CrowdStreet Revenue & Funding (2020)

hello everyone my guest today is tor steen he was an industry he was instrumental in the product sales marketing and business development efforts for jan rain taking them from early stage rapid growth phases to becoming the recognized leader in the social identity space of the full user management platform and global enterprise customers today he's leading crowd street an online syndication platform uh for commercial real estate tour you ready to take us to the top yes hi nathan how are you doing i am well all right so um start off first here with the business model then we'll get into the kind of x's and those of what you do so is this a pure play sas model or do you monetize a different way yeah it's actually more of a marketplace model but there is kind of a subscription model associated to it and kind of again back to the origin of crowd street was really to transform investing in commercial real estate right make it different than the way it's been done before so can you pricing models new revenue models i love that um before i move forward can you try and quantify that so if you look at your total revenue past 12 months what percent would you say sas first marketplace or some other form yeah it breaks down about 80 percent marketplace 20 sas okay fair enough all right let's get more the backstory here when the company launch uh 2013 formed and we launched the marketplace in 2014 and we launched the sas in 2015. okay now were you there from day one you're the founder yeah i'm the co-founder darren powderly is my my other founder he's the real estate guy i'm the i'm the internet software guy uh the tech guy i love that okay so i mean how did you guys come across the idea yeah i mean really darren had worked with commercial real estate firms who were trying to raise capital for their projects and they were already always confined to their geographic region and sphere of influence on investors right the kind of high net worth investors called the country club model right um and then on the flip side i kind of saw it from a personal perspective as a technology executive i didn't have access to invest in commercial real estate i didn't know the developers i wasn't hanging out on the golf course right so the two of us kind of came together with the concept of how can we benefit both sides how can we give commercial real estate developers and operators more access to investors across the country and at the same time give great accredited investors more access and transparency to the third largest asset type in our country commercial real estate uh so that was really the idea and you know again you move it online you hopefully reduce friction you open transparency and you and you provide greater distribution and and both sides win give me some snapshots today total capital raised to the platform so yeah total capital raised since inception a little over seven hundred million investors what's that investor distributions on that yeah so investors have uh received over 70 million dollars in distributions okay so what effective ir you're talking like 25-ish yeah yeah exactly that's interesting okay now with these businesses i've interviewed a bunch of folks kind of i'm going to call you fintech but your real estate fintech you know you have cabbage seven billion dollar loan book a lot of companies like this in different sectors and the hardest the hardest part to build is the first 10 million of the loan book right so so in terms of your car your true cost of capital usually people call it like the mafia round how did you guys raise the first 5 million or 10 million for you to then deploy through the platform yeah i did it i think a traditional way friends and family right started there that was the first 250 000 right just you know because they know you well enough they're going to actually invest in you as a person and then i was actually fortunate to meet a uh a fintech focus vc down in the bay area that does only early stage and so that helped us kind of they came in for a little bit more institutional seed round to get us to 1.3 million in seed and that was in october of 14. so we closed that that first round so that kind of helped us you know kind of at least build the initial team start getting the you know some sponsors on the marketplace started building the technology as well the platform and then really the the a round that that remaining kind of sub five million the three and a half million dollar radius that was through a traditional vc down in uh in silicon valley so rally ventures again does kind of traditional a-run they love the fact that we were kind of this up-and-coming marketplace and also had a sas model to it as well what total capital raised to date on the equity side yeah we've raised 13 million for the company so it's very very capital fish in business at this point when you did the 3-5 with rally what was your total outstanding loan book what was the size oh gosh we were in terms of what we've done on the marketplace yeah how much had actually investors put in and you lent out i mean we were probably only 25 million had been done on the marketplace and the reason that number stands out just a fun fact nathan is uh yesterday we celebrated a big success a big raise on the marketplace and i said look what we did uh this week is more than we did in the first two years so you know that's the that's the beauty of that flywheel right of a marketplace once it starts to build trust and and uh between both sides so let me just repeat this back to make sure i get the timing right 25 million dollar loan book in 2016 when you did the 3.5 million dollar equity round with rally okay so you answered my question on how you got your early equity but what i was actually asking is actually getting the the people loaning you the money at cheaper rates and what you're letting it out so you get a spread that's sometimes the hardest part so where did your first dollars not your equity dollars your first kind of debt fund dollars come from oh you mean for the marketplace itself correct yeah so we're unique and that we grew it organically so we didn't actually take balance sheet capital to invest onto the marketplace we actually felt like if we're going to build kind of a trusted marketplace you know we