This offering is being made solely to accredited investors under Rule 506(c) of Regulation D.
Non-accredited investors and those looking to invest less than $10,000 may invest here.
The SPV that you can invest in will hold securities in AlphaFlow at these terms:
- Share class: Series A Preferred Shares
- Pre-money valuation: $40,000,000
- Share price: $16.70*
There is a $75B non-bank real estate lending market but no access to it. This local industry fuels the residential real estate development market and their loans have incredibly attractive terms, so institutional investors absolutely love this asset class. One key challenge keeps investors from these loans: massive lender fragmentation. It's simply too hard for large institutions to work with these small local lenders. For the lenders, that means they cannot connect to the capital markets and so they are starved for capital. For investors, it means they are largely left out of this asset class and can only work with a handful of large lenders who produce higher defaults and lower rates.
The investment world is starving for yield. The U.S. housing market is desperately in need of more inventory. And AlphaFlow is building the platform to connect these titan industries, bringing together two of the largest markets on the planet.
On one side of our business, we are tapping $600 billion of real estate debt that gets done outside of banks every year, starting with the $75B fix-and-flip market. On the other side, we have some of the world’s best institutional investors coming to us to access these loans, which they’d love to invest in but the industry is too fragmented for them to participate.
AlphaFlow solves that with our software, which creates a platform for these lenders to run their businesses and makes selling their loans seamless. Lenders get the capital they need to grow their businesses, and investors get access to this asset class in a modern, technology-driven way. The end result is that we’re now a leading platform for institutions to invest online in real estate debt.
Buy and sell loans with simplicity and transparency
By building a single platform that elegantly serves both lenders and investors, AlphaFlow is establishing the central utility for non-bank real estate lending. The key to standardizing a fragmented industry is becoming the dominant system-of-record. To do so, we are capturing the atomic unit upon which all lending businesses are built: cash flows from loans.
AlphaFlow Loan Selection - Focus on Quality Over Quantity
Establishing critical infrastructure begins with elegant software that delights users on a daily basis. Our team includes both portfolio managers and underwriters of loans we might buy, so the AlphaFlow team is the first user of all our software. Our software suite only reaches clients after significant internal use, resulting in an unparalleled user experience.
AlphaFlow Investment Platform
For investors, success comes from seeing the entire picture. Today, our investors have full transparency into their portfolios, with an ability to drill down by property, loan, and cash flow.
Even the largest asset managers still struggle to normalize loan performance data, often working with different excel files for each loan servicer and needing weeks to reconcile numbers. We are automating the entire process with our technology, creating a single trustworthy source-of-truth for their loan performance.
AlphaFlow Lender Platform
We are committed to making buying and selling loans as simple as possible. Today, lenders work with AlphaFlow using a portal designed and built for their needs: speed, transparency, and reliability. Lenders can automatically get instant feedback on any loan via our proprietary Loan Sizer.
From there, the entire process happens quickly and seamlessly online, with full transparency into each step. The key to winning with lenders is elegantly integrating into their workflow. We are tying today's disconnected basket of clunky solutions into one simple, integrated platform that speeds up their process and saves them money. There is simply nothing else like it in the market.
Executing $1B+ into real estate bridge loans
We are currently working with lenders across 41 states as we deploy $1B+ into real estate bridge loans through our platform on behalf of some of the world's top institutional investors. With liquidity drying up from some large competitors in the market, we expect to be able to significantly expand our lender relationships over the next 6-12 months and increase loan purchase volume to over $100M/month by Q1 2021.
On investor traction, we have signed partnerships with massive financial institutions, one of which the lead investor in this round (10X Capital) helped us secure in 2018, and a backlog of additional buyers who are seeking to work with us. Standard confidentiality agreements prevent us from publicly sharing names here, unfortunately. We expect to add another buyer to our rotation in Q4 2020 as volume ramps and allows us to successfully deliver to an additional buyer.
In addition, we launched TITAN by AlphaFlow in July to give family offices, RIAs, and high net worth individuals access to our institutional platform. TITAN clients receive a portfolio constructed using the same credit methodology and investment approach we deliver to our institutional clients.
For AlphaFlow, TITAN creates sticky capital base to ensure stability with diverse capital sources. We expect to build at least $250M of assets under management in TITAN alone over the next 12 months.
Lenders love our software
Our lenders love our software. With AlphaFlow, clients can fuse fragmented documents, data, and processes into a single platform. This allows them to submit and track loans from initial review to sale, and to see the same detailed loan, property, and market characteristics we see when making underwriting decisions.
Unfortunately, as is typical in the institutional investing world, we are prohibited by confidentiality agreements from disclosing any investor names.
Strong unit economics
Today, AlphaFlow earns approximately 1.75% in total on all loans it sells to clients. Clients pay AlphaFlow a sale premium of 75 basis points for each loans (e.g. a $500,000 loan would be sold for $503,750). In addition, clients then pay AlphaFlow an ongoing 1% annualized fee, on a monthly basis, for servicing loans.
In the past, AlphaFlow executed approximately $200M in loan sales in which we earned both a sale premium on loans and an earn-out on any returns above a performance hurdle. The firm has not included these potential earn-outs in our GAAP financials but expects to collect significant revenue from these fees in next 12-18 months.
As we expand into additional types of loans, such as 30 year single family rental loans, we may see opportunities for margin expansion. These loans are made through the same lenders and to the same borrowers and can be purchased by some of our current institutional clients, so new channels are not required. We expect to push such offerings live in the next 6-12 months.
