When it comes to raising money, firms are turning to crowdfunding in growing numbers, and investors are taking note. A new round of institutional financing has been secured by Groundfloor, the first real estate crowdfunding site to get regulatory licence since 2015.
Groundfloor was formed in 2013 by former mobile network exec Brian Dally and co-author of the bipartisan JOBS Act, Nick Bhargava. Fintech Ventures led the Atlanta-based company’s $5 million Series A investment round immediately after the JOBS Act’s new crowdfunding laws took effect, enabling small firms to collect up to $75 million from non-accredited investors without registering the offering.
Groundfloor’s platform allows its 150,000+ members to invest as little as $10 in real estate debt. Dally, the company’s CEO, told TechCrunch that almost all of its products are accessible to non-accredited investors. The reasons why people use Groundfloor are as diverse as the individuals who use it, according to Dally, from novices searching for a safer alternative to the public markets to seasoned investors who prefer to use an app instead of a broker.
Groundfloor was founded by Dally and Bhargava in order to let the typical investor have access to investment opportunities that have a comparable risk-to-return ratio to those offered to institutions. It’s possible for these investors to access real estate without the need for a publicly listed REIT (real estate investment trust) or the risk and concentration of owning a complete rental property, Dally said.
According to Dally, the company’s “secret sauce” is its thorough knowledge of regulatory structures. Getting the SEC’s licence to operate in its first U.S. state took two years and around $1 million for Groundfloor, he noted, comparing the wait for the launch of its first product to that of a new medication. The corporation now sells securities in 49 of the 50 states of the United States and provides financial assistance to real estate projects in 35 of those states..
According to Dally, Groundfloor uses an algorithm that gives each loan a grade based on its risk across six distinct parameters, including the track record and expertise of the real estate investor who would be receiving the loan. Using these rankings, investors on Groundfloor may make allocation choices based on their individual risk tolerance, he said.
Stairs, a savings and investment programme that Groundfloor debuted in the autumn, now has $22 million in assets invested on its platform, a result of the company’s expansion. Users on Stairs may earn between 4% and 6% interest on the money they keep in a virtual checking account, which is really a savings account. According to Dally, Groundfloor makes loans to real estate entrepreneurs and retains them on its books before selling them to investors. Users of Stairs have access to continual liquidity and may withdraw their funds at any time, he said, which required nine months of SEC approval.
“These RegTech lifts are hefty. It takes a lot of legal savvy to get it done. It’s a lengthy process, but “we believe it’s worth it,” Dally added.
The business has raised $30 million in equity crowdfunding from its own consumers since its inception in 2018 via the platform SeedInvest. Dally estimates that this group of private investors currently controls around 30 percent of Groundfloor.
Groundfloor’s revenue is expected to expand by 114% to $12 million in 2021, according to the firm, as a result of the recently announced Series B round of funding. Investors in Groundfloor’s real estate loans earned an average of 10% each year, according to the firm’s statements.
Israeli real estate developer Medipower invested $5.8 million in the company’s current round, while 3,600+ individual investors who support Groundfloor via SeedInvest contributed $7.2 million. Over eighty-six people invested directly via the Groundfloor app, putting up a total of $5,000. Non-accredited investors can’t invest in convertible notes on Groundfloor since the firm seldom raises them. Dally observed this.
With the revelation of fresh money came an announcement of an alliance between Medipower, an expert in shopping malls and retail real estate. Medipower expects to spend up to $100 million this year and an additional $220 million next year in loans on Groundfloor. For the sake of ensuring that other investors are not squeezed out, the Tel Aviv Stock Exchange-listed business, MDPR, would invest in these loans under the same conditions as ordinary investors on the platform and be restricted in the amount it may invest. At Groundfloor, Yair Goldfinger, founder and chairman of Medipower, will take on a new role.
Dally expects Groundfloor’s investments in Medipower to account for 25 percent of the company’s total assets by the end of 2022. Medipower’s investment in Groundfloor is seen as a non-dilutive source of funding since he anticipates the company’s institutional validation from Medipower’s investment to attract further revenue.
“That [money] will directly assist real estate entrepreneurs who are conducting new development projects and creating houses around the nation,” Dally added.
Groundfloor intends to hire 50 additional workers with the money it raises via this fundraiser. The company now employs roughly 70 individuals. Dally estimates that engineers will make up around 40% of the new employees hired to help the firm expand, especially in the product area.
“We’re getting ready to go from 160,000 investors to a million investors in the next couple years,” Dally said.
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