don't want to go buy deals right in essence so what we wanted to do was build go take our time on finding really good deals really good sponsors the supply side of the marketplace and then at the same time kind of try and keep the demand and supply in in kind of an equilibrium no i think that's great so so in 2014 that first 12 months in business do you remember how much you had you had raised on the debt set again from investors saying yeah i want to do a loan through you yeah and really it's more of the investing equity as opposed to the debt side i mean there are some players that do dat nathan but we're always they're investing on the equity course portion of these deals which has nice upside as opposed to debt which is usually a fixed return and so really in that first 12 months we'd only raised about you know kind of 10 million dollars uh on the marketplace keep kee i want to track this growth we already know 2016 was 25 million what did 25 2015 end at oh 2015 it was like you know again 15 16 million dollars it was it was pretty you know between 14 and and 16 it was it was you know i want to say it was negligible but it was at least proving uh that this market could that you could actually take commercial real estate investing and move it online so from 2016 to today you went from 25 million in essentially loans out to 700 million so let's just keep going year by year 2016 was 25 million what was 2017. 2017 was 130 million okay i'd say that's pretty significant growth almost you know 6x saying the 25 million in the prior year did something special happen there did you land one big investor or something well what we had seen was really an inflection point it was interesting middle of it was july of 16 i remember we looked around you know there were probably like 18 of us in the company we're in one big room right a startup and we kind of looked at each other we're like we've hit an inflection point because we'd seen three months of kind of steady new supply coming on the marketplace we'd seen a steady nice growth of our investors coming on the marketplace and repeat investors right investors now that we're putting in their third or fourth or tenth investment into crowd street marketplace deals so i think what had happened is we'd finally by the middle of 16 hit that inflection point where it had been proven and larger sponsors were now coming onto the marketplace and so we started to build more of a demand the investor side the consumer side of the marketplace so really by 17 it was really really ready to take off and and in 18 we did 250 million of equity on the marketplace in in 18. that's great okay um let's jump in let's just shift just the sas portion of the business for a second so who is paying you the the builder the developer or the person lending the money or investing the money yeah the developer because we white label our software and we license it to the to the developer okay so what is the app i'm sure you have a ton of customer cohorts but we don't have time to talk about all of them the average developer is going to pay you what per month or per year to use your platform it's yeah it's an annual subscription it's right around 20 to 25 000 is kind of where they fall in so it's not an exorbitant expense but it's you know it is a capital budget and when did you so 2014 you start writing the code for this thing uh when did you get your first dollar of revenue on the south side the south side was in 2015. okay so about a year of investing in the mvp do you remember how much cash you guys sunk into the mvp before you first dollar revenue yeah yeah i would say it was probably a couple hundred thousand dollars worth of uh you know pure engineering product development that went into that that mvp that's not bad okay so your first developer comes on in 2015 how many are you working with now today oh we've got uh over 200 commercial real estate developers using our platform okay and um i mean so can i can i take 200 times that essentially 2 000 a month you guys are doing north of 400 grand a month or about 5 million in ar just on the sat side of your business correct yeah i mean that's pretty healthy and you said earlier that's 20 of your business so if we multiply by five right that obviously takes you to 20 million in terms of total run rate we're on that right yep where if you're at that today and let's just talk about sas here for a second here 400 a month today where were you a year ago do you remember oh we were at least probably half of that yeah okay good now did that growth come from developers the same set spending more with you or do was it new onboarding new logos all together yeah i mean it's it's interesting because we we built this nathan really as a way to help developers come online right so we recognized in 14 as i was espousing a marketplace to these commercial real estate developers many of them are like i don't speak your language you know again they're 20 years behind in using technology because i would say how are you managing your investors today and they'd say well i use spreadsheets right and i go a whole timeout i can license your technology and manage my own investors so we built the sas and we developed the sas part of our business as kind of a tip of the arrow right to help these developers manage their own investors and then it was easier for them to say wow okay i understand the value of your marketplace now maybe i'll start putting deals on your marketplace so i like to bring that up because the sas is a kind of an ability to help these developers and what they're doing today which is they could be managing a couple hundred high net worth investors and millions of dollars that they're raising capital and and and managing investors but then you know our marketplace gives them that expandable set of investors right beyond this their own close net so they go hand in hand and so the way we actually look at is how many invest how many sponsors that start on our sas developers go also to our marketplace and we have about a 40 percent cross over so what exactly these developers who make money then go and invest on the other side exactly they start well they use our software to manage their own investors you know they're used to doing a kind of a private offering where they raise capital from kind of a