CrowdStreet is a 'best-efforts' platform and the sponsor takes on the risk of underfunding when they put an offering on the Marketplace. Some offerings have built in minimum offering amounts, which provide for the minimum amount the sponsor must raise before proceeding to the project. In such instances, if the sponsor fails to raise the minimum amount, investor proceeds are generally returned. Still, even if the minimum offering amount is not raised, the sponsor may have the right to proceed forward with the offering. Investors should carefully review each offering’s legal documents to understand whether an offering has a minimum offering amount and, if so, the impact of failing to achieve it.
Nonetheless, since the inception of our Marketplace in April 2014, every offering in which the sponsor intended to close the transaction (i.e. those that the sponsor did not terminate its contract to acquire the property) has proceeded to close regardless of the amount ultimately contributed by CrowdStreet Investor Members.
While CrowdStreet has grown to become an increasingly significant channel to sponsors for capitalizing their deal flow, it is typically not the only channel deployed by sponsors for funding a particular offering. In most scenarios, CrowdStreet investors are investing alongside a sponsor’s own balance sheet equity as well as its existing network of passive investors. This structure inherently leads to variability in how much each channel contributes to the end goal. Sponsors do not come to us because they are strapped for cash, but because they see the value of crowdsourcing.
Once a deal is live on the CrowdStreet Marketplace, CrowdStreet actively collaborates with the sponsor in reaching the total fundraising goal. In essence, CrowdStreet becomes the sponsor’s online channel partner for the duration of the capital raise.
To learn more about when an offering exceeds its fundraising goals, please read our articles on oversubscription.