibility as a sponsor and being prepared to pounce when the opportunity presents itself.

Your crowdfunding plan will determine the kind of investors, organizational frameworks, and personnel you need to succeed.

Strategy

Investing in a real estate syndication is a straightforward process. You are forming a limited liability company (LLC) or a limited partnership (LP) for the express purpose of raising cash. For a contract for $12.5 million, for instance, you could require $4 million in equity. The remaining $3.5 million will come from a pool of investors who are each putting in at least $40,000.

The minimum investment amount is there for two reasons. It helps you avoid running afoul of the '40 Act and keeps investor relations under control.

More investors are needed than the bare minimum to make a syndication firm viable. You should expect that not all of the investors in your target market will be interested in every single offer. Building an audience is a process that requires patience and persistence; therefore, the approach should center on steady, incremental growth.

There is no hard and fast rule for how few investors you need to be successful. There will be investors who are willing to put in hundreds of thousands of dollars, and others who will only commit tens of thousands.

Maintaining a steady pace as you add leads to the funnel is crucial.

Always keep in mind that your ultimate goal should be the success of the platform you are creating. Ideally, the investors you attract will fund several transactions and be around for a long period as part of your ecosystem. You shouldn't waste your time on speed dating since you're serious about getting married. To attract investors for a single deal, community building should take precedence.

Budget? Use any and all means necessary to bring others into your area of influence. The price tag here might range widely. Use what you have as a foundation, and then add layers of strategy until you find the optimal combination of approaches.

Syndication's Legal Elements

Collaboration between several parties is necessary for the completion of deals. In this tribe, you play a pivotal role as the leader. The initial syndication requires three paperwork, all of which your securities attorney should help you put together.

The Private Placement Memorandum (PPM) is a non-public offering document that provides a summary of the opportunity, sponsor qualifications, risks involved, and legal disclosures. It includes projections that your lawyer will review for potential legal exposure.

You might think of a subscription agreement as an order to buy shares in a special purpose entity (SPE). It specifies what must be done to complete the transaction, confirms that all necessary information has been disclosed and understood, and supplies the data necessary to conduct KYC and AML procedures.

The SPE's mission, objectives, and authority to make key decisions are all laid forth in the SPE's Operating Agreement. Each shareholder's payment schedule is spelled out in detail in the operating agreement as well.

Putting together a package of this caliber for a first deal might take a considerable amount of time. This is a huge team effort including not just you and your lawyer, but also your marketing staff. Half of the PPM is devoted to promotional items, one quarter to information about the transaction, and one quarter to required disclosures. While your attorney serves as a guide, they will be unable to do their job effectively without knowing the ins and outs of the marketing and the deal.

Consult a securities lawyer who is versed in real estate syndications. Based on factors such as transaction complexity and other services required (such as state "blue sky" filings), the cost of a Regulation D offering can range from $5,000 to $25,000.

If you want to crowdfund for a hotel, it could be a good idea to team up with a lawyer that has experience in this area. This form of advertising differs somewhat from traditional offline real estate syndications in terms of strategy.

Strategize FIRST, then offer a deal.

For several reasons, investors prefer private placements. All investors want to maximize their profits while minimizing their losses. Although the ideal risk-reward ratio may vary from one investor to the next, the principle can be applied to any type of investment.

Investors should feel confident that the sponsor will spend their money as promised as a result of the sales and marketing strategy. You can't promise a return on investment, but you can earn investors' confidence by showing them their money is going toward a goal with a reasonable chance of success.

Building a strong sales funnel is beneficial not just for your business but also for your customers.

Alignment and community in your real estate ecosystem may be cultivated through a well-designed sales funnel. In the initial sales call or webinar, you should introduce yourself and talk about how you earn money. Any sales presentation made this early on should just serve as an example, or case study.

Make your sales pitch once you've established mutual interest in the offer.

Each step of the sales funnel represents a sale. The aim is to help the lead get to the next level as rapidly and surely as feasible.

There is no one-size-fits-all list of materials you may use to increase your audience, but the fundamentals always include:

A corporate presentation is a written or digital document that outlines your company's background, expertise, and future plans.

As an illustration of possible transactions: Quick summaries of deal-getting, closing, and other relevant activities

Digital assets — a well-developed web profile where potential backers may familiarize themselves with your business model and strategy before deciding whether or not to contribute

First and foremost, remember to keep things basic while you build your foundation. Digital monitoring tools and sophisticated dashboards are useful in the long run, but they may be a distraction in the early stages of a company's development. They stop you from making the necessary preliminary moves toward creating an investor database.

Stage 3: Get Involved

The time has come for you to start interacting with your network. There is a delicate balance between over- and under-preparation. Start with a well-designed company brochure that highlights one or two relevant case studies. Create the remainder as you learn more about your target market's preferences.

Together with your marketing expert, you'll create a strategy to actively include your target demographic. To be sure, the first (and maybe most crucial) step is to shape your outlook in accordance with these three tenets:

• Keep your options open.
• To be constant in your actions
• Use initiative.
• Cut yourself loose from preconceived notions that are holding you back.
  
• Discard any assumptions about a person's financial wherewithal or propensity to make investments.
  
• Take charge of your schedule so that you may devote each day to prospecting.
  
• Stop telling yourself that you need just one more item to get going.

As a business owner, you are well aware that no one ever embarks on a new enterprise with all the information they will need. Each day, it seems, a slew of new entrants enter the hotel crowdfunding market. The only thing that will separate you from them at the conclusion of the first year is your courage to take the leap. If you can just get beyond your mental block, you'll soon be making headlines.