Today, Patch of Land announced a large Series A financing round led by SF Capital Group with Prosper President, Ron Suber, also investing. Neil Wolfson, of SF Capital Group will be joining the Board of Directors of Patch of Land. Neil and his firm have also invested in other top marketplace lenders, including OnDeck and BorrowersFirst. We reached out to Ron Suber for comment regarding his investment:
Many people and platforms are looking for capital and consultation to help them reach escape velocity like Prosper has. For a marketplace lending platform to be successful they need to have what I consider the three legs of the stool in place. The first leg is product, the middle leg is capital and the third leg is underwriting/technology. Those platforms that can find a balance between all three legs with the right management team, unit economics and a big addressable market are realizing that the sky is the limit.
We also reached out to Jason Fritton, CEO of Patch of Land to learn more about this deal and to talk about Patch of Land’s place in this market.
Given the investors in this round, it is no surprise that they were ultimately seeking strategic relationships. Jason noted that having Ron on as an investor, boosted their credibility and his knowledge in this space will be extremely valuable as they continue to grow. Interestingly, the round began at SeedInvest with the hope to raise just $1 million. It soon changed to $2.5 million, but many venture capital and private equity firms were still interested. Firms continued to bid up their valuation and found that the company was worth much more. The deal finally ended up growing to $23.6 million, which is far from the $1 million they initially looked to raise.
Real Estate Crowdfunding Competitive Landscape
Jason stated that although this a very competitive space with companies like LendingHome, the market opportunity is still large. Jason believes one of their biggest competitive advantages is the focus on accredited retail investors in addition to institutional investors. Having a retail base is extremely important as the market landscape changes and makes them more of a peer to peer lender. Many institutional investors may move on to other investments if conditions change, whereas retail investors are more likely stick around. The retail base also allows them to be much more flexible and quickly add new products, such as distressed notes, buy and hold properties etc. Patch of Land is solely focused on the debt side of real estate as opposed to many platforms that also offer equity deals. They find that debt deals are much easier to scale.
When asked about competition with banks, Jason noted that they don’t compete much with banks. The speed is a huge advantage to their customers as it allows for many more deals per year. He finds that developers are willing to pay a few extra points on a loan for the speed, especially if it is a smaller loan. The time from an application to a closing averages around 5-7 days and they plan to get this beneath 5. In addition, some of the banks won’t make loans on some of these properties due to the amount of work involved in a specific property.
Sourcing of Real Estate Deals
Currently, Patch of Land is available in 15 states, with 10 additional states to be launched soon. Real estate is vastly different since market conditions are unique in different states and cities. Patch of Land’s goal is to take a local market, normalize it, and bring it online. To aid in this, they have virtual boots on the ground in every state that can help with deals and resolve issues. Additionally, they can reach out to developers to get localized information on the specific neighborhood or lot. Appraisals are also contracted out to ensure proper evaluation in the local market. Patch of Land then combines this with other data points to decide whether to move forward with the loan. They currently receive $500 million/month in applications.
Patch of Land is about to cross the 100 loan mark and has experienced zero losses to investors. Once Patch of Land decides to go forward with the loan, it is pre-funded solely by Patch of Land. The deal is closed before it even goes to the crowd, which technically means if the crowd doesn’t like the deal, it still moves forward. However, their balance sheet risk is still relatively low as investors buy out their portion of the funded loan.
Patch of Land is looking to add additional products, but don’t plan to compete in the residential loan market. Jason mentioned that they are looking to offer 3, 5 and potentially 10 year loans, but he believes there is a big enough opportunity ahead of them already.
The real estate industry is heating up. This is one of the reasons why we are devoting an entire day to real estate investing next week at LendIt. It is certainly the most dynamic and fast growing of all the different verticals today.