Profitability is a Decision

Today and tomorrow are a two for one AMA episode. That is Ask me anything. I love to answer your questions, if you have a question, send it in, I’ll answer it live on the air. David from Pittsburgh has a great two-part question. His question is about the number of crowd funding startups that have launched in recent years. On tomorrow’s show, I’ll answer David’s main question. On today’s show we’re going to take a look at Crowdfunding startup RealtyShare, which announced that they were shutting down due to lack of funding. Founded in 2013, the California-based company claims to have raised more than $870 million for more than 1,160 real estate projects. Here is my take on why they went bankrupt. If they needed more funding after 5 years of operation, then they were not running a profitable business. There is no reason for a company to burn through 63 million dollars in the process of raising $870M dollars. They clearly did not have a profitable business model. I believe the reason they didn’t attract funding is because investors were unimpressed with their inability to turn a profit. You can’t run a business that just burns through investor cash and hope that investors would come back for more. The company reported that they needed the extra funding to grow. But in truth, they needed the funding to stay alive, irrespective of any growth. That tells me that the company wasn’t even close. If they could not be profitable having raised $870M, why would they be profitable in the future when they were larger? Something in the math didn’t add up. When a company loses that much money over 5 years, it’s because they decided to do so. It’s not like they intended to be profitable in year 1 and missed the target.