We Heard You

We Heard You

Last week, Nick and I emailed our 10,000 investors to say “we hear you.” Many of you wrote back to take us up on our call for input, feedback and ideas for dealing with the overwhelming demand. Hundreds of you are now regularly buying up our loans within minutes, faster than we can supply them. Based on investor feedback, we’ve decided to introduce two changes that will take effect immediately with our next batch of loans.

 

First, going forward, all loans will be announced at least 24 hours prior to funding. This longer preview period will allow more people to plan ahead. We have heard that a few hours isn’t enough time, especially when loans are released at certain times of day. Longer term, as many of you have suggested, we plan to develop tools that will automate the investment process, including taking advance instructions during the preview window. The current feeding frenzy that occurs when loans are released is inconvenient and unpredictable. We will engineer that out of the Groundfloor investor experience, ensuring that popular loans aren’t allocated based on how quickly one can invest.

 

Second, and more significantly, we will begin testing a loan participation limit. Our analysis of recent activity indicates that a few large dollar investments could start crowding out people who would otherwise be able to participate. Just as speed shouldn’t determine one’s opportunity to invest, nor should the size of one’s portfolio. While we value allowing everyone the freedom to invest as they will, what truly sets Groundfloor apart is our mission to broaden investor access. Set as a percentage of the loan size, the limit will now control how much any one person can invest in each loan. The larger the loan, the larger the limit. Most people invest around $500 per loan and won't be affected. Of course, there's no limit to how much one person can invest overall. Long term, we believe that clearing the way for hundreds of smaller investments makes for a healthier marketplace.

That last point bears emphasis, especially given recent events in our industry. Several online lenders operating in segments other than real estate have reported disappointing results this month. The problems at Prosper, LendingClub (NYSE: LC), OnDeck (NASDAQ: ONDK) and Square (NASDAQ: SQ) relate to their reliance upon capital sourced from institutional investors.

There’s nothing inherently wrong with institutional capital. We’ve never taken any at Groundfloor, but someday very likely will. Introduced too early, taken on too fast and in too high a proportion, however, capital supplied from non-retail sources is notoriously unpredictable. It plays out exactly the opposite of how one might think. Instead of serving as a strong foundation, the size as well as the structure wield dangerous and unanticipated power. On one hand, many industry participants are suffering from the aftereffects of an institutional capital sugar high. On the other, several face a highly contagious and chronic case of financial sclerosis. That situation is precisely what Groundfloor was originally conceived to avoid and withstand.

Whereas every other platform in our space has apparently emphasized growth over structure, we’ve patiently chosen the opposite. We didn’t start Groundfloor to be a new way to serve the same old keepers and allocators of capital, but aimed much higher: To form a new kind of capital, distributed in a new way, by new sources themselves. Sources that could and will withstand the ups and downs of business cycles and Wall Street sentiment. Sources that are stronger because they are more diverse and distributed, and therefore we believe wiser: You.

That’s the real story behind today’s changes. Together with our investors and borrowers, we’re building a better Groundfloor -- with increasingly more loans to diversify into every month, and more opportunity for more investors. While providing more notice and limiting investment won’t themselves deliver more loans any sooner, we are taking steps to preserve the breadth we set out to achieve as our original vision.

We'd be remiss to close without also addressing the issue of loan supply. Our loan pipeline continues to grow steadily, even though the throughput isn’t yet where we want. March and April yielded ten loans in each month out of hundreds of applications. This month we’re on our way to growing past that level. We’re taking time now to prepare the necessary systems, processes and people to ensure that our already high lending standards remain that way, and become even more rigorous over time.

We appreciate all of your feedback. Today’s changes are a direct effect of that dialog, as will be many more improvements to come. Stay tuned!

First Quarter Company Update

First Quarter Company Update

Why do startups report results? Is it braggadocio? Attention-seeking? We can’t speak for all of our peers, but it’s a fair question, especially since we periodically report results ourselves, as we are today for the first quarter of 2016 while also sharing perspective on news of our first quarterly rate cut.

