Ground Floor steps up its real estate debt crowdfunding platform with fresh capital – TechCrunch

Startups

Crowdfunding has become an increasingly popular way for companies to raise capital, and investors are taking notice. Groundfloor, the first real estate crowdfunding platform approved by regulators, today announced that it has raised its first round of institutional capital since 2015.

Brian Dally, a former mobile network exec, and Nick Bhargava, a co-author of the bipartisan JOBS (Jumpstart Our Business Startups) Act, founded Groundfloor in 2013. The Atlanta-based company raised its $5 million Series A, led by Fintech Ventures. after new crowdfunding rules under the JOBS Act went into effect, allowing small businesses to raise up to $75 million from unaccredited investors without having to register the offering.

Groundfloor’s platform offers real estate debt investments to more than 150,000 users, with a minimum investment of $10. Nearly all products available on the platform are open to unaccredited investors, Dally, who serves as CEO, told TechCrunch. Ground floor users have a wide variety of reasons for using the platform, from new investors looking for a safer alternative to public markets to experienced investors who prefer to invest through an app rather than using the broker, Dally said. .

Dally and Bhargava started Groundfloor to help average investors access opportunities that are comparable in risk-return profile to those of institutions, according to Dally. Groundfloor offers these investors an alternative way to access real estate “without having to buy a publicly traded REIT (real estate investment trust) or buy an entire rental property and take on the operational risk and concentration risk,” Dally said. . †

Ground Floor Co-Founders Brian Dally and Nick Bhargava Image Credits: Ground floor

The company’s “secret sauce” comes from Dally’s in-depth knowledge of regulatory frameworks, according to Dally. The launch of its first product felt like waiting for regulators to approve a new drug, he added, noting that it took two years and about $1 million for Groundfloor to get approval from the Securities and Exchange Commission ( SEC) got to operate in its first US state. Today, the company sells securities in 49 of the 50 US states and lends capital to real estate projects in 35 states.

Groundfloor underwrites the loans on its platform using an algorithm that rates each loan based on risk across six different factors, focusing on the track record and experience of the real estate investor receiving the loan, Dally said. Ground floor investors can then make allocation decisions appropriate to their own risk tolerance levels based on these scores, he continued.

Groundfloor has scaled up its platform by adding new debt investment products, including a savings and investment app called Stairs that launched last fall, which now has $22 million in invested capital. On Stairs, users earn between 4% and 6% interest on cash that is essentially a checking account. Groundfloor uses the capital it gets from Stairs users to make loans to real estate entrepreneurs, who keep it short on its own books before selling it to investors, Dally said. Trap users have constant liquidity and can withdraw their money from the app whenever they want, he added — a new structure that he said took nine months to qualify with the SEC.

“These are heavy RegTech elevators. There is a lot of legal engineering involved. So that process takes a lot of time, but we think it’s worth it,” said Dally.

In 2018, the company began raising capital from its own users through its equity crowdfunding platform SeedInvest, which has since raised a total of $30 million. This group of individual investors now owns about 30% of Groundfloor, Dally said.

The newly announced Series B comes on the heels of substantial growth for Groundfloor, which, according to the company, saw revenue grow 114% to $12 million by 2021. Groundfloor said its investors achieved an average return of 10% during the year on all its real estate loans.

The crowdfunding platform for real estate loans on the ground floor

The crowdfunding platform for real estate loans on the ground floor Image Credits: Ground floor

In the latest round, the company raised a total of $118 million, with $5.8 million in equity from Israeli real estate company Medipower and $7.2 million from more than 3,600 individual investors backing Groundfloor through crowdfunding platform SeedInvest. 86 people also took part directly in the round through the Groundfloor app, with their investment consisting of $5.0 in convertible notes. Dally noted that convertible bonds are one of the few ground-level products unavailable to unaccredited investors, in part because the company rarely raises them.

Groundfloor announced a strategic partnership with Medipower, specializing in shopping centers and retail real estate, as part of the financing news. Medipower plans to invest up to $100 million in Groundfloor loans this year, and up to an additional $220 million next year. The company, which trades on the Tel Aviv Stock Exchange under the ticker MDPR, will invest in these loans on the same terms as individual investors on the platform and will be limited in how much it can invest to ensure that other investors don’t get money. . Express. As part of the deal, Medipower’s founder and chairman, Yair Goldfinger, will join Groundfloor’s board.

Medipower’s investments could reach 25% of Groundfloor’s assets under management by the end of 2022, Dally said. He sees the investments in Medipower loans as a non-dilutive source of funding, as he expects the institutional validation of Medipower investments on Groundfloor to attract revenue for the company from other sources.

“Which [capital] will directly benefit real estate entrepreneurs who are executing new construction projects and building homes across the country,” Dally said.

Down plans to use part of the fundraising proceeds to add 50 new employees to the team, which currently consists of approximately 70 people. About 40% of these new hires will be engineers to support the company’s growth plans, particularly on the product side, Dally said.

“We’re getting ready to go from 160,000 investors to one million investors in the next few years,” Dally said.

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