Deal Abstract

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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Why Investing/Passing

  1. Valuation: $73.9MM valuation means that the company has to become a unicorn to have a chance at 10x my money.
  2. 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.
  3. 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 SVNo: 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)

  1. The Engineering question:
    • Good: if there is no platform that provides this type of financing, then it’s definitely better than nothing.
  2. The Timing question
    • Good: Convincing argument that investors are flocking to safer assets with more guaranteed returns.
  3. The monopoly question
    • Good: High regulation for other people to enter this market.
  4. The people question: 
    • Good: Team seems strong.
  5. The distribution question
    • Bad: I don’t see any competitive advantage in getting in front of more retail investors.
  6. The durability question
    • Good: Once you build the network and marketplace for SFH real estate developer financing, this is very defensible.
  7. *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:

  1. Build the auto-invest for SFH debt
  2. Automate more of the funding of debt, not just the offering of a security portion
  3. Returns have to stay competitive for investors to keep flocking to it

What the Risks Are

  1. Not a venture business
  2. Returns go down as more investors go, eventually reducing value of the platform
  3. Single family home debt notes are not popular enough for this company to make $250M in revenue a year.

Muhan’s Bonus Notes

Financials (References)

  • Current Fundraised: $2MM
  • Valuation: ~$73.9MM


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