Business

Groundfloor unveils ‘Lending Club for real-estate’ so you can get richer, faster (exclusive)

NOTE: GrowthBeat -- VentureBeat's provocative new marketing-tech event -- is a week away! We've gathered the best and brightest to explore the data, apps, and science of successful marketing. Get the full scoop here, and grab your tickets while they last.

Groundfloor wants to take power away from banks and put it in the hands of the people.

The startup is building a peer-to-peer platform that gives regular people opportunities to invest in real estate projects. It is emerging out of stealth mode today and opening up to private beta.

Founder Brian Dally describes it as a ‘Lending Club for real-estate.” Lending Club is an online community that connects people who need to borrow money with people to lend it to them, instead of going to a bank. It is on track to originate $2 billion in loans this year and Dally saw an opportunity to apply the same online model to larger asset classes. Real estate is a $3.5 trillion market and Groundfloor wants to help people of all wealth classes get their ‘financial dessert’ (hence the baking-a-pie picture above).

“If you are a big rich private equity investor, you can loan money to real estate projects and receive a high rate of interest, and when the project cashes out you get to share the upside of that,” he said in an exclusive interview with VentureBeat “This plays a role in the wealth disparity in this country — its part of the reason why the rich get richer. They can make investments in larger assets for higher returns. We want to give the average person the same chance.”

Real estate projects require a large amount of money to get off the ground. Ordinarily a developer will borrow money from a bank and seek out wealthy investors to bankroll the project. The developers then pay the money back with a high rate of interest and the investors get a share of the profits. Groundfloor crowd sources this investment by allowing anyone to contribute money, even as little as $100, to a project and receive higher interest than they would through low-yield savings accounts, 401k plans, CD’s etc…Developers can use Groundfloor to avoid dealing with bank requirements and jumping through hoops.

“Nobody likes banks,” Dally said. “They are driven by centuries of inertia and regulatory infrastructure. Banks behave the way they do because they have all this power and can do what they want, but the web is changing all that. It adds a layer of democracy and transparency in way that banks just can’t, and consumers are responding with their wallets. People are showing that they want alternative ways to use and grow their money.”

Many of those regulations are in place to safeguard investors from fraud and provide some insurance that they will be repaid. Groundfloor will address concerns over trust and security by running extensive background checks on every developer and verifying that they have the experience necessary to execute. The first project is for a multi-tenant building of lofts in a college town. The developer has 20 years of experience and has completed over 60 projects. Dally said once they see how this first campaign goes, they have a range of other projects queued up. Groundfloor will make money from the borrowers who will pay to use the platform for putting their offering together, market it, and manage repayment.

Dally previously worked at Republic Wireless, a company that challenged traditional wireless carriers with with “hybrid calling” that offered no-contract talk, text, and web access for just $19 a month. His cofounder Nick Bhargava founded crowd funding Motaavi and played a significant role in getting the JOBS Act signed. The two wanted to build a company together that would take power away from incumbents who weren’t using it well, and give it to the “average Joe.” Groundfloor is bootstrapped and based in Raleigh, North Carolina.

Photo Credit: freshwater2006/Flickr


We're studying digital marketing compensation: how much companies pay CMOs, CDOs, VPs of marketing, and more, with ChiefDigitalOfficer. Help us out by filling out the survey, and we'll share the results with you.
0 comments