#StartupsEverywhere Profile: Jerry Chu, CEO & Co-Founder, Lofty
This profile is part of #StartupsEverywhere, an ongoing series highlighting startup leaders in ecosystems across the country. This interview has been edited for length, content, and clarity.
Fractionalized Ownership of Rental Properties for $50
Lofty is a blockchain-based investment platform making it easy for anyone in the world to diversify into real estate. CEO & Co-Founder Jerry Chu spoke with us about his experiences as a Canadian growing a U.S.-based business, his journey raising capital, and the ways in which policymakers can craft policy to support the responsible growth of emerging technologies.
Tell us about your background. What led you to create Lofty?
Lofty was founded after myself, my co-founders, and our friends—many of whom make high six-figure salaries—realized we all would like to invest in real estate, but none of us could actually afford to because of three main problems. The first is that barriers to entry exist. Real estate is a stable asset class that creates a lot of wealth for people, and it's one of the best ways to maintain wealth over generations. But the vast majority of people don't have access to it. Another problem is the high amount of capital needed for upfront costs. How many people do you know that have $100,000 or even $20-$30,000 sitting in their bank account, ready to be invested? Presumably very few. And third, the investment process itself can be quite burdensome. If you have a full time job and you want to invest in real estate on the side, you likely only have the weekends to look at properties and do research. It can sometimes take up to six months to successfully close on a property. We realized that if you put the ownership of rental properties on the blockchain, you can actually solve all three of these problems at the same time, and that brought us to Lofty.
How does Lofty work?
We offer fractionalized ownership of rental properties for as little as $50. Money used to buy into properties is converted into tokens that can be freely traded on our app, where registration takes less than five minutes. There's full liquidity, so if a customer buys a token and three days later decides this isn't for them, or they need their money back, they can sell as long as there's someone willing to buy it. Our minimum underwriting requirements when an investor finds a property include an appraisal report ordered by the user and rent rolls that provide information on a property’s current tenants. After our criteria is met, we list the property and for the first 24 hours other users come in and also get to invest, if they wish. If the property becomes fully funded, it closes with the seller through a traditional escrow process, and we take a fee.
Token owners now become direct co-owners of the property and manage everything themselves, including hiring property managers for day-to-day operations. When issues arise and decisions have to be made, we have a governance program where one token equals one vote. The co-owners vote on what to do in accordance with our processes to protect the integrity of the vote and to prevent things like 51 percent attacks (max ownership in each property is 15 percent). Through this process, investors are able to build a diversified portfolio of rental properties.
What was your experience raising capital for Lofty?
The current version of Lofty wasn't our first business model when we started up in 2018. We were doing something unrelated to investing and actually pivoted down the road to our current model. When my co-founders and I first created our business, I was a first-time founder with no experience. I didn't have the network that some people have growing up in Silicon Valley or coming from Stanford or Berkeley. So it was really tough. There's a reason why failure rates for startups are so high because it’s just that hard to get funding.
In 2019, we went through an accelerator called Y Combinator and it was life changing. They have a really good reputation and many of their instructors used to be founders themselves, so they all have a unique story and understand how to grow early-stage startups. We were taught how to raise capital, and since then, things have gotten a lot easier. We've raised over $4.5 million to date, we're looking to raise our Series A very soon, and we've already started conversations with a few venture capital firms.
What’s been your experience as an immigrant to the U.S.?
I'm a Canadian who attended an American university and ended up staying after obtaining an O-1 visa for talent in STEM and marrying my then long-time American girlfriend. America has always been the dream for would-be entrepreneurs because of its history with innovation and ease of doing business. That's why I came here and that's why a lot of my immigrant peers came as well. I understand that Silicon Valley was originally created from subsidies of the Defense Department to produce chips years ago. If the government had never taken an interest in developing technology, it might not exist today, and there’s a possibility that many billions of dollars in wages and jobs might not have been created; America could look very different.
America especially should understand the value of innovation, which makes the way the government is currently addressing blockchain technology seem very backward. And if they make it too burdensome to innovate here, companies will have to start looking elsewhere.
Given your experience in this area, how can policymakers better support the responsible development of emerging technologies like blockchain?
Policy and regulation in this space must be nuanced. And education is key—at the moment, there aren’t enough people in Washington who truly understand blockchain technology in a way where they’re able to relay information to policymakers and educate them on the issue. When founders or industry members who specialize in this area do get to talk to them, they’re usually in formalized settings of 30 minute meetings, and that’s just not enough time to fully explain these concepts. So there is a huge disconnect there, but once policymakers actually understand what’s possible with the technology, they'll realize that any laws or regulations crafted should be tailored to preventing the abuse of this technology, not preventing the development of the technology itself.
Our company operates in the blockchain space and right now there is no helpful regulation. The only rule that the regulators rely on is the Howey Test, which is a court precedent set in 1946. Blockchain and digital assets have obviously evolved tremendously since this was first created, and innovation in the space is moving quickly, akin to the early stages of the Internet in the 1990s. The fact that Congress has not kept up with this progress to clarify the rules of the road around e.g., crypto houses, digital currencies, and blockchain, puts companies like ours at a severe disadvantage compared to countries with clearer rules. Right now in the U.S., things are confusing because no one really knows what is allowed and what isn't allowed. Rather than issuing clear regulations and guidance, agencies like the Securities and Exchanges Commission (SEC) have retroactively sued a variety of companies to regulate this space. That is very scary and the lack of clear guidance creates a lot of unhelpful uncertainty, especially for innovators like us.
What are your goals for Lofty moving forward?
In terms of where we offer properties, Lofty is currently only available in a few markets. We would like to expand to all 50 states so that people have as many options as possible. We are also aiming to raise more money so that we can grow. We hope to accomplish both of these goals before the end of 2022.
All of the information in this profile was accurate at the date and time of publication.
Engine works to ensure that policymakers look for insight from the startup ecosystem when they are considering programs and legislation that affect entrepreneurs. Together, our voice is louder and more effective. Many of our lawmakers do not have first-hand experience with the country's thriving startup ecosystem, so it’s our job to amplify that perspective. To nominate a person, company, or organization to be featured in our #StartupsEverywhere series, email advocacy@engine.is.
