This FinTech startup says it will take $13 trillion away from Wall Street
FinTech companies are using the power of the internet to disrupt the financial industry. By cutting out the middle man (i.e., banks) and lowering costs, they're able to make financial services far more efficient and consumer friendly.
Fundrise, a DC-based startup, may be building the biggest opportunity in FinTech yet. While many of the industry's high-profile startups like Lending Club have focused on consumer lending (a $420 billion market), Fundrise gives individuals the ability to invest in commercial real estate - a market worth $13 trillion, more than 35 times bigger than consumer lending.
Threatening Wall Street
FinTech's appeal is deceptively simple. It gives consumers easier, more direct access to financial transactions, allowing them to commit to investing (or lending, or borrowing) that much faster.
Right now, the spotlight on FinTech has never been brighter. In 2014, FinTech startups drew $12 billion in investments, more than triple what was invested the year before.
And Wall Street has taken notice. This past April, JP Morgan CEO Jamie Dimon sounded the alarm in a letter to shareholders, stating, "Silicon Valley is coming ... There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking." His point was that Wall Street needs to recognize the threat from startups like Fundrise, or else risk becoming obsolete.
Opening up the real estate market
Investing in real estate has historically been lucrative. The famous "Yale model," which outperformed traditional stock and bond allocations for decades, allocates up to 20% of investment portfolios to real estate. In 2014, real estate investments averaged a 15% annual return, compared to just 5.2% for stocks and 6% for US bonds.
Fundrise's approach gives investors a way to bypass that exclusivity altogether. Its crowdfunding model allows individuals to pool their money and invest collectively in big-ticket real estate properties, opening up the market to people who aren't necessarily high-net-worth investors and elite institutions.
Investing in real estate ... from your phone
Fundrise was founded in 2012 by brothers Ben and Dan Miller (CEO and president, respectively), who knew there was real demand for online real estate investing that offered low minimums with maximum transparency.
Their model has rapidly gained traction. As Ben Miller puts it, "When we were getting started, people told us that we were crazy, that investing in real estate online was impossible. Today we have close to 60,000 users and have seen a 1500% growth in assets under management since our Series A funding last May."
By logging into Fundrise, you can literally invest in iconic properties like 3 World Trade Center in New York City, right from your phone.
And diversification becomes a lot easier. According to one investor, whereas a real estate equity firm might take your $250,000 and put it toward five or six buildings via a process that's slow and "very painful," with Fundrise, "you can invest in 50 different buildings for the same amount of money ... and get capital deployed a lot faster."
It's clear that Fundrise is becoming a big deal not just in the rarefied world of commercial real estate investing, but also in the FinTech industry itself, by marrying sophisticated technology with high-quality investment offerings. "Technology has enabled us to quickly expand around the country to source the highest quality deals," Dan Miller explains. "We find the needles in the haystack that others can't because of the sheer volume of opportunities we see."
Theirs is a classic tale of market innovation. By recognizing the need and doing what traditional models can't, Fundrise is rewriting the rules of commercial real estate investing - for good.
This post is sponsored by Fundrise.
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