Given our revenue model and strong unit economics, we expect to achieve profitability within 12 months.
Building a $600B marketplace
AlphaFlow is focused on the $600B of real estate debt that gets done outside of banks every year, starting with the $75B residential bridge loan market. Real estate bridge loans are forms of short term financing provided by non-bank private lenders - sometimes call "hard money lenders." These loans are used for the purchase, rehab, or construction of houses and apartments.
The industry is dominated by small local firms who know their neighborhoods and move fast for their borrowers, which on a short term project is critical. These lenders are where real estate developers go to fund their projects quickly and reliably.
Their typical loans offer an incredibly attractive risk-return profile and investors love this asset class, but it’s too fragmented for institutional investors to really access. Because of that, this has been a local industry that has been generally starved of the capital it needs to grow.
And with the U.S. desperately in need of more homes and the age of our current housing stock, this industry is only becoming more critical.
Disrupting traditional competition
AlphaFlow primarily competes with traditional hedge funds in buying loans from local lenders. These firms typically have experienced wall street leadership but no material technology component. Our key differentiators today include:
- Speed: AlphaFlow provides instant feedback via our proprietary software and usually buys in less than 5 days. Traditional funds often take weeks because of manual processes.
- Transparency: AlphaFlow shares underwriting insights via our Lender Portal, giving lenders access to our big data infrastructure.
- Reliability: Diverse capital sources, including both institutional investors and TITAN, empower us to be a uniquely reliable partner for lenders.
Furthermore, being early has allowed us to build an accumulating data advantage, and we’ve grown a data set on our asset class that is already one of the biggest in the U.S.
The industry standard
AlphaFlow is building a single platform to drive the $600B of real estate debt that happens each year outside of banks . . . and grow that number. By capturing the atomic unit—loan performance—AlphaFlow has the potential to unlock hundreds of billions of dollars of liquidity in the private lending markets and catalyze massive growth in the industry.
Today's network of bankers and brokers exists to transmit trust and identity between buyers and sellers. This is where AlphaFlow's platform really shines. Establishing the dominant system-of-record provides investors with full knowledge of ownership, legal structure, and performance. As a result, we are building the first platform to confer that trust through technology, and do so at scale.
More lenders means better data, which brings more investors and more liquidity, which brings more lenders and . . . you have a flywheel of growth built on network effects. The result is a platform where lenders can most easily sell their loans or obtain other financing for their business, because all of the right data is there. And on the other side, you have the platform the capital markets use to access this entire space, as it serves as the central clearinghouse and source of truth. Welcome to AlphaFlow. Join us!
Previous financing of $11M across 4 rounds of funding
We've already raised over $11M in financing to date by investors like Y Combinator, Upside Partnership, Resolute Ventures, and others. We currently plan to use additional funding to entrench our software as the industry standard and sign and activate 100+ new lenders.
- Q3 2015 Angel Round: $520k
- Q3 2016 Seed Round: $1.6 million (YC W16 batch)
- Q3 2017 Seed Extension Round: $2.5 million
- 2018 -19: $7M+ in rolling SAFE investments to support growth
Unlocking the world’s opaque markets
As founder and CEO of AlphaFlow, Ray is obsessed with building technology to redefine the world of real estate investing. He created AlphaFlow to empower lenders and investors with the data, transparency, and analytics previously only available to the world's largest institutional investors.
Ray is a leading entrepreneur in financial technology (FinTech). Prior to launching AlphaFlow, he founded RealtyShares, one of the industry's first and biggest platforms for real estate investing. His early career in finance included investment banking at Bear Stearns and Lazard Frères and private equity at CCMP Capital. Ray has a BBA-Finance from the University of Notre Dame and a JD/MBA from the University of Chicago.
Nathan Scharfe: As VP of Product Development, Nathan is responsible for all of AlphaFlow's technology. Prior to joining AlphaFlow, he was an early engineer at MoPub where he was tech lead for the real time bidding exchange team and scaled the product from inception up to serving billions of ads per day. Later, as Director of Engineering at MoPub, Nathan oversaw all things in the ad serving stack and served as a key employee in the diligence process that led to Twitter’s acquisition of MoPub. While at Twitter, he worked across the stack as a Staff Engineer on high leverage projects to seamlessly integrate MoPub’s ad serving platform into Twitter’s current ad offering. Prior to MoPub, Nathan was a founding engineer at IntoNow, which was acquired by Yahoo! 12 weeks after launch. Nathan has a BS and MS in Computer Science from Stanford University.
Todd Billings: As VP & President of TITAN, Todd is responsible for setting the strategic vision behind TITAN, AlphaFlow’s offering to family offices, RIAs, and high net worth individuals. Prior to joining AlphaFlow, Todd was the CEO & President of USDV Capital, where he managed 8 investment vehicles that invested in over $1BB of mortgages. Before that, Todd was CEO of Veriloquent Wealth Advisors, a Multi-Family Office. Todd attended Johns Hopkins University and later earned an economics degree from Stanford University.
Stephan Leccese: As VP of Finance & Operations, Stephan is focused on identifying, establishing and scaling partnerships with lenders and managing AlphaFlow’s underwriting teams. Prior to joining AlphaFlow, Stephan was a Co-founder/COO of Fund That Flip, a leading technology platform for the origination of loans in the SFR real estate sector. Previously, he co-founded and served as an advisor to multiple tech companies. In his earlier investment banking career at Needham & Company he rose to the firm leadership while raising capital and providing strategic advice for technology companies.