In the case of Groundfloor, public reporting is matter of accountability. On one hand, our financial and operational details are a matter of public record, in compliance with federal and state regulatory requirements. That is a price of being the only issuer authorized by federal and state governments to open up previously private real estate finance markets to the public.

But on the other hand, we also share more than the law requires. Why? We’re more accountable than the minimum due to the nature of our enterprise. At Groundfloor, thousands of investors entrust a part of their portfolios to borrowers through us. Our borrowers count on Groundfloor to deliver capital quickly, reliably and cost-effectively. Many potential investors and borrowers watch from the sidelines, deciding whether and to what extent they can trust this new world of finance. You’re all a part of this startup’s journey, and you deserve to know how it’s going.

The first quarter of 2016 was a very good one for Groundfloor--our lenders, our borrowers and the company alike. Armed with our Series A financing, we’ve added staff to every part of the company. The results are already showing. This quarter we offered a record number and dollar volume of loans, while also seeing corresponding record levels of investment.

More specifically, here are some facts and figures for Q1:

  • Lenders invested $2.8 million in 25 loans offered by our borrowers

  • 700 investors participated in at least one loan, lending an average of $1,300 per month

  • Investors funded loans in an average of 281 minutes, investing up to $2,800 per minute during peak periods in March

  • Borrowers repaid 11 loans worth over $700,000

That is very healthy growth across the board. Behind the scenes, we continue to build systems, processes and policies to enable Groundfloor to grow even faster while maintaining tight controls over loan quality and servicing. We’re pleased that those efforts are bearing fruit more quickly than expected.

Now, on to the second part of our news: Our first quarterly rate cut. With all of the progress, no loss of principal on any loan we’ve made to date, and so much demand to participate, we decided now is the time to start reviewing rates on a regular schedule. This first reduction will save our borrowers an average of $500 to $2,500 per loan, but this is more than a change in pricing. It’s actually the advent of a dynamic Nick and I first envisioned three years ago when we started Groundfloor.

Just as the best investors don’t need or want to give up control only to pay Wall Street’s high fees or earn the banks’ low rates, the best real estate entrepreneurs deserve a better deal for their projects than the status quo currently offers them. How do we know? The Internet is speaking, voting with its investment dollars and loan applications. Freed from the unnecessary impedance of Big Finance, we are seeing the beginning of an inexorable march to lower the cost of capital.

That’s obviously a win for borrowers who get to pay less for the money funding their projects. Perhaps counterintuitively, however, rate reductions also deliver for investors. On average, Groundfloor lenders earn an annual rate of 13.7 percent on loans that last just seven months. Unlike any other real estate investment product available today, our lenders choose what they earn, on what term, with what level of risk. Within each grade, as more and better borrowers are drawn in, choice and opportunity to diversify grows. Finance theory teaches that greater choice and better diversification yield higher risk-adjusted returns.

So: More choice and a bigger slice of the pie for everyone -- except those who’ve historically run the show. What else would you expect from the Internet?

As Nick says in our press release, “this is just an opening salvo.” It is a salvo that a precious few may notice today, but we believe will someday be recognized for the important moment it is. We appreciate you who are here with us in the fray, and we love hearing from you. Write us with suggestions, encouragement, ideas or critique at founders@groundfloor.us.

 

Meet Dylan Patton-Kuhl

Meet Dylan Patton-Kuhl

Groundfloor is growing! Welcome Dylan Patton-Kuhl as our new Lending Operations Manager. Dylan joins us from BitPay where she was the Director of Merchant Onboarding and Compliance. Prior to BitPay, she worked as a Financial Analyst at Parsons Brinckerhoff in Washington DC. 

Dylan received her BBA in Banking and Finance from the Terry School of Business at the University of Georgia, and recently passed her ACAMS exam to become a Certified Anti-Money Laundering Specialist. 