small net so they'll go from using our sas solution to manage on their own website with their own investors to then actually say i want to put a project on crowd street so the way we look at it is we're gaining new logos through our sas solution which then also crossovers over to them using our marketplace interesting okay now let's talk about the other part of your business the 80 percent of revenue coming from marketplace if you have about 700 million outstanding and you're doing about 20 million on that part of your business again 80 of your total revenue i mean that works out to about you know 2.8 ish are you actually generating effective irs of like 29 you're keeping about 3 and the investors get 25. yeah and the irr is a little challenging right because you know if you took all the deals that we've done about 330 deals have done gone on the marketplace and you took the average targeted irr it works out to about 18 okay so the realized irr as we know realize versus unrealized like what's on paper versus what's what's really kind of come in so the realized irr is actually what you were saying in the upper upper 20s right because those are deals that you know have gotten many times an offer they couldn't refuse earlier than they anticipated that selling or they were ground-up development where they knew they would sell it within two years so we've had 17 realized offerings so far and that's where we have the upper 20s or mid-20s irr but if you kind of look across all the deals those that are still distributing cash on an ongoing basis it's kind of a blended 18 ir across the entire platform okay and is that your model though do you tell investors when they give you a hundred thousand dollars hey we're gonna pay you back a target of this irr but we're keeping a three percent or you know 300 points on that or like how do you what's your marketplace revenue coming from yeah so we're really clear with investors we like to tell investors that look you have a there's a self-serve marketplace in one regard so any investor accredited investor can come on and as low as 25 000 they can invest in these deals we don't charge that i'll call it the do-it-yourself investor any fee right sponsors are paying us a technology fee to be able to put their deal on our marketplace and they know that we're helping digitize their offering and we've gone out and done all the hard work to go find a credit investor so it's really the sponsor that pays us for that kind of self-serve investor that wants to invest their own we've now added two other services for investors we have a series of our crowd street funds that is kind of like we call it the blended portfolio and it allows an investor to put it into a crowdstreet instrument that then invests across 30 deals over a 12-month period on our marketplace giving investors a kind of a diversified pool of investments and our third offering for investors now they do pay a one percent fee for that because it's a traditional fund structure and how much is under management under that vehicle exactly one percent of assets under management how much is that how much is an arrangement on that vehicle already in six months we've seen 27 million dollars on that on that fund alone and 600 investors so it's pretty pretty significant growth and our third offering is our advisory service so we have a a private uh advisory service so clients that do investors that do want kind of i'll call it the white glove you know kind of approach they can come in and we'll actually create a custom portfolio we have registered investment advisors on the team there and they're able to construct a portfolio specifically for that client over the years in terms of where they put their capital onto the marketplace and there's a it's about a two percent fee for that because it's a higher touch you know service so just to summarize your total revenue call at 20 million this year is is hopefully what you'll hit that this year you think or you already passed that last year yeah we'll be on that run rate yeah we're on that rate right now okay and what'd you finish last year out total 99.2 million really impressive growth so of the 20 you're gonna do this year just to be clear again 80 of that's going to come from the three products you just mentioned some combination of fees or developers sponsored etc the other 20 is coming from the sas fee developers paying 25 000 acvs yup that's great okay let's double down and wrap up here with just some sas questions uh churns critical and a sas company what's your churn again just on the sas side of your business yeah so right now we're at a 96 percent renewal rate so it's only only four percent very good do you have expansion revenue on those codes that more than makes up the four percent loss yeah so we actually do see uh uh rev on a revenue on a revenue basis we're actually over last quarter over a hundred percent on the renewals because they're buying those they're saying or buying more upgrading what does it cost you fully weighted to get a new twenty five thousand dollar acv account oh it's it's uh you know ten thousand dollars okay so you got a like six month payback period you're happy with that yeah yeah okay very cool team size today how many folks 75 oh wow what's the breakdown engineers versus sales people yeah engineers of the 75 we have uh 11 in engineering so good amount sales sales people we've got 16 sales people both inside and outside we've got people in the field key key markets and then we have an investments team as you can imagine with the marketplace we have to have a a team that is experts on screening deals right screening sponsors so we've got a 10 person investments team as well when a sales rep is fully onboarded what are you saying they're quote at typically yeah it's close to uh three million dollars and did you pick that based off a profitability target like you want 5x profitability per salesperson when they look at their fully earned comp well we like to look at it also more more based on what's the total productivity that they can actually achieve i mean i always kind of kind of come down to how many units could they actually sell the marketplace and the sas you know at an average aasp um so really kind of more of a kind of a bottoms up to to really look at productivity and you mentioned 