Brian Dally: That makes sense. Groundfloor now has 300,000 investors, many of whom are new to alternatives. What are you seeing in terms of their behavior and what do you think is driving everyday people now into private credit in real estate debt?
Robert Varghese: Yeah. As I've kind of looked at our investor base, see with what they're doing, it's become clear to me that what they are coming to the platform for is in search of higher yield, higher returns, for sure, better diversification, and access to new asset classes, right? Again, whereas most people are most familiar with stocks and bonds, [00:04:00] increasingly they're getting tired of the volatility that they experience, and they're in search of things that'll perhaps help them sleep better at night, but also offer better, more consistent returns.
And so, that's what private markets can offer you. These are asset classes that have very good, compelling returns, lower volatility than equities, and they're supported by hard assets. And so that's a pretty compelling proposition in my opinion. And I think increasingly, that's what people are looking for and they want more, right? They love what we have to offer, but I think there is demand for even more.
Brian Dally: Yeah. So let's talk about that. So, we've recently seen a surge of interest in our Notes product. Some [00:05:00] people listening to this may be among them, who started to pile into that product. I've of course seen a very robust and exciting product roadmap for the coming year. Without giving away too many specifics and tilting your hand too much, what can Groundfloor investors expect to see in 2026 from us?
Robert Varghese: So, let me start with the Notes program. We've had our structured Notes program, it's been in existence probably eight years or so, would you say?
Brian Dally: That's probably about right.
Robert Varghese: And so end of last year, we went through a process of restructuring our Notes program, simplifying it really. So we have a one- and a three-month Note that I say is analogous to a CD. It works in effectively the same way. And we have our signature 12-month Note, which is monthly pay, and all of our Notes roll over automatically unless you decide to do [00:06:00] something else with it. It's been, as you said, wildly...
Brian Dally: I saw the email that I got as a Notes investor myself that offered me the opportunity to pause, and I wanted to test it out. It seemed to work pretty well.
Robert Varghese: Yeah.
Brian Dally: Clicked a button in the email and I was done.
Robert Varghese: There you go. We are trying to create something simple, easy for investors, where they can get a decent return as easily as possible, right? And by the way, these Notes, I say they're analogous to a CD at a bank. The only difference is that you can get two to three times the return that you would get in a bank or most fixed income products. These are fully collateralized. There are actual loans supported by real estate that underlie each of these Notes. And so, one, I would encourage anyone listening to come check it out for yourself. And this is a great introductory way to come into Groundfloor.
But beyond that, as [00:07:00] far as what we are looking to do in 2026, our bread and butter has been making loans within real estate, right? That's how this business started. We, in many ways, pioneered RTLs and then fractionalizing that for investors, right? And so I think that's always going to be a big part of our business, but we continue to evolve. As I mentioned earlier, there's strong demand on the part of our clients who have become very accustomed to investing in these products, but they'd like to see other things in private markets.
And so our goal is to be able to introduce to investors various aspects of the private markets world. And that doesn't mean that we want to offer everything or anything that's out there. We have no interest in becoming a marketplace. If you want a [00:08:00] fund that's offered by one of these large providers, you can go do that anywhere else. You don't need to come here, nor do we want to be that sort of provider. But what we do believe we can do effectively, is come up with a curated list, highly diligenced, well structured products where you can actually get exposure to different things and private markets. And that's how we're planning on evolving.
We had our first foray earlier this year with stepping into consumer credit, which was very successful. And I think that has given us confidence that, okay, we're on the right path here. And so there's going to be a lot more exciting products coming down the pike over the rest of this year, really.
Brian Dally: Awesome. I'm looking forward to it. It's feeling like an exciting time. You mentioned that Notes are analogous to a CD. Can you explain to people, I mean, you talked about risk and in the first part, that [00:09:00] no investment comes without risk. Can you just talk about the difference between the Notes product and a CD from a bank?
Robert Varghese: So a bank CD, in effect, you are making a deposit with the bank, and in return they're offering you whatever, they're basing the rate of interest that they're willing to pay you based on whatever federal funds rate may be. And that'll fluctuate. So let's just say for argument's sake, right now on a one- or three-month CD, you may be getting 2%, 3%, something to that effect.
With us, what you're doing is, again, you're making that investment. We are using that capital to then lend out to borrowers. And these borrowers are developers who have real estate projects. And [00:10:00] so each Note that we issue is supported by hundreds of loans, a dedicated pool for each product. And so that's why we say it's fully collateralized.
I wouldn't ever say to anyone, there's no risk in these things, but the risk, if you really take a close look, is comparable to the security that you would get at a bank, because here's the facts of the matter. We have never defaulted. We have never had a late payment or an underpayment on any of our Notes. We view these instruments as the highest obligations of the company. And so that's why, from that perspective, I believe these are fairly secure instruments where you can get a much higher return.
Brian Dally: Yeah. And of course, the big difference between a bank and any platform or issuer like Groundfloor is, we don't have FDIC insurance on these products. But as you say, we have [00:11:00] other ways to look at it that create a lot of security.
Robert Varghese: Yeah.
Brian Dally: Right. That's a good point. All right. And I'm genuinely curious since you've been here eight or nine months now. No need to inflate my ego. I am not looking for glowing reviews that aren't warranted.
Robert Varghese: He says this. Does he mean it?
Brian Dally: I'm genuinely curious having seen Groundfloor. I love it when senior people come to our company from somewhere else and have the context to help us understand, what is different in your view about Groundfloor versus some myriad of other private market investing alternatives out there? What's your outside-in perspective on that, since you're still new enough to remember what it was not to be here and to see this differently as an outsider?
Robert Varghese: Here's what I've always felt is different about Groundfloor. Unlike [00:12:00] some of our competitors or marketplaces, we're not just pulling products and then passing it on to investors. We built our core business from the ground up.
We underwrite, originate loans, right? These are our own products, and while we just spoke of an evolution that's occurring, that we're going to move beyond this, or in addition to, we're going to be growing our product set. I think the fact that we built this core business from the ground up, we take a different perspective when we look at new products, right? It's a different level of care that we bring to the table. And when we are looking at partners, we want to find partners who, where we see similarities, where they perhaps have done [00:13:00] similar things, right? And it's an analog that we can make, like, okay, this looks familiar because we've done the same thing.
And so, that kind of level of care in how we curate, how we diligence, I think that's a big differentiator, as you look at us versus others. And it's an important one.
And I'll say, building an origination business to generate this deal flow and then manage the assets from that, that is not an easy undertaking right? We really spent a lot of time, capital and energy over the course of over a decade, to do that. And of course now we're tapping institutional markets, so, if the proof in the