Technology vs Real Estate Investments for EB-5
Recently some emerging technology companies have turned to EB-5 capital raise to execute their growth strategy. Many investors do not realize that technology companies are offering a much better job creation opportunity and have a much higher overall value return potential.
Technology traditionally has been a powerful business enabler. However Artificial Intelligence, Blockchain, and Immersive Experience are disrupting Industries exponentially by transforming the Industry architecture itself. This fundamental shift is fueled by automation, machine cognition and new C2E (Consumer to Everything) engagement models.
In this article we will compare real estate and technology investments on how they stack up for an EB-5 investor.
|Criteria||Real Estate Project||Technology Company|
|Return on Incremental Investment||Real Estate projects have a target project development cost. Without the full budget amount being available, the project cannot be completed and revenue cannot be realized.||Technology companies on the other hand can put any amount of investment to use immediately and generate a return from it. This provides an opportunity for every investor to be assured of their return.|
|Risk of Green Card approval
Investment in EB-5 is expected to take a huge dip soon after the November 21, 2019 deadline. You would not expect the same investors to put down 90% more for the same green card soon after the deadline but in due time we expect the EB-5 candidates to return to investing.
|Real estate projects run the risk of not filling their full capital raise before the deadline and thereby not being able to reach the finish line for job creation. This may put the green card approval at risk.||Technology projects on the other hand can continue to provide returns and hire with incremental investments and weather the dip in EB-5 investments. It is part of the technology business model to easily adjust course based on available capital|
Companies are valued based on their revenue, income, assets, pipeline of customers, and the market potential.
|Real estate projects are valued with traditional valuation models based on mostly on the income and assets. The multiplier and the goodwill are very much limited to the location.||Technology companies hold patentable intellectual capital that has a long term growth potential. Selecting a tech company with the right specialization or secret sauce usually can result in exponential valuation - the multiplier on revenue would 10 to 15 times.|
|Convert your loan to equity
Your EB-5 investment is usually loaned to the Job Creating Entity (JCE) and the returns are in the form of interest payments at set annual rate. Investors do not get a share of the business. But that is different with technology companies.
|Most real estate investments due to the limited valuation opportunity may not offer the option to convert your investment into a share in the business.||Technology companies enjoy a much higher valuation after the initial growth years and since the initial investors were the enablers, it is common practice to offer a conversion to shares in the company at a discount price. For example after 5 years if your capital is returned at $500K, in addition to all the interest payments, then you have the choice to buy into shares of that company that will be immediately valued at $625K or higher based on the discount offered to you.|
|Potential Market Size and Geographical reach
This is important for the growth and resiliency of a business. A wider geographical reach means less dependency on the local market shifts.
|Real estate is by definition a local business and is limited to the market available to it in that area. Even real estate at tourist attractions are dependent on the local tourism industry.||Technology companies cater to the global marketplace across regions and countries. Usually the intellectual capital they create is applicable across the world. This is especially beneficial when economies take different turns in|
|Job Creation Potential
Especially when the Green Card processing dates are not current.
|Real estate projects hire at a high rate during the construction phase and once the construction is completed operating the real estate does not require as many employees.||Technology companies have a continuous growth as the number of customers increases and the employees hired are retained and developed for the long term.And more importantly, the skills that a tech company develops in their employees is longer lasting and very attractive for USA economy.|
As we see above the technology companies are undeniably a better EB-5 investment opportunity But real estate may still be attractive to investors who like the comfort of knowing that their money is invested in a physical asset despite its limitations.
However in this new world where data is the oil, Artificial Intelligence is augmenting our collective intellect and our physical and digital worlds are merging, tech is the place to be for every EB-5 Investor!