13 million in the company on the equity side today when was the last raise uh it was july of 2018. okay so you're raising so you're raising right now uh not not right now let me ask a different let me ask a different question are you back to break even right now are you still burning some capital we're burning some capital but it's very capital efficient so i wouldn't say we're at a break even but we are aren't far off okay so you're talking like 10 grand a month or 100 grand a month or yeah it's about 100 grand a month okay so that's fine yeah i was going to say i mean 100 a month on you know you know call it five six seven eight hundred grand a month is is fine you get the margins um in all seriousness though i mean you know usually you see folks raise when they're on the vc track every 16 to 18 months so if you do raise and you know call it q4 q1 2020 what would be the right amount to raise and how would you think about that yeah it would really be a growth the growth round you know the last round was it eight million dollar round it would most likely be kind of 15 to 20 million you know it would really be our our hopefully probably our last but about but a real growth growth round do you think you can get up to kind of 100 million pre-money oh yeah yeah as i would say i don't know how and i'm a sas guy so i don't know how your kinds of investors would value the 80 percent of revenue you're getting from the marketplace that's good yeah i think they look at it through obviously there's a revenue but there's also kind of the value of the accredited investors the value of kind of the the customer base and value of kind of what there's an intrinsic value in a marketplace right that's that's hard to put a number on in terms of the network effect that you can you know that you start to see so i mean let me try and quantify here for a second if steve roth and ronaldo comes and said hey we'd love to buy this thing for you know a quarter of a billion dollars call it 250 million bucks do you sell that's that's a pretty low ball offer that you said that with a pretty straight face i would consider that very i mean that is a what is that 510 that's like a 10 15x i mean that's pretty healthy the reason i say it is because i guess we don't have that in mind right now we look at what we're doing already and we say we're excited about you know again we'll do 500 million on the marketplace this year so just to put that in in context in the first you know kind of five years of crowd street we raised 500 million on the marketplace this year alone we'll do 500 million what's really possible in this industry because there's about 250 billion of equity in commercial real estate every year we're still such a i mean it's great growth but i just look at the upside nathan and i'd almost be kind of disappointed while the s250 would be a nice like offer i'd be almost disappointed to kind of get out at this point with how much opportunity is still ahead of us right 200 developers on the supply side how many investors have put in at least caught a dollar on the on the investor side over your history yes so we've had now we have over uh 5 000 accredited investors growing by at least 300 new active investors each month that's i mean that's pretty darn good and the i'm curious the average first tranche of capital a new investor puts in each month is about what yeah first-time investor that the the average investment size is 45 000. so yeah minimum is 25k on our platform but you can imagine many investors might start 25 or 50k they come can maybe move up to 100k in certain investments interesting all right let's wrap up with the famous five number one favorite business book oh favorite business book i think it's the john doe okay you know measure what matters um just because in the last year in terms of you know getting better at executing uh my myself and my team um spent considerable time uh reading that book and trying to kind of build our own okr methodology number two is there a ceo you're following or studying right now yeah one that i always find intriguing and just uh i use a character which is elon musk um you know just the things that come out of his mouth the innovation that that he espouses uh you know is pretty amazing number three what's your favorite online tool for building your company yeah i think one that we've really coalesced and i i love is and it goes back to a little bit of our methodology is trello trello has been very valuable for the for everybody number four tour how many hours a sleeper i get every night oh i'd say six to seven is is the average and how old are you i'm 50. 50. and what's your situation married single kids married two boys fourteen and seventeen-year-old boys so great freshman and a senior this year that's great all right last question what do you wish your 20 year old self knew you know i think this it's an interesting question i think if i reflect back because that was a ways ago i think the thing is is it's okay to fail right if you learn from that and become better and i think as a 20 year old coming out of school at a college especially you know kind of early 90s uh you know there was the mentality is you don't fail right it was that you know you do it this way you learn you know you just it's not okay to fail and i think being an entrepreneur over the last you know 15 years of my career now um and i wish i did it earlier which is uh is you learn from those failures and it's okay if you've given everything you had and you did the best you did and and uh then it's okay to fail guys there you have it crowdstreet did 9.9 million in 2018 on track to do 20 million this year split between 20 sas revenue from 200 developers paying 25 000 acvs to list their properties on crowdstreet the other 80 coming from three or four marketplace products where they take you know either you know caught 100 to 200 points on uh to drive that growth uh healthy growth 13 million of the company so far burning about 100 grand a month 75 people 11 engineers as they look to scale they've deployed over 900 million dollars in capital into these projects investors can get started on the platform accredited uh for as little as 25 000 but average first time check is 45 grand again healthy growth tour thanks for taking us to the top hey thanks nathan