Looking Back: One Year After Our Historic Qualification by the SEC

Looking Back: One Year After Our Historic Qualification by the SEC

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Yesterday, we celebrated a significant milestone by announcing a significant expansion.

First, the milestone. It was just one year ago that Groundfloor became the first-ever (and still only) real estate lending marketplace to be qualified by the Securities and Exchange Commission. We joined Lending Club and Prosper as the third issuer ever authorized to allow non-accredited investors in the United States to participate in the funding of high-yield loans.

Since then, our community of lenders has more than tripled. Early adopters are using Groundfloor to take control, building self-directed portfolios of loans they choose rather ceding control to a REIT or fund manager, and paying dearly for the privilege. Together during this year we’ve funded over 100 loans for $12.5 million in aggregate. Our underwriting standards practices are stronger than ever, and our discipline to restrain growth to a manageable level has paid off: Our lenders have earned average annual rates of return of approximately 14 percent, with no loss of capital on over 40 loans successfully repaid to date.

Second, the news. Groundfloor remains in a limited release while we prepare to open our doors fully in the new year. In the meantime, we’re ready to expand by doubling our lending footprint, which will now extend to 23 states.

Why? First and foremost, to supply more loans sooner--without lowering our standards. Before starting our nationwide expansion a year ago, funding five loans for $250,000 took us a full month. Just last night, at 5pm ET, we did that in 15 minutes with 142 lenders getting in on the action. Our investors have been ready for us to expand, and now are our lending operation is ready too.

We continue taking steps to bring Groundfloor to more investors, to continue opening up more capacity for everyone to participate and to ensure there are enough loans to go around. Today’s news is a helpful step in that direction, and one that signals confidence in the lending operation we’ve built in 2016. Stay tuned for more exciting developments on the horizon--more features, more loans, and more geographic expansion. One year in, we are as fired up as ever and continue to appreciate your continued interest, support and trust.

The Peer-to-Peer Economy

The Peer-to-Peer Economy

What is the Peer-to-Peer Economy?

The peer-to-peer economy (P2P) is where individuals buy and sell goods and services directly with one another. Peer-to-peer investing or peer-to-peer lending describes when self-directed investors use alternative financial products, like Groundfloor, to invest their money.

Peer-to-peer lending is becoming increasingly common in the real estate industry. Groundfloor is the only marketplace offering direct access to private real estate investing for accredited and nonaccredited investors alike. Investors earn high yields over short-terms with loans backed by real estate.

Peer-to-peer investing at Groundfloor gives you the opportunity to directly fund a fix-and-flip loan and earn returns from 7% to 26%. Loans are graded, A through G, and assigned a corresponding interest rate by our rating algorithm. Our Lending Operations team reviews and approves only a select few that meet our high underwriting standards. You choose when, where, and how much to invest.

Why You Win with Groundfloor  

With so many options for investing - Certificate of Deposit (CD), Exchange-Traded Funds (ETF), Real Estate Investment Trust (REIT), and more - what sets peer-to-peer investing apart?

Certificate of Deposit (CD)

Parking your money in a CD, generally issued by a commercial bank, offers you a pre-determined interest rate for depositing your money for a certain amount of time. Peer-to-peer investing with Groundfloor affords you the same predetermined rate and term, only you earn more. Where you can earn 1% with a 1 year CD, Groundfloor offers returns from 7% to 26% over terms of 6 to 12 months.

Exchange-Traded Fund (ETF)

An ETF is traded like stock on a stock exchange. The benefit of investing in an ETF is that you earn when the ETF price jumps throughout the trading day. Consequently, if the market is down, you’re losing money; and you’re still paying fees. Creating an account, investing, and earning with Groundfloor is fee-free.

Real Estate Investment Trust (REIT)

Investing your money in a REIT affords you access to high returns and dividends. Additionally, your investment supports diversification within the portfolio, but without any visibility. When you invest with Groundfloor, you can build your own REIT. You diversify your portfolio according to your investment strategy and risk tolerance. You are completely in control of your money.

How P2P Lending is Changing Finance

Thousands of Internet investors are changing finance by investing through alternative financial products like Groundfloor. When the crowd comes together to fund loans, it creates a more stable and more reliable financial environment. Everybody wins. Borrowers get access to cheaper and faster capital; and investors, like you, earn greater returns than with traditional investment products.

Build better finance. Sign up for an account today, fund your account, and start earning average returns of 13%. 

Groundfloor is a growing community of lenders and borrowers using the scale, scope, and sensibility of the Internet to finance real estate development in a way like never before. Our platform connects a community of 15,000 and growing lenders to a network of borrowers offering real estate projects that yield returns between 7% - 26%.

Private Real Estate Investing is Now Public

Private Real Estate Investing is Now Public

What is private real estate investing? And what makes it public? Private real estate investing or private lending is an iron-clad industry that has historically only been open to the wealthiest 3%. Thanks to new rules implemented by the Securities and Exchange Commission around Title III and Title IV of the 2012 JOBS Act, the public at large can access investment products that have previously only been available to a select few.

Antiquated Regulation

The Securities Act of 1933 still largely regulates the sale of securities. This was the first major federal legislation around the offer and sale of securities to individuals. The nearly hundred-year-old Act remains the foundation and guiding legalese for disclosure and filings around securities. Much of what is included in the Act was written so as to protect the individual investor. However, when interpreted today, the protections seem antiquated and out of line with modern finance.

Disrupting Regulation

The disruptive nature of the Internet doesn’t stop short of finance and securities. With more information than ever before available in a few clicks, self-directed investors are hungry for alternative ways to earn more with their money. Using technology and Regulation A+ (under Title IV of the 2012 JOBS Act), Groundfloor opened up access to short-term, high-yield investment opportunities yielding returns of 7% to 26%. That’s 10X more than stashing cash in a savings account, CD, or other short-term financial product.

Big Banks

Prior to the recent implementation of rules for crowdfunding under Title III and Title IV, only accredited investors or institutional capital like funds or big banks had access to investments with the most favorable returns.They could chip in the large amounts of cash and earn outsized returns. However, the persuasion of one institution or a small group of wealthy investors is inherently volatile; and has potential for far-reaching negative effects. Think back to the Great Recession, caused in part by over-reliance on big banks and institutional capital.

Broadest Base of Capital

You are the counterbalance. Thousands of Internet lenders are changing finance, investing in fractionalized increments using platforms like Groundfloor where the minimum investment is $10. When small businesses and entrepreneurs are funded by a broader base of capital, it creates a more stable and reliable environment where everybody wins. It’s less expensive for borrowers and the rewards are greater for investors.

The Wolf of Wall Street

Trusting the knowledge of a few or the trends of a market isn’t aligned with the principles of  modern finance where everyone can choose their own risk and reward. Why let Wall Street manage your money for you and take a cut of your earnings?

The Wisdom of the Crowd

When you join thousands of investors funding loans on Groundfloor, you’re using the wisdom of the crowd to make investment decisions aligned with your investment strategy and risk tolerance. It’s a new way of finance - transparent and efficient - contrary to archaic traditions that preclude most of us from earning more with our money.


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.