Thursday, April 19, 2018
PeerStreet's Brett Crosby On New Funding, Growth, Hiring, and Real Estate
Los Angeles-based real estate lending marketplace PeerStreet (www.peerstreet.com) recently announced a big, $29.5M funding round, so we thought we'd catch up with one of its co-founders, Brett Crosby, to learn more about the new funding and the company's growth.
Tell us a bit where PeerStreet is nowadays?
Brett Crosby: The big news, is we announced our Series B funding round, led by World Innovation Lab, as well as Andreessen Horowitz, Thomvest, Colchis Capital, Felicis Ventures, plus a couple of new investors, Solon Mack and Navitas Capital. That's our biggest news. We also announced we have now funded over $900M in loans, which if you remember, only eight months ago we had announced we had $300M in loan volume. That's a pretty significant jump, and things have been ramping up nicely. Related to that, we're also hiring quite aggressively, and are planning to build out our platform and to continue to scale up our growth. The final piece of this, is we also have reached an interesting inflection point for the company. Up until now, we had been focused on non-owner-occupied loans on property, properties people are buying to rent. As a reminder, which is important, is we are not a direct lender. Instead, we partner with existing lenders to create a marketplace for investors to connect with loans. We're now branching out past that single asset into immediately adjacent real estate-backed loans, with a slightly longer term, such as buy-to-rent, multifamily dwellings, and commercial properties.
What has been driving that volume increase?
Brett Crosby: There are three major factors. We have constant growth from new individual investors signing up for the platform. We've also seen a wave of institutional investors joining the platform and, on both sides, we're hearing from people who have been investing in consumer credit platforms, you know those well, and they realize that some of those are just not returning like they thought they would. Because our assets are based on a first position lien on real estate, even when the underlying loan yield is typically what they might get elsewhere, the advantage is when things go sideways on a project—which happens sometimes in all credit situation—we've been able to foreclose on those properties, and people haven't lost principal on those investments. From what we're hearing from investors, is that it ends up being a much better asset. That's our fundamental belief in setting this up. The demand has increased substantially.
The second thing, is we continue to unlock supply. Because we work with lenders, it really allows us to scale out more effectively than going after borrowers. The lenders know the local buyers and market, and their cost of acquiring those borrowers is fairly low. So, we're not spending to acquire borrowers. As we onboard lenders, we gain a deeper channel to continue to get loans, and are scaling that up. Plus, even as we add new lenders, our existing lenders are able to do a lot more business. Because we're helping them to raise more capital to lend and serve borrowers, that lets them find more borrowers. I think that's very meaningful. We have lenders who have doubled or tripled their volume without having to raise more capital. That approach has really been working well. The third reason, is because of our business model—which I think is pretty unique, instead of going directly after borrowers we're scaling by find more investors.
Why do you think you've been able to scale faster than your competitors?
Brett Crosby: A key insight that my co-founder Brew Johnson had, was to be extremely focused on our asset type from the beginning, so we could build all the operational, technical, and actual technology and software in order to underwrite more effectively. We've done that, and built that platform. That's different from other people in the space, who went and created a marketplace for deals for investors behind the loans, but didn't look at the other side of the business, to be a source of capital for lenders. What they are trying to do, is very challenging. It's a space dominated by local lenders, who have to be able to make very fast credit decisions. They must know their market and borrowers. Trying to use technology to cut that out has proven to be a big challenge for our competitors. We think our different focus has allowed us to have much more of hockey-style growth, as we built out our foundation and created a launch pad to grow from.
How difficult was it to raise this new round?
Brett Crosby: That's hard to say, compared to some other companies we've seen along the way who haven't made it this far. We've been extremely fortunate in the team we've put together. I'm very proud of the team. One of the things we keep hearing from investors, is we really have top level people on the team, even outside me and Brew. The quality of our team really shines through. We've also been winning awards as one of the best startups to work for in Los Angeles, as one of the top fintech companies to work for, period. Stuff like that is really important. The venture guys we spoke with were looking for that. Number two, is they looked very deeply on how we are going to scale the business, and where we planned to from there. They believe, as we do, that there is a credible path for us to create a new, modern-day way of financing everything outside of Fannie Mae, and create something which can transform the entire mortgage financing industry. It's a moonshot, really. We were talking with some Japanese LPs, and that was pretty interesting from a capital markets perspective, and we haven't fully connected the dots there yet. One thing that also really helped us, is having Steve Pretre on our board. He is at World Innovation Lab, and he was the CEO and co-founder of Metromile, and he's really kept tabs on PeerStreet, and made this a really straightforward raise for us.
What's next for you, what working on?
Brett Crosby: The next step, is we are going into hypergrowth mode right now. We're hiring aggressively across the company, from engineers, to product, to real estate folks, operations, the financial side, and accounting. The second thing, is we're having some very interesting things happening in the businesses. If you'll excuse the metaphor, we're creating a constellation of products, drawing out a second branch into things that are immediately adjacent to where we are, as long as they make logical sense, where we can leverage our relationships with lenders. This is a really interesting pivot point in our company's trajectory, which I'm really excited about.
Thanks, and good luck!