AlphaFlow Fund I

Yesterday we launched our first fund at AlphaFlow. It’s the industry’s first multi-platform real estate fund being offered to accredited investors, with a fairly straightforward mandate: give investors a way to invest in 1st lien residential debt opportunities across the industry with one single investment.

We didn’t follow the typical marketing playbook, in which we might trickle out a slew of “Something great is coming” emails and ads (I’ll take the blame, as I don’t have the marketing chops of some of the industry’s great talents like AdaPia d’Errico of Patch of Land). Awareness is important, of course, but so is making sure we’ve built something truly unique and powerful. Within five hours of launching, we had over $1 million of pledges from our users. That’s incredible! So how did we get here?

A number of users wrote in to say nice things and praise us for being innovative or exceptionally creative, but that’s simply not true. Honestly, the credit is all yours. Within a month of our September launch, three or four users reached out to ask if we could put together a debt fund. A few factors contributed to this:

  1. Debt is structured in a way that makes the goal about minimizing downside, given the upside (interest rate) is fixed. Diversification across platforms, geographies, sponsors and specific properties is tremendously impactful, as it helps to reduce correlation between investments.
  2. Picking deals one-by-one can be time consuming, and good debt deals often fill quickly.
  3. Less positively, the growth of deal flow has brought an increase in defaults on many platforms. Investors who experienced this pain wanted to smooth out the lumps.

The-Great-Divide-in-P2P-Lending-Institutional-Demand-and-the-Little-Guy-Percentage-of-Loans-Issued-to-InsititutionsAs we dug in, a fund made more and more sense. Most people still think of Lending Club and Prosper as a peer-to-peer lending platforms. The truth is that an increasingly small percentage of dollars come from retail investors though. Funds are driving the industry, and if that’s the inevitable path for real estate crowdfunding as well, why couldn’t we give you the power of a Wall Street hedge fund by creating one ourselves? Why couldn’t we give you effectively the same influence as a Park Ave fund? The same access to decision makers when things go wrong? The same great opportunities that are often filled offline?

Most platforms we contacted were extremely receptive. A fund meant another source of capital, and while some worried we’d cannibalize their users, most saw that we’d be bringing a wave of new investors to their platforms. In the struggle of two-sided marketplaces (see #4), assuring volume on one side of the seesaw is a huge advantage. I’m so excited to work with great platforms like Sharestates, LendingHome, and AssetAvenue, and start to build relationships with others like PeerStreet.

And so, we launched AlphaFlow Fund I. From day 1, helping investors has been our central mandate at AlphaFlow. The fund won’t invest in our own deals, so we have no conflict. My co-founder and I will be investing, so our money will be right there alongside yours. Investors will see the exact same dashboard we use to manage the fund, giving you complete transparency.

Our most popular ideas have come almost entirely from you – the investors. In the next two months, you’re going to see a wave of new additions to the site that improve your investing experience. Most of those started with user requests and ideas, and we listened. From reporting, to deal analytics, to actually investing across the industry, we’ll be rolling out huge improvements continuously. In the meantime, please keep sharing your ideas!

As always, you can reach me at Ray@alphaflow.com. If you enjoyed this post, sharing it on Facebook, LinkedIn or Twitter with the links below is the highest form of flattery. Thank you!

About the author:

Ray Sturm, CEORay Sturm is a leading entrepreneur in financial technology, and is currently the CEO of AlphaFlow. Prior to launching AlphaFlow, he founded RealtyShares, one of the P2P industry’s top platforms for real estate investing. His early career in finance included investment banking at Bear Stearns, restructuring at 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.

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