A startup that issues cash loans to homeowners in exchange for an ownership stake has raised $150 million to meet increas...
The deadline to invest is February 26, 2021.
Patch Capital leverages its proprietary technology to invest in U.S. residential real estate in attractive markets while partnering with homeowners to help them reach their financial goals.
Patch Capital is a technology-enabled real estate fund managed by Noah, a company backed by Union Square Ventures and Tribe Capital. With over $21 trillion of wealth locked in the U.S. housing market, Noah has created a data and AI-driven solution that is a powerful debt alternative for cash-constrained homeowners. The team’s novel approach to home financing drives liquidity for the largest and most important asset for US consumers - their home.
Patch Capital’s home equity co-investment product allows homeowners to unlock their trapped home equity wealth without increasing their household debt and adding a cash flow burden.
- Targeting unlevered 15% IRR and 2.5x MOIC over the 10 year life of the fund
- Investing in a pool of 1,000+ assets across diverse geographies - CA, WA, OR, UT, CO, NY, MA, VA, MD, DC
- Average investment of $110,000 with 6+ years average duration
- Investments purchased at a discount
- Investment secured through a lien
Unlike traditional home equity products, Patch’s home equity solution does not generate monthly coupon payments. Instead, Patch’s equity stake increases as the value of the home increases and the income of the fund is earned through liquidation events at the sale of the underlying asset, through refinancing, or through cash buyouts. Homeowners have 10 years to buy out the contract from the date of origination, with the average expected duration to be 6+ years.
The fund derives returns from two key contract factors: discounted pricing and inherent contract leverage against Housing Price Appreciation (HPA).
- Discounted Pricing: Each contract Patch invests in is purchased at a discount — by as much as 20% — from the third-party appraised value. Patch's proprietary asset and owner risk model algorithmically determines the discount. The discounted pricing creates an in-the-money option for investors that protects against downside risk and contract defaults.
- Leverage against HPA: In lieu of a monthly coupon, Patch contracts earn equity in the underlying asset at an average rate of 3.3x appreciation. As the underlying home appreciates, Patch Capital’s share of the equity position in the home increases. Inversely, as the underlying asset depreciates, Patch Capital’s equity position decreases.
Patch Capital has debuted its first fund focused on this type of investing after originating this strategy with off-balance sheet transactions between 2017-2019.
Patch has developed a platform to offer investors a diversified way to invest in the growth of the world's largest asset class: residential real estate.
Residential real estate is defined by supply/demand imbalances while offering homeowners few options to access their largest source of wealth.
Benefits of Patch Capital's Investment Strategy
- Diversified exposure to high-performing assets. Investing in 70+ markets in 10+ States
Equity returns with debt-like protections. Secured position and protective covenants
Downside protection through discounted pricing. Average discount of 15%
Long-term inflation hedge. 3x HPA leverage ensures returns significantly outpace inflation
Scalable investment platform. Proprietary technology platform to acquire, price, and manage investments
- Impact. Providing a debt-free way for homeowners to access trapped wealth
Data-Driven Investment Platform
Patch Capital leverages 80 billion+ data points across 60 variables to select and price investments.
Dynamic Pricing Framework
The team has developed a scalable selection and pricing framework by leveraging their proprietary data platform.
Patch Capital has grown origination volume 10x - from $2.65M when the fund was first launched in March of 2019 to over $30M as of December 2020. To date, Patch Capital has turned over 3% of the contracts and reinvested the gains back into new contracts. Realized exits have generated an average 1.60x MOIC and 611% realized IRR.
The discounted pricing structure creates an immediate in-the-money investment, thus the significant jump in Mark-to-Market and high IRR returns early in the fund life cycle. These exits are primarily driven by homeowners utilizing the investment to pay down debt, improving their credit profile, and buying Patch out with a lower cost of capital.
Patch tested their strategies' performance based on historical housing market data — housing price appreciation, defaults, sale volume, mortgage prepayment volume, etc. — dating back to 2000. The projected returns of Patch Capital’s investment approach were calculated and compared the risk-adjusted returns against other benchmark investment strategies over the same time period. The historical backtesting demonstrated that the strategy had a high probability of generating exceptional IRRs with low volatility.
Patch has developed a two-stage approach to mitigating risks. First, is the asset selection framework. Second, are the investor protections built directly into the contract. At Patch, the team believes their role is the silent minority board member of the asset. That position comes with certain rights and protections and allows Patch to intervene to protect the interests of all equity holders in the property. Patch Capital monitors each asset on a monthly basis to ensure that homeowner partners are living up to their end of the partnership.
Patch is a partner in homeownership.
