Online retail platform connecting private investors to real estate debt for single family home real estate entrepreneurs. The platform has provided annual returns of 10.6% to its investors over the last 7 years. Seems like a solid business but uncertain if venture backable.
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- Valuation: $73.9MM valuation means that the company has to become a unicorn to have a chance at 10x my money.
- Good Business but Not Venture Backable: Good growth from 2018 to 2019 with revenues going from $2.89MM to $6.4MM but in order to be worth a billion would have to get to $250MM in revenue. If you look at growth curve from 2014, it’s been 6 years and this is not hockey-stick shaped growth.
- Scalability: How many applications would this business have to process to do as much loan origination than X number of banks? And more importantly, can it really do it with radically less employees?
The 6 Calacanis Characteristics (91 161 18)
|1. A startup that is based in SV||No: Atlanta, GA|
|2. Has at least 2 founders||Yes: 2|
|3. Has product in the market||Yes|
|4. 6 months of continuous user growth or 6 months of revenue.||Yes: Revenue doubled from 2018 to 2019.|
|5. Notable investors?||No: No one that I recognize.|
|6. Post-funding, will have 18 months of runway||No: Only raised $2MM so only has half a year of runway at 2019 burn.|
The 7 Thiel Questions (ETMPDDS)
- The Engineering question:
- Good: if there is no platform that provides this type of financing, then it’s definitely better than nothing.
- The Timing question:
- Good: Convincing argument that investors are flocking to safer assets with more guaranteed returns.
- The monopoly question:
- Good: High regulation for other people to enter this market.
- The people question:
- Good: Team seems strong.
- The distribution question:
- Bad: I don’t see any competitive advantage in getting in front of more retail investors.
- The durability question:
- Good: Once you build the network and marketplace for SFH real estate developer financing, this is very defensible.
- *What is the hopeful secret?:
- This business can be automated enough to look like a venture business instead of a solid normal business.
What has to go right for the startup to return money on investment:
- Build the auto-invest for SFH debt
- Automate more of the funding of debt, not just the offering of a security portion
- Returns have to stay competitive for investors to keep flocking to it
What the Risks Are
- Not a venture business
- Returns go down as more investors go, eventually reducing value of the platform
- Single family home debt notes are not popular enough for this company to make $250M in revenue a year.
Muhan’s Bonus Notes
- Current Fundraised: $2MM
- Valuation: ~$73.9MM
This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.