The exchange will look to provide an open market for secondary-market transfers, and anticipation is slowly building with several crowdfunding platforms already signed up for offerings.
PeerRealty, an organization focused on the real estate crowdfunding space, developed the exchange in response to the issue of liquidity in private markets, with private investors often tied to a deal for up to 10 years. The organization began the development of CFX last year in response, as a cross-industry platform where investors may sell crowdfunded assets to retail investors, and people could buy on the secondary market.
“Down the road, this is something that will be attractive to non-accredited investors as well, once Title III takes affect,” said PeerRealty co-founder and chief technology officer Juan Hernandez referring to new regulations under the JOBS Act that enable non-accredited investors to participate in crowdfunding offerings.
As of now, the exchange hopes to bring the option of liquidity to the estimated 8.7 million accredited crowdfunding investors in the U.S.
The team envisions the exchange expanding into verticals beyond real estate including private equity, oil and gas, and venture capital to create a truly integrated experience. The initial focus will be on real estate crowdfunding, an area in which PeerRealty holds strong ties.
“It’s the asset that’s easiest to understand and price,” said head of marketing Daniel Kelly. “You can get a room full of investors to agree on value of a building, harder when it’s a start-up company. The pricing mechanism becomes very attractive to secondary market where you need to price.”
The CFX will be an open framework, and will have the functionality to be integrated into partner portals where investors may click through the same site to access the exchange. Alternately, a standalone site may be used where investors can log on and interact directly with the exchange.
When it comes to competitors, PeerRealty found there weren’t many existing online marketplaces or exchanges, particularly for alternative investments.
“There are grey markets that exist offline but we’re taking that experience online to create an open and transparent platform where people can make intelligent decisions,” added Mr. Kelly. “We think it should be as easy to buy or sell shares of any crowdfunding entity as it should be to buy Microsoft or Google stock.”
Mr. Kelly doesn’t see the new service as a threat to existing markets, and in fact sees it as a complementary add-on, with the option of liquidity set to help other industry players grow their user bases.
Investors looking for added portfolio diversification should keep a close eye on CFX come January.