In 1998 Wealth Migrate Founder Scott Picken wrote a dissertation on how information technology (IT) would revolutionize construction management. The synopsis was:
“To take an old industry, steeped in tradition and run by many smaller, disparate and often inefficient operators, and to redefine it through the use of web technology to increase global reach, partnerships and efficiencies of scale, so as to provide a ‘one stop’ enhanced and personalized service to our clients.”
Seventeen years ago Mr. Picken was employed in a construction industry that was not at all familiar with technology, but he quickly developed a vision for the significant role IT would soon play.
“We could reduce inefficiencies through the internet by providing value for customers and by working together,” Mr. Picken recalled. “Construction was very inefficient and disparate and by the use of the internet one could get the efficiency of scale and cooperation.”
“Take what’s been happening to the finance or the banking world. In the 1970’s they were not very IT literate. In the 1980’s they embraced it and for the rest of the 80’s and in to the 1990’s it was a major part of the business.”
In 2001 Mr. Picken was working for an Irish property developer in London when he installed a LAN system across the company. That was only 14 years ago.
“Then it (technology) was business to business and now the technology is business to consumer and is allowing the consumer to have more access and getting efficiencies out of that disparate industry.”
Fast forward to 2008 when Mr. Picken had been working in international property development for more than a decade.
“In London, Lehman Brothers had just gone out of business and the world was going into a panic. The London developers had gone into a tailspin and were giving properties away at more than a 50 percent discount of what you could buy them at essentially three months before.”
At the time Mr. Picken was living in Wimbledon. He learned of one nearby building where units which were priced at £ 320,000 only four months before were then selling for £150,000.
“I ran around trying to find funding to do the deal. £10 million was what I needed. I dealt with a number of high net worth individuals but we certainly did not have the size the scale or the efficiencies to be able to make it happen.”
“I spoke to the developer about buying one on my own and he literally laughed at me. That caused me to realize the power of group buying. If I was to arrive with wallets full of cash I could have done that deal there and then and it would have been a phenomenal deal.”
“It was only then I embarked on the whole idea of bringing people together to provide buying power to get access to good deals that individually we don’t have access to.”
Even though he was actually doing it, Scott Picken had never heard of the term ‘crowdfunding’, and would not for three more years.
“At the time we were looking to set up an international property fund or an international real estate fund for the exact same purpose but obviously crowdfunding had just made things a lot more easier.”
Like everyone else Mr. Picken was new to crowdfunding, but he was not new to property investment and development, nor was he new to using technology as a means to maximize efficiency.
“We were a real estate player embracing technology so we could grasp and enhance the process. We had done 2,200 international property transactions in the UK, US, Australia and South Africa, so we already had a number of well established relationships. We also had the clientele because we had thousands of investors around the world who had been investing in these transactions.”
Even with this solid start Mr. Picken and his team encountered many challenges as they sought to navigate regulatory obstacles in not just one country but in several simultaneously. One of the hardest items was to find people with any knowledge of crowdfunding to begin with.
“Once the legislation changed the challenge we had was finding key partners and legal partners. Every lawyer we spoken to told us it was illegal and we were paying a fortune in compliance to meet the requirements of the different agencies in each country. Everyone we spoke to told us it wasn’t possible.”
“We were trying to build everything with a team of people in South Africa, a team in India and another team in San Diego. I realized we weren’t moving with the speed I wanted it to.”
At that point Mr. Picken and his team took a trip to Silicon Valley and everything changed. “We stopped trying to find lawyers that didn’t understand crowdfunding and began trying to find people who embraced crowdfunding and who understood how to comply with the legislation. Then we looked for software programmers that we could partner with that could provide us with the technology.”
Wealth Migrate was now ready to scale from the real estate model to the crowdfunding model.
Given the rapid evolution of crowdfunding, everyone, from legislators to entrepreneurs, are working without a net as they attempt to function within a system that was constantly changing. That brought a host of challenges, including a new twist on the legal hurdles Mr. Picken had been clearing for months. Now the legal industry was beginning to acknowledge crowdfunding but it made little difference if they did not know what to do with it.
“Take what has happened in the US and what is still happening in the US even though the US is one of the slower in terms of the SEC legislation,” Mr. Picken observed. “Take Australia, Singapore, South Africa and even the UK. Although crowdfunding is legal to an extent it is still pretty grey, so it is very difficult to understand what is legal, what is illegal, and what is compliant. Working with our legal team to make sure what we are doing is compliant in each country, that has been the hardest part.”
Maybe the hardest part but not the only hard part. Then there were the usual issues with operating in many countries at once.
“Take going across borders, say between South Africa and the US,” Mr. Picken offered. “The legislation in the two countries is 180 degrees different. In South Africa if I come to you and say I have this specific real estate deal then you can make the offering, there’s nothing stopping you from a legislative standpoint. But if I do a blind raise where I am raising the capital and then finding the properties then I’ve got to fully comply with certain legislation.”
“In America it is 180 degrees different.”
In such an environment establishing key partnerships with local business in each country is crucial.
“After 2,200 deals what we’ve enabled ourselves to do is to to make sure we comply and we have good partners on the ground.”
This is the first part of a two-part interview.