There’s an ancient adage I have leaned upon at certain times in my life: What doesn’t destroy you makes you stronger. It certainly applies to AlphaFlow, the startup I’m showing you today.
2020 was the ultimate stress test for AlphaFlow. And it survived.
We all know that retailers took a massive hit last year. But when so much business activity — including all kinds of construction — ground to a halt, the investment dollars backing those activities also dried up.
For AlphaFlow — which buys and sells short-term real estate loans of up to 12 months — there was no time to react, adjust or pivot. Its hedge fund partners cut off funding in the second quarter of 2020. Its revenues shrank from nearly $1 million in 2019 to a measly $169,000 in 2020. Everything — from its assets and liabilities to employees — experienced steep reductions.
The company has since addressed the vulnerabilities the pandemic exposed in its business. Its biggest move was a $100 million securitization that solved its cash management problems. Never again will third-party financiers hold AlphaFlow hostage when times get tough.
And now the company is in the midst of hiring a dozen more engineers to work on the latest iteration of its platform. Their work will enable AlphaFlow to better serve its lenders and loan-buying clients.
AlphaFlow has shown an enormous amount of resiliency — a characteristic that startup investors should appreciate. But there’s so much more to like about AlphaFlow. It has tapped into a huge and lucrative space that significantly boosts the profits and business opportunities of everyone using its platform.
The Problem
AlphaFlow helps lenders who specialize in loans given to property flippers. These loans have attractive terms (meaning high interest rates) that draw the interest of institutional investors. And lenders would like nothing better than to sell their loans to these investors. They’d get their cash (with a nice profit) immediately instead of waiting 12 months for full payment. And they’d be able to immediately turn around and make more loans, generating more cash and profits to make still more loans.
The problem is these loans — made mostly by local lenders — are too small for big institutional investors to discover and profit off of on an individual basis. It takes too long to discover and vet enough of them to make it worth their time. It’s too much trouble for not enough gain. As a result, the smallish lenders that make these loans are starved of cash. Growth — and profits — are stunted.
Part of the problem is that the asset managers who’d be approving and buying these loans are stuck in the 1990s. They typically work with manually inputted Excel files. Many loans come with several Excel files — one for each loan originator! It takes weeks to reconcile all the numbers.
AlphaFlow’s Solution
Using artificial intelligence and digital technology, AlphaFlow automates this entire process so it takes just a few days.
Nobody else is doing this… yet. And AlphaFlow is stepping on the gas pedal right now to fortify its head start. Raising money and creating an even more versatile platform will give it an almost unbeatable advantage over wannabe companies moving in for a piece of this lucrative market.
Anytime a company can create or enlarge profit streams for its users (and their customers), I get excited. AlphaFlow is not just making the real estate investment realm a little faster and better. It’s also creating active and lucrative investment flows in a deeply neglected part of the real estate lending space. There’s a deep and growing pipeline of enthusiastic investors looking to buy these loans. The market has spoken loud and clear.
The Numbers
AlphaFlow employs a simple revenue model. It makes 1.5% on the loans it sells. That will earn it around $4.65 million this year. This summer (beginning just about now), it’s expected to generate $110 million a month in loan volume. By the end of the year, its annual run rate is expected to hit $10.9 million.
And it’s just getting started.
AlphaFlow expects to make much more in 2022 when it will have a full year of servicing rental property loans — which is a much bigger space than the $75 billion flipper-lending market. The company says it could reach profitability as soon as this fall.
AlphaFlow makes for a compelling early-stage startup opportunity. But if you need more convincing, here are 10 reasons why this company stands out from the pack…
- It’s addressing a huge need with transformative disruption in two enormous markets: the real estate and capital markets. That’s rare.
- Each loan AlphaFlow sells has 106 data points. And its data focus is paying off. Its loan buyers have never lost any money.
- Only a few loans have gone delinquent. And even with those, investors have been able to recover their entire principle. In fact, for almost 2,000 loans spanning three years, not once has an investor lost money on the principle.
- Its loan purchases are now backed by a $100 million securitization — a unique advantage that’s the envy of the industry.
- Its platform offers a high-quality user experience and level of functionality. As the company grows, it’ll scale without a great deal of added work.
- It has sold $1 billion worth of loans — and it’s just getting started.
- Revenues should surge with the addition of rental loans (going live next week!).
- Profitability is within sight.
- This investment round launches a big expansion push. It will be followed by a much bigger round (with venture capital investors) at a much higher valuation, if all goes according to plan.
- AlphaFlow is on its way to becoming the go-to platform for capital markets to access the $600 billion non-bank real-estate lending space.
The Team
Ray Sturm is the founder and CEO of AlphaFlow. He also founded RealtyShares, one of the industry’s first and biggest platforms for real estate investing. But his experience goes back much further.
His first job was with Bear Stearns, a major financial firm that collapsed in the real estate crash of 2008.
The crux of the problem then was the highly risky pools of mortgages (known as mortgage-backed securities) masquerading as low-risk investment vehicles. Banks did not have the time, technology or willingness to evaluate the thousands of mortgages in these pools. And it almost brought down the entire global financial system.
Ray has made sure that AlphaFlow’s platform provides full transparency into each and every loan and property.
Ray’s years of blazing new paths in real estate shine through in his stewardship of AlphaFlow. Identifying a need is one thing. Turning it into a smart driver of capital whose AI-based navigation system runs off of proprietary data is as transformative to the capital investment markets as Tesla is to the automotive markets.
Deal Details
Startup: AlphaFlow
Security type: Crowd SAFE*
Discount: 0%
Valuation (cap): $55 million
Minimum investment: $100
Where to invest: Republic
Deadline: August 16, 2021
How to Invest
AlphaFlow is raising up to $1.5 million on Republic. If you don’t already have a Republic account, you can sign up for one here.
Once you verify your account and are logged in to Republic, visit the AlphaFlow deal page.
Then click the blue “Invest in AlphaFlow” button. Enter the amount you want to invest, starting as low as $100, and proceed through the required steps. Be sure your investment is confirmed, then you’re good to go.
*NOTE: The security you will be investing in is a Crowd SAFE. A SAFE is a Simple Agreement for Future Equity. An investor makes a cash investment in a company, but gets company stock at a later date, in connection with a specific event. The Crowd SAFE is a modified SAFE that is better suited for crowdfunding.
Risks
This opportunity, like all early-stage investments, is risky. Early-stage investments often fail. AlphaFlow might need to raise another round of funding in a year or two, if not sooner.
If it executes well, this shouldn’t be a problem. But that’s a risk worth considering when investing in early-stage companies. The investment you’re making is NOT liquid.
Expect to hold your position for five to 10 years. An earlier exit is always possible but should not be expected.
All that said, I believe AlphaFlow offers an attractive risk-reward ratio.