When I found out RealtyShares was closing its doors to new investors on Nov 7, 2018, I was shocked and saddened. Given they are based in San Francisco, I had met multiple people from RealtyShares since mid-2016 and developed some good relationships.
I feel terrible for the people who will no longer have jobs as we enter the holidays. In a way, I feel like I’ve lost a job and colleagues as well since they were a business partner.
On Wednesday, October 24, I had lunch with their CMO at Townhall restaurant. She told me they had just revamped their website and rebranded the company’s name with a new color scheme and logo. I even got a new shirt. You know startups are with their swag.
Further, I was told they would be launching a second fund, with a minimum $25,000 investment (vs. $250,000 for their first), to be more accessible to more investors. Their second fund would act like an index fund for all the deals they vetted onto their platform.
Obviously, the new fund is no longer launching. All that will remain will be an asset management and operations team who will be responsible for servicing existing investors and their approximately $400 million of assets under management until scheduled completion.
RealtyShare wrote in their e-mail, “This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.“
What Went Wrong At RealtyShares
I expected consolidation in the space, I just didn’t expect RealtyShares would be one of them so soon given they had raised $27 million in Series C funding in September 2017 and had so much demand. That’s a lot of cash to go through in 13 months. I’m hopeful they still have a cash cushion left for the transition.
In retrospect, it looks like RealtyShares expanded too quickly (personnel, large office space, got in and out of residential at a high price) without an equal amount of supply.
Ever since I joined their platform in 2016, most of their deals were quickly filled. This was part of the reason why I invested in the Domestic Equity fund instead because the fund would always get first dibs on the best deals. I didn’t have time to log in every day to check.
But if you consistently have excess demand, your customer acquisition cost (CAC) will start to go higher because your new customers will just be sitting there without deploying any or as much capital. Hence, finding that supply and demand balance is key.
Further, they probably didn’t have the technology optimized to scale quickly. RealtyShares ran a people intensive business to review, finalize, and manage deals. Their growth was more linear, rather than hyperbolic as venture capitalists like to see. I suspect part of the over-expansion was due to VCs always pushing more aggressively for growth.
I truly believe the vast majority of RealtyShares employees had no idea their next round of funding wouldn’t come through until it was pulled last minute.I truly appreciate my time working with Kristina, Brian, Amy, and Alyssa. I wish them all the very best. I’m sure our paths will cross again.