A Q&A with DC’s $31 Million Start-up

• May 30th 2014

by Lark Turner

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This week, the DC-based real estate investment platform Fundrise run by brothers Ben and Dan Miller announced it raised $31 million in an initial round of financing, led by a Chinese social networking company called Renren. Fundrise allows small investors to put money directly into a given real estate development. UrbanTurf’s been covering the start-up since its inception. We chatted with Dan Miller about where the brothers plan to take the company next.

OK, clear this up. Are you a tech company or a real estate company?

(Laughs) It’s in a transition. We definitely started out as a real estate company. Now we’re full into tech mode, which means raising capital, scaling and trying to build the best and strongest platform available.

You’ve been talking to venture capitalists for a while. Why are you accepting funding now?

The lead investor, Renren, is in the social investment space. (Our collaboration will) allow us to retain control. What we really wanted was an entrepreneur who believed in what we were doing, who could support the mission and be a lot more flexible in how they could help. With Renren, it’s not through an intermediary. They built their company. It’s really an alternative that allows us the flexibility and allows us to really drive the business.

What’s up with the lack of investment from tech VCs?

The idea for Fundrise came out of frustration with Wall Street and institutional investment. In the same way, when we were dealing with fundraising, we’d rather deal with a group that’s alongside us, not somebody who’s managing capital on behalf of other investors. We wanted people to connect directly.

What are you going to do with $31 million?

Scale. We’ve been hiring about 2-3 people a month, and we’re growing really quickly. We’ve opened an office in San Francisco, Seattle and New York. Particularly with the real estate side, we think it has to be somewhat decentralized (to pull in regional real estate companies). They’re regional companies and you have to have a regional presence. We’ll probably expand to Chicago, Texas, Los Angeles … the northeast will be run out of New York, the southeast out of Atlanta or Miami. We want to be in Detroit and the Midwest, too.

Do you plan to stay in DC? Aren’t you tempted by San Francisco?

Many people ask us, “How can you possibly not be in San Francisco?” We have a bias. I think DC’s a great place to build a company, a much more stable place to build a business. We like being away from the noise. But there’s an advantage to being around the action. We think we’ll have a big presence in California, probably a bigger presence in New York for financials, and we plan to be in DC. We’re hiring here. Any smart people, they can come our way.

What’s been your most successful project so far, in terms of return on investment?

[A DC development from Lock 7] has been very successful — there are some people who have made 12 percent and have been in the investment less than a year. Most of the deals range from 8-18 percent. As much as the social aspect is important to us, we know that we have to make money for our investors. We view it as our mission to make sure everything that comes on the site to invest in is high-quality.

An 18 percent return on investment? What project was that?

A project in Philadelphia at 19th and Fairmount Avenue by MM Partners. It’s an old warehouse converting to ground-floor retail and apartments above, and they’re the type of developer we love. They’re a private developer, really established, they’re young, they’re experienced as well. (Editor’s note: This was a Fundrise project for accredited investors with a minimum $10,000 buy-in.)

Since you guys launched, a number of other real estate crowdfunding sites have sprung up. How do you plan to stay ahead of competitors?

Scale aggressively and focus on creating a really high-quality platform. We have the strongest brand. We don’t just put anything on the site. We have a deep understanding of how it should be structured and how it should work. So it’s important for us to extend the lead and become the dominant or one of the dominant players as the market forms.

There is a good deal of skepticism around the Fundrise model. What do you tell people who doubt the model will be viable in the long-term?

We look at where we are in terms of online commerce in the mid-‘90s. Initially, if people ordered from Amazon, they didn’t even know if the books would arrive. [In a similar way], we’re allowing people to invest in real estate efficiently using technology and reap the returns, but it’s going to be a 5-, 10-, 15-year thing. There are already a lot fewer detractors now than there were a few years ago.

This interview has been condensed and edited for publication.

This article originally published at https://dc.urbanturf.com/articles/blog/a_qa_with_dan_miller_co-founder_of_dcs_31_million_startup_fundrise/8549.