Can a Fintech Startup Take $13 Trillion from Wall Street?
It’s no secret that FinTech companies are challenging the status quo of the financial industry by leveraging the power of the internet. With lower costs and fewer middlemen, investment startups allow consumers easier access to the market. Investors have taken notice too: 2014 saw $12 billion allocated to financial technology startups, which was a 300% rise from the year before.
The latest disruptor to watch is D.C.-based startup FundRise, an app that allows individuals to invest in commercial real estate right from their phones. Commercial real estate comprises a $13 trillion market. That’s a huge market previously untapped by startups- until now. Wall Street might not want to share, but Silicon Valley can’t be stopped.
Commercial real estate has long been a moneymaker for Wall Street investors. 2014 saw average annual investment returns on real estate stay strong at 15%, while stocks and US bonds returned an average of only 5.2% and 6% respectively. Typically, real estate investing has required large sums of capital that prohibits the casual investor from entering the playing field. That’s about to change with FundRise, which uses a crowdfunding model to allow investors to pool their money and invest collectively on big real estate ventures. With a few simple swipes on a smartphone, investors can buy a small piece of iconic properties like 3 World Trade Center at Ground Zero.
Founded by brothers Ben and Dan Miller in 2012, FundRise received Series A funding last May, and currently has 56,000 users. The company reports a 1500% growth in assets since launch, confirming that the demand for online real estate investing with low minimums and high transparency actually exists, as the brothers bet on when launching their startup. It will be interesting to see how much of that $13 trillion market FundRise can actually divert from big Wall Street investors, but so far the online marketplace they’ve built to bring together investors and management companies is an exciting example of fintech shaking up the investment real estate industry.