How to Bring Sexy (Back) to Construction with ConTech

Start-up companies come to crowdfunding platforms eager for new financing streams and (more importantly) a way to build brand awareness. And, prospective investors flock to crowdfunding platforms eager to find new technologies to expand their businesses, leverage external innovation, and make financial returns.

The Risk and Reward of Start-Ups

Because start-ups are naturally risky, each investment opportunity is a balancing act between risk and reward. Data shows that only 50% of start-ups make it to their fifth year. To instill confidence in the crowdfunding process, platforms have taken it upon themselves to heavily vet prospective business ventures and start-ups.

While this level of oversight is common among crowdfunding platforms, crowdfunding adds an additional layer of certainty for start-ups. Often, start-ups are looking to cross the valley of death by understanding and penetrating a market. For an industry- like construction- that has been slow to adopt technology, crowdfunding offers a unique opportunity for start-ups- especially ConTech– to build resources and reputations to make it across the valley of death.

As ConTech start-ups make their way to crowdfunding platforms, they are seeking crowd validation and interest in the market. So, how do you make the most of your crowdfunded investment, for yourself and for the start-up?

Evaluating Investment Opportunities

First, decide why you want to invest. Crowdfunding offers a two-pronged financing approach for start-ups and investors. Savvy start-ups come to the crowdfunding market to interact with the market and understand demand. Therefore, ConTech, as an emerging industry, has found a home on crowdfunding platforms.

Crowdfunding, while it may seem daunting for novice investors, offers innovators, early adopters, and even the early majority a first look into novel technologies. Therefore, their investment decisions are motivated by instinct and deep market knowledge. In short, these investors invest in start-ups that are developing direct solutions to problems they face.

When we put this in relationship to ConTech, crowdfunding attracts industry practitioners looking for new ways to improve construction safety, reduce project uncertainty, better manage labor, money, and time, and provide a competitive edge. Making that connection between purpose, technology, and investment provides confidence to both investors and start-ups.

Second, research the start-up. Believing that the start-up provides a direct solution to known problems means there is a real market. While that might be the most important criteria, investors must consider several other criteria:

  1. Identify the Competitive Advantage: Investors should identify potential competitors and understand why the start-up/technology in question is unique in the marketplace.

  2. Know the Team: One of the biggest strengths of start-ups is their ability to move quickly when the market changes or an obstacle arises. That ability to move comes from the expertise and experience of the start-up’s leadership.

  3. Understand the Business Model: Is this start-up selling a subscription service, a one-time product, or a customized solution? Knowing where the revenue for a start-up is coming from is key to understanding it’s viability.

  4. Expect a Timeline: Start-ups come to crowdfunding platforms at all different stages. As a start-up matures, they should be able to show their growth through prototypes and beta partnerships with industry practitioners.

Investing on a Crowdfunding Platform

Crowdfunding is unique in that it makes the evaluation process more transparent to so many more potential investors. As start-ups cross the valley of death and attract early adopters, they need crowd validation. This makes it an exciting and also daunting option for novice and experienced investors.

Read my original piece on InfraShares.com and learn more about how to invest in ConTech on this crowdfunding platform.

Growing Wealth in Opportunity Zones: A Proposal for Community Equity Trusts

The absence of wealth creation in the African American community is at the root of lingering social inequalities. Where racism is the “disease”, insidious, inter-generational poverty, and societal and health inequities are the symptoms. Any attempt to cure this disease must begin with an imperative to ensure clear pathways to family wealth creation, wealth that may be transferred from generation to generation, inherited, accumulated and capitalized. Any cure must also ensure that wealth arising from equity investments in communities of color is at least shared with, and not extracted via sophisticated financial instruments that continue to prey on, these ever-vulnerable communities. This, we believe, is the essence of equitable community development.

Read the original piece authored by Kofi Bonner, Bruce Katz, Roberta Achtenburg, Lori Bamberger and myself.

Crowdfunding and Recessions: Two Peas in a Pod?

During recessions, banks and institutional investors, once eager to take on smaller projects and riskier ventures, tighten their lending standards and slow down investment outflows. The government can counteract these trends with loan programs and credit enhancements. But, during a recession, these dollars dry-up quickly, leaving businesses reeling.

