DiversyFund is a crowdfunding/fintech company that runs (i) an online real estate investing platform and (ii) an affiliated real estate development division that manages the online investment offerings.
DiversyFund grants “crowd” investors access to a true alternative to the stock market through its online private market real estate crowdfunding platform. Our investors buy shares, for as low as $5,000, in institutional-grade, multi-million dollar real estate through a fully-automated and convenient online experience. This “crowd” of investors comes from across the United States and their money is pooled together to fund the various real estate offerings on our online platform, hence the term “crowdfunding.” Most of our platform investors have never had access to such private market real estate investments and have instead been limited to: (i) investing in stocks and bonds, or (ii) purchasing an entire real estate property on their own and dealing with the headaches and pitfalls of managing tenants, repairs or construction.
Our online investors can choose from several categories of real estate investments depending on their risk/reward preferences: (i) diversified passive income fund or (ii) individual real estate assets in the passive income (multi-family) or high-yield growth (residential) products.
Socially Impactful Projects
DiversyFund is committed to focusing on real estate projects that make a difference in addressing various facets of the housing crisis. For us, this is crowdfunding with a conscience. Many of our projects fall into one of the following impactful categories:
Unlike other platforms, we have adopted a vertically-integrated business model where we function as both the investment platform and perform the real estate development in-house, for better quality control and investor reporting. This vertical integration approach creates far superior unit economics for our Company compared to competitors in the space, since we, as the developer, receive developer fee revenue and are building up a portfolio of real estate assets that we own. For each real estate asset that we develop, DiversyFund will capture the developer’s profit on the asset after it is built and sold and the crowd investors are paid out. For assets with large profit margins driven by both build profit and market pricing appreciation, this asset profit to DiversyFund can be quite significant. Our vertical integration also provides us with a key differentiator in the market. Because we generate significant revenue from controlling the real estate product, unlike our competitors, we do not need to charge the investors any platform level fees (no origination fees, servicing fees or broker fees). For example, when our investors earn, 14% on an investment, they keep the full 14% pay out.
DiversyFund, Inc. was formed as a Delaware corporation on August 18, 2016 by Craig Cecilio and Alan Lewis. Mr. Cecilio and Mr. Lewis both realized that crowdfunding needed a better business model, where the platform was more involved with the success of its investment offerings for the sake of the customers rather than only being incentivized as a broker. Accordingly, Mr. Cecilio and Mr. Lewis launched the market’s first vertically-integrated crowdfunding platform where the platform also performed all development and construction management activities on its offerings.
Craig Cecilio, CEO and Founder. Mr. Cecilio is the CEO and Founder of DiversyFund, Inc. Mr. Cecilio has worked in the real estate industry for nearly 20 years. Over the course of his career, Mr. Cecilio has participated in the development of over 1,000 single family residences in California as either a joint venture equity partner, lender or sponsor. Previously, Mr. Cecilio owned a real estate lending business, Coastal California Funding Group, Inc., which underwrote and financed residential renovations and ground-up construction in California coastal markets such as San Diego, Orange County, Los Angeles and San Francisco, a loan servicing business.
Additionally, Mr. Cecilio founded a real estate debt fund in 2013, which manages a portfolio of real estate-backed bridge loans used primarily to “pre-fund” many of DiversyFund’s real estate projects. Since 1997, Mr. Cecilio has financed nearly $500 million of real estate assets, having raised over $100 million in debt or equity for real estate transactions in the last three years, and has developed and managed over $25 million of residential property (renovations and ground-up). Mr. Cecilio is a graduate of the University of Colorado at Boulder.
Alan R. Lewis, Chief Investment Officer and Co-Founder. Mr. Lewis is the Chief Investment Officer and Co-Founder of DiversyFund, Inc. Prior to the launch of was formerly the head of the real estate private equity division of JF Capital, a real estate investment and development firm based out of Salt Lake City, Utah, where he oversaw capital raising, deal structuring and development work for multi-family projects and master-planned residential communities. Prior to joining JF Capital in 2014, Mr. Lewis worked for nearly ten years on Wall Street as both an investment banker and a corporate lawyer, most recently working as a Managing Director of the Investment Banking Division of Brill Securities, Inc. where Mr. Lewis provided financial advisory and capital raising services for high-growth companies along with real estate and oil and gas projects.