She adds to the Lending Operations Team where she manages relationships with Groundfloor borrowers and is implementing processes and product improvements to make lending operations more efficient. She supports investor services by coordinating communication and documentation for loan closings and project updates. 

A true believer that there is always room for growth, opportunities to improve, and problems to solve, she is excited to use her creativity to bring ideas to life that make the business the best it can be. In her own words, "Not everyone gets an opportunity to come in on the ground floor (pun completely intended) of a business like this. I'm extremely excited."

The second in our Meet the Team blog series, Dylan adds to our foodie culture. She loves pasta - especially mac and cheese. Her #basic Starbucks orders - skinny vanilla lattes and double dirty chai tea lattes with soy milk - keep her fueled throughout the day. She also loves trying new restaurants and discovering new music and new bands. She's an avid traveler and enjoys seeing new places. If she wins the lottery, she plans to head to Bora Bora, the Maldives, Singapore, Thailand, and Australia...to start. 

Our Series A Financing

Our Series A Financing

 

This week we announced the closing of our $5 million Series A financing. In the world of startups, that’s a significant milestone. One prominent commentator recently observed that 99.9% of those who attempt to achieve it fail to do so. Judged by that measure the team here at Groundfloor ought to be feeling pretty good about it. And we do.

But more than a sense of accomplishment, we feel gratitude and an eagerness to redouble our efforts. Certainly, we wouldn’t be here without the investors, advisors and early employees who’ve believed in us and invested their capital, their time and their careers to build the company. Likewise, we appreciate the borrowers and lenders who’ve seen the value of Groundfloor and ventured into the unknowns of participating in an unproven concept from an unknown company.

The real accomplishment lies not in today’s news, but on the horizon where our vision for a new age of finance is rising. We know that raising venture capital for our company is a means to an end, not an end in itself. It’s important not because we’re a startup, but because our goal is to grow past being one. Startups are now lionized into economic legend, but “startup” is just a stage--like “adolescent” (and who would want to remain that?). The word itself isn’t even a real noun, but a verb-become-noun. Startups are searching for themselves, and whether successful or not, fleeting.

Great companies, on the other hand, endure for the benefit of many. That’s what we aim to be and to do. This week, we announced a step in that direction. This capital will enable us to hire more people to grow the team and build more technology to serve more lenders and more borrowers. We’ll be able to do so more efficiently and look forward to more loans from more places, expanding to additional states, and sharing new product features like an automatic investment tool, investing with IRAs, and more.

Tell us what you’re looking forward to from GROUNDFLOOR. Leave us a comment below or reach out to me and Nick directly at founders@groundfloor.us.

Meet Andrew Mandel

Meet Andrew Mandel

GROUNDFLOOR is growing! We've just welcomed Andrew Mandel as our Investor Relations Manager. Andrew comes to us from BitPay where he served as the Enterprise Relationship Manager. Prior to BitPay, he was a Technical Business Analyst with CoStar Real Estate Manager.

Andrew received his BBA in Management Information Systems from the Terry School of Business at the University of Georgia.

He joins the marketing department where he will manage front-facing relationships with investors and borrowers. Additionally, he will support marketing initiatives and build the brand by creating educational content, inspiring the customer journey, and posting on the blog from time-to-time.

More, we introduce him as the first of our Meet the Team series of blog posts published to help you get to know our team better. Arthur and Lauren are excited to have him in the  marketing department because he's a true foodie. He enjoys self-directed eating tours of Atlanta in his free time. He also enjoys playing tennis, softball, and golf; and recently his bowling team won the league championship. A Georgia alum, you can find him in Athens on Saturdays watching the Dawgs.

If his morning espresso isn't doing the job, he leans on this quote for inspiration, "If you've got everything under control, you're not moving fast enough."

Cheers to that Andrew! We'll get you a Newscastle at the next after-work happy hour.