Even under these conditions, recessions can catalyze innovation. During the first year of the 2009 recession, more than 550,000 new businesses launched. Instead of relying on traditional capital, these entrepreneurs turned towards the crowdfunding marketplace to receive capital at a magnitude otherwise unseen.

With early success, the crowdfunding market grew 54% between 2010 and 2011, grossing more than $830 million dollars among 1.2 million crowdfunding campaigns. Since then, the growth of the crowdfunding market has dwarfed these numbers. Crowdfunding’s success quickly moved beyond donation campaigns, to debt and equity opportunities.

As the recession continued to impact bottom lines, Congress shepherded the Jumpstart Our Businesses (JOBS) Act, giving credence to the crowdfunding market. In the years to follow, hundreds of crowdfunding platforms got their foothold, diversifying their position in the market in terms of model and offerings. Whereas access to investments used to be reserved for banks and institutional investors, crowdfunding opened these options to a wider pool of money. In doing so, entrepreneurs and capital seekers, sought more than just capital. They sought crowd approval, reducing demand risks.

In 2019, business journals started to see the writing on the wall- we were heading toward an impending recession, one that would bring a decade’s bullish market to a slow down. But, no one predicted the rearing economic halt of Covid-19. Similar to the 2009 recession, government programs have stopped short of supporting these businesses and providing a safety net for critical economic programs. Crowdfunding, after years of growth and ongoing regulatory clarity, is well positioned to fill the gap for small businesses, emerging businesses, and cash-strapped local governments.

Investors are looking beyond the turbulent economic conditions of Covid, and the impending recession, to diversify their portfolios and associated returns. They recognize the tumultuous state of the stock market and are looking for alternative places to put their dollars. And, entrepreneurs and small businesses are flocking to the crowdfunding market, eager to find alternative capital sources. These two sides are meeting on crowdfunding platforms.

Just as the 2009 recession created the perfect environment for this to occur, we are seeing the stage set for crowdfunding’s second rise. As the SEC relaxes regulations, crowdfunding platforms are in a tight position to ensure they support and vet new opportunities while informing potential investors, all in the hopes of maintaining confidence.

Read my original piece on InfraShares.com and learn more about how this crowdfunding platform is stepping up.

Crowdfund Your City!

How do you do it? What does it actually mean?

While crowdfunding provides social and financial support for projects, it is not a panacea for the infrastructure funding gap or neglected community engagement. Crowdfunding is a fickle tool that requires capable and resourced project sponsors and partners for its strategic implementation. Not all projects are good candidates for crowdfunding. And, not all crowdfunding models are created equal.

Donation crowdfunding models are best suited for public infrastructure projects, like community centers and protected bike lanes. This crowdfunding model leverages previous community engagement to ensure projects are well-aligned with neighborhood needs. Donation crowdfunding campaigns are often initiated by civic organizations. These organizations become ideal project sponsors who use the social and financial support from a crowdfunding campaign to attract political will for a project.  

Now, this is different for regulation crowdfunding which is commonly used for projects that have a revenue stream, like a toll road or utility. Regulation crowdfunding occurs after projects are prioritized or selected. At this phase, crowdfunding isn’t shifting development patterns, but rather reactively letting the community approve and become partial owners in the project. In this case, the project can attract local investors by fulfilling a community need and attract outside investors with a strong business case reinforced by community support.

Crowdfunding is not chosen purely as an engagement tool and neither as a purely financial tool. It is the interplay between these two purposes that allow it to be successful and also contentious. Regardless of the discourse surrounding crowdfunding, it draws attention to infrastructure projects, often neglected and unnoticed. It allows the community to see the project in new ways and begin to challenge authorities earlier in the process, providing enough time to address those concerns and improve the project. And that discourse might be the most powerful part of crowdfunding.

Learn How you can do it!

To better explain this, I worked with a very talented Stanford undergrad to develop an interactive tool to be used by practitioners, citizens, and YOU.  This tool is meant to help local leaders, who are facing extreme challenges in delivering public services, better understand the implementation and consequences of using new tools like crowdfunding. The tool includes (1) description of three different crowdfunding mechanisms, (2) stories of past crowdfunded projects, and (4) resources for moving forward with crowdfunding infrastructure projects in your community. Interested in learning more- Check it out for yourself!

Tool.jpg

In the News and the Podcasts...