Prior to joining Brill Securities in 2010, Mr. Lewis practiced as a corporate attorney at Davis Polk & Wardwell, LLP, a Tier 1 ranked Wall Street law firm (Chambers USA). His practice included IPO’s, mergers and acquisitions, and commercial real estate, including the acquisition and refinancing of several Fifth Avenue commercial buildings, acquisitions and portfolio restructurings for a $6 billion real estate private equity fund and the transfer of leases to an NBC Universal/Comcast joint venture for the 30 Rockefeller Plaza building. Over his career, Mr. Lewis has worked on transactions totaling, in aggregate, over $41 billion. Mr. Lewis received a BA from Brigham Young University and a JD from Columbia Law School, where he was a Senior Editor on the Columbia Law Review. Mr. Lewis is admitted to practice law in New York and previously held Series 7, 66 and 79 FINRA licenses.
Additional Team Members. DiversyFund also employs several key team members, including our CMO/CTO, Affif Siddique, who lives in Silicon Valley and has worked at Apple and Oracle has founded several successful tech start-ups with two exits. Gillian Vapnek, is our Director of Investor Relations and holds her Chartered Financial Analyst designation and was a former CPA in New York and has extensive experience in the wealth management industry having worked for large registered investment advisors such as Wells Fargo Advisors.
The Company also employs four other employees for the real estate division and corporate accounting and another ten individuals on the marketing and product development side. All marketing and product development team members are offsite and paid on an on-demand basis allowing the Company to remain agile and keep overhead controlled.
Unlike our competitor platforms that function as a broker between crowd investors and various third party real estate developers, DiversyFund is a vertically-integrated platform where we function as both the platform and the developer of the real estate investments hosted on that platform. Because of this fundamental improvement in the crowdfunding business model, we are able to capture significant revenue from both (i) developer fees and (ii) profit from the sale of real estate assets after they are built and the crowd investors are paid back their capital and return.
This means that for every million dollars we raise on our platform from crowd investors we can make 50x more revenue than our competitors who are limited to collecting typical broker fees such as origination, servicing, management or broker fees.
Customer Lifetime Value
DiversyFund recently had its first investment come full-cycle. The investment projected an 18% annualized return and DiversyFund paid out investors a full 18% annualized. The crowd investors were so pleased with the results that 65% of them immediately reinvested their capital into new DiversyFund real estate offerings. Of those 65% that reinvested, half of them increased their capital amounts invested with us. Those reinvested dollars will generate a new round of developer fees and asset profit for the Company.
We see this as one of the most compelling reasons for being in business. As a customer continues to reinvest with us over the years, the Company is creating a strong brand loyalty that will effectively generate recurring development fee revenue for the Company and profit from the assets the Company builds using such reinvested dollars from that single customer.
Currently, DiversyFund offers three categories of products for investors:Diversified income fund Passive income assets Growth assets
Diversified Income Fund. Our diversified income fund was launched in 2013 as a “friends and family” real estate debt fund. Accordingly, the Fund boasts an impressive four-year track record with an average annualized return of 11.4% from inception through Q2 2017. The Fund currently invests in a portion of each of DiversyFund’s online offerings, giving Fund investors participation to a diversified portfolio of real estate-backed debt instruments that generate passive income. Notably, the Fund is the first ever “No Fee” fund on the market since it has waived the typical asset management fees and performance fees that such funds typically charge.
Passive Income Assets. DiversyFund also offers passive income assets that are commercial or multi-family product types. These projects pay investors a stream of passive income, paid on a quarterly basis. Once the investment term is completed, then investors receive their initial principal back.
