Crowdfunding has become a popular way for companies to raise capital. Groundfloor raised its first round of institutional capital since 2015.
Groundfloor was founded by Brian Dally, a former mobile network executive, and Nick Bhargava, a co-author of the bipartisan JOBS Act. The Atlanta-based company raised $5 million in a Series A led by a group of investors after the JOBS Act allowed small businesses to raise up to $75 million from non-accredited investors without having to register the offering.
There is a minimum investment of $10 for real estate debt on Groundfloor's platform. Dally, who serves as CEO, said that nearly all of the products on the platform are open to non-accredited investors. There are many reasons for using the platform, from new investors who are looking for a safer alternative to public markets to experienced investors who prefer investing through an app instead of using the broker, Dally said.
Dally and Bhargava started Groundfloor to help average investors access opportunities similar in their risk-return profile to those available to institutions. Groundfloor is an alternative way for investors to access real estate without having to buy a real estate investment trust or buy a whole rental property.
Groundfloor co-founders Brian Dally and Nick Bhargava are pictured.
According to Dally, the company's secret sauce comes from its deep understanding of regulatory frameworks. Launching its first product felt like waiting for regulators to approve a new drug, he said, noting that it took two years and $1 million for Groundfloor to gain SEC approval to operate in its first U.S. state. The company sells securities in 49 of 50 U.S. states and provides capital to real estate projects in 35 states.
Dally said that Groundfloor uses an algorithm that assigns each loan a grade based on its risk across six different factors, with an emphasis on the track record and experience of the real estate investor receiving the loan. The investors on Groundfloor can make allocation decisions that are appropriate for their own risk tolerance levels based on these scores.
Groundfloor has grown by adding new debt investment products, including a saving and investing app called Stairs, which now has $22 million of invested assets. Users can earn 4% and 6% interest on cash held in a checking account on Stairs. Groundfloor uses the capital it gets from Stairs users to make loans to real estate entrepreneurs, which it holds briefly on its own books before selling them to investors, Dally said. The structure that he said took nine months to qualify with the SEC is a novel one that allows Stairs users to take their money out whenever they want.
These are heavy lifts. A lot of legal engineering goes into it. It takes a long time, but we think it's worth it.
The company has raised $30 million from its own users through SeedInvest. A group of individual investors now own 30% of Groundfloor.
Groundfloor saw revenue grow 114% to $12 million in the year 2021, according to the company. The average return for Groundfloor's investors was 10% during the year.
Groundfloor is a real estate loan platform.
The latest round brought in a total of $118 million for the company, with $5.8 million in equity coming from Israeli real estate company Medipower and $7.2 million from 3,600+ individual investors who back Groundfloor through Crowdfunding platform SeedInvest. 86 individuals invested in the round directly through the Groundfloor app, with their investment amounting to $5.0 in convertible notes. Groundfloor doesn't offer convertible notes to non-accredited investors because the company rarely raises them.
Medipower, which specializes in shopping centers and retail real estate, was part of the funding news. Up to $100 million will be invested this year in loans on Groundfloor, and up to an additional $220 million next year. The company, which is traded 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 other investors don't get crowded out. Yair Goldfinger, founder and chairman of Medipower, will join the Groundfloor board.
Dally said Medipower's investments could amount to 25% of Groundfloor's assets by the end of the year. He sees the Medipower loan investments as a non-dilutive source of financing because he expects the institutional validation from Medipower investing on Groundfloor to attract revenue for the company from other sources.
Real estate entrepreneurs who are doing new construction projects and building housing all over the country will benefit from the capital.
Groundfloor plans to use the proceeds from the fundraise to add 50 new employees to its team, which is currently composed of 70 people. Dally said that 40% of the new hires will be engineers to support the company's growth plans.
Dally said that they were getting ready to go from 160,000 investors to a million.
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