The Patch investment model ensures alignment of incentives between Patch and homeowners to maximize the value of their equity. Homeowners are reacting favorably to the product, and consumer demand is up 600% year-over-year.
Addressing Homeowner Needs
Patch's contract solves the following homeowner needs.
Homeowner Use of Funds
Patch Capital is sponsored by Noah, a company backed by investors such as Union Square Ventures, Tribe Capital and Oak Street. Noah created this fund as a way to buy ownership stakes of the properties on their platform. Noah is building a combination of Carta, managing the cap table of your home, and Credit Karma, with reporting insights and opportunities, to improve your home value. Noah is democratizing access to residential real estate as an asset class, and providing liquidity to homeowners in the form of equity, rather than debt.
Proprietary Digital Asset Origination Platform
Noah, Patch Capital's consumer-facing platform, acquires, algorithmically analyzes, and prices assets in less than one minute.
Patch Capital is a 30+ person minority owned firm with expertise. in data, capital markets, technology, and marketing.
Noah is led by its founder, Sahil Gupta. The rest of the executive team is composed of individuals with strong financial services, fintech, and product experiences. It has recruited experienced capital markets investment professionals from top-tier firm such as Guggenheim Partners, SoFi, Uber and Opendoor.
Sahil Gupta - Founder/CEO. 10+ years in asset management, fintech startups. Director of Investments @ Motif, which was acquired by Charles Schwab. Additionally Sahil was the Director of Product and Strategy at Stratifi and Sliced - a YC (S’16) and Khosla Ventures backed startup. Before that, he was a Portfolio Manager @ Mellon Capital.
Aimee Young - Chief Marketing Officer. Formerly the CMO of SoFi and Quicken. Strong background in consumer fintech and brand development as Head of Brand at Virgin Atlantic.
Adam Hitchcock - Managing Partner for Patch Capital Partners. 15+ years across investments, consulting and politics. Former MD @ Guggenheim Partners; Chief of Staff for the White House Council of Economic Advisors.
Jordan Breighner - Managing Partner for Patch Capital Partners. Formerly 10+ years in VC, corporate strategy, communications. Former MD & Founder @ Coolhouse Labs; Data & Technology for Obama's White House.
Rahul Parulekar - Data / Risk. 20+ years of financial services and mortgages. Formerly Head of Risk @ Opendoor, Managing Director at Citi (MBS).
Ryan Sloan - Engineering. 10+ years as a leading product engineer. Previously a software engineer at Uber and WeWork.
Sonja McIntosh - VP of Operations and Customer Experience. 14+ years in mortgages, customer experience and fintech ops, including Series B through E at SoFi.
Republic Compound has formed a feeder fund (the "Feeder Fund") to allow easier access into Noah’s property investment fund, Patch Capital Partners Fund I, LP (the " Patch Fund"). The sponsor, Noah has developed a differentiated consumer financial product combined with a data and technology platform to invest in the best homes, in the best neighborhoods, in the best markets, and partner with homeowners to help them reach their financial goals. In summary, they provide home equity financing in exchange for a share in a home's future value. The deadline to invest is February 26, 2021.
Minimum Investment: The minimum investment into the Feeder Fund is $25,000.
Management Fees: The Feeder Fund will pay Republic Compound an annual management fee equal to 1.25% of the total contributed capital into the Feeder Fund. In addition, the Patch Fund will pay Patch an annual management fee equal to 1.5% of capital commitments in the Patch Fund.
Patch Fund Waterfall:
Preferred Return: 8% per annum
(a) First, to limited partners, to the extent of the unpaid Preferred Return of the limited partners;
(b) Second, to limited partner, to the extent of the unrepaid capital contributions the limited partners;
(c) Third, (i) 50% to the limited partners; and (ii) 50% to the general partner, until the aggregate of the distributions to the general partner equals 20.0% of the sum of all amounts distributed under clause (a) and this clause (c);
(d) Thereafter, (i) 80.0% to the limited partners; and (ii) 20.0% to the general partner.
Catch-Up Payments: As, the Feeder Fund's investment will be made subsequent to the initial closing of the Fund, the investment is subject to catch-up payments which provide existing fund investors with a payment to reflect the dilution and returns which have accrued to existing investors.
Term: The Patch Fund commenced operations in early 2020 and has a term of 8 years with two 1-year extension options. The Feeder Fund will run coterminous with the Patch Fund.
The Patch Fund cannot yet accept the Feeder Fund’s investment as, per the limited partnership agreement of the Patch Capital, it cannot sell any further Patch Capital limited partnership interests. We have been provided non-binding assurances that the operating agreement will be amended to allow the Feeder Fund to purchase the limited partnership interests, however there is no guarantee this will happen.