Growth Assets. We also offer growth investments for our residential development projects. These investments tend to pay higher yields to investors since the profit margins on our residential projects are higher. For growth investments, investors contribute their capital and the do not receive any income or interest until the project is completed, at which point they will receive a lump sum comprised of their initial principal plus the accrued interest or preferred return.
At DiversyFund, we invest in less than 5% of the deals that we analyze, making sure to pick only the best of locations in local Southern California markets where economic indicators are strong and we have local expertise. We also look for projects that have an intangible PR component to help us leverage our story in the media. For example, several of our projects are designed and built by Roman James, a world-renowned Design-Builder based out of Beverly Hills who is creating some of the world’s leading architecture and design in both the residential and multi-family space.
We anticipate building our real estate portfolio to be 80% commercial/multi-family assets and 20% residential assets.
Future Real Estate Products. As note in the “Market” section below, DiversyFund’s current offerings are only available to “accredited” investors. DiversyFund is currently in the process of registering its first Regulation A+ investment offering that will be available to all U.S. investors, both accredited and non-accredited. For scaling purposes, DiversyFund will partner with other best-in-class developers throughout the U.S. in co-developer relationships where DiversyFund can maintain the quality control that our investors have come to expect.
Future Offerings. Due to the strong customer loyalty that we are seeing from investors once we gain their trust after they successfully exit their first investment with us, DiversyFund will eventually expand beyond real estate offerings into other alternative assets classes that our investor base does not have access to, such as hedge funds, fractional franchise ownership, etc. Eventually, we aspire to be the Amazon of alternative asset offerings.
Marketing and Subscribers
DiversyFund’s main marketing approach is attracting new subscribers by utilizing online pay-per-click campaigns on sites like Google and Facebook. The Company also participates in various conventions and expositions where it will purchase a booth that is used to attract new subscribers. DiversyFund executives are also frequent guests on TV programs, podcasts and radio shows that focus on investing and real estate.
DiversyFund currently has approximately 30,000 subscribers, of which approximately 6,000 are accredited and 24,000 are non-accredited.
Currently, DiversyFund’s investment offerings are only available to accredited investors since the offering are made pursuant to Rule 506(c), which is a securities law exemption from registration created by Title II of the Jobs Act. As of 2014, there were 12.41 million accredited investors in the U.S.1
506(c) allows an issuer like DiversyFund to advertise the investment offering to potential investors. Prior to the passing of the new 506(c) rule, issuers were not allowed to advertise a specific securities offering or post such offering openly on a website. 506(c) offerings are limited to accredited investors only and such investors must confirm through a third party, such as a lawyer or CPA, that they are accredited. Investors can qualify as accredited by either an income test (make $200,000 per year for the past two years or $300,000 including spousal income) or a net worth test (at least $1 million of net worth, excluding the value of one’s primary residence).
DiversyFund is generating a significant pent-up demand with its non-accredited subscribers that are interested in investing in real estate. DiversyFund is currently in the process of submitting its first investment offering under the new Regulation A+ which will allow us to finally offer an investment fund to these non-accredited subscribers. As of 2014, there were 110 million non-accredited households in the U.S.2
DiversyFund takes its responsibility to investors extremely seriously.
Legal & Accounting. At DiversyFund, for each new offering, we set up a new Delaware limited liability company with its own IRS tax ID number that serves as a special purpose entity (“SPE”) and only holds a single asset (the real estate project). We then open a separate Wells Fargo bank account for the new SPE in order to avoid any commingling of funds between various entities. Each SPE has its own Quickbooks account for tracking all of the bookkeeping, which is performed by our full-time Financial Administrator who has spent her career working in the construction management industry.
For our SPE’s, we have hired Randy Jensen’s team of CPA’s from the accounting firm WSRP (see https://www.wsrp.com/team/randy-jensen/ ) to perform the accounting and prepare tax filings and investor K-1’s at the end of the year. WSRP has one of the leading real estate development accounting practices in the western U.S. region.
Developing real estate projects and performing vertical construction, whether it’s a SFR or a commercial mixed-use project, is a complicated business that requires both attention to detail and precise management of large teams of consultants and sub-contractors. At DiversyFund, we have our own in-house construction management division consisting of three employees who are led by a licensed California General Contractor. Our licensed GC holds the California “B – General Building Contractor” license and has extensive experience building high-end SFR and multi-family product, having previously worked for several of the largest private developers in San Diego. We believe that there is no substitution for “boots on the ground”, which is why our GC is consistently on site at each project ensuring that construction is staying on track.
When projects go over budget, which is a common occurrence in the development business, especially in a strong market where construction costs consistently rise, DiversyFund, as the sponsor, contributes the funds needed off of its own balance sheet to cover the overage to avoid any project delays so that investors can realize a timely return of capital.
Monthly Investor Reporting. In the real estate business, seeing is believing. This is why we send our investors monthly construction updates that feature multiple pictures of the current completed construction with details about our progress. This way, when we report to our investors that drywall is up or that foundation and framing are completed, our investors can see the results for themselves.
Due to our superior business model, DiversyFund has generated revenue and turned a profit from day one. In 2017, yea-to-date through August 31, the Company has generated $1.2 million of revenue and currently owns seven real estate assets comprised of both multi-family and residential assets. These seven assets represent approximately $94 million on an as-completed basis. We believe DiversyFund’s profits from these seven assets is approximately $20 million, which will be realized over the next 1-3 years as these assets are completed and sold.
Company Strategy & Scaling
Given our successes over the last 12 months, we are ready to scale the Company’s current business through deploying the funds raised in our $6 million Series A round. The bulk of the proceeds from the Series A raise ($4 million) will be spent on marketing efforts, which will allow us to scale our new subscriber acquisition efforts and increase the amount of capital we raise on our platform from these subscribers. This increase in capital raised on platform will in turn allow us to continue to scale both the number of real estate projects and their respective sizes, which will generate larger developer fees and associated asset profits.
Scaling Real Estate. As part of plan to scale our current business on the product offering side, we will take our current blueprint for real estate development in our local Southern California market and utilize that blueprint in other major metro areas and gateway cities where we can partner with best-in-class co-developers for development deals in such markets. We have already begun this process with our co-development arrangement on our Beverly Hills project on Granito Drive. Additionally, we have already begun scaling the scope and size of real estate projects we undertake as evidenced by the increase in as-built values of our most recent two projects, Granito Drive ($45 million) and Park Blvd ($25 million) compared to our first four projects that averaged $3 to 4 million each.
By putting the Series A proceeds to work in scaling our marketing, which in turn will scale our real estate development footprint, we project that we will be able to place an aggregate of $500 million of real estate assets in our development pipeline within 3 years with Company profits relating to those assets of approximately $80 to 100 million.
We will also use $500,000 of Series A proceeds to build out the next phase of our online technology and investor dashboard and reporting system. The final $1.5 million will be used for operations and working capital.
Exit for Investors
The real estate crowdfunding space has seen significant activity from the venture capital world, with many of our competitors having raised amounts ranging from $20 to 60 million. The venture capital firms will likely be pressing for liquidity events in the years ahead and so we expect to see both IPO activity and acquisition activity in the space. We are already seeing some acquisition activity in the industry between large and smaller platforms. We also believe that many traditional institutional developers will begin considering acquiring a platform like DiversyFund in the years ahead once they realize that online crowdfunding is a viable means to raise large amounts of limited partner capital. We are committed to exiting at a valuation that is at least 10x our current Series A valuation.
We expect to raise $10-20 million within the next 12-24 months on our Series B round.
An additional liquidity option for our investors is to simply begin distributing a portion of the Company’s profits each year to shareholders from the sale of real estate assets, so unlike many Venture plays, our asset portfolio allows us another path to investor liquidity events.
Currently have seven real estate assets in development/construction including a 58 unit multi-family and several SFR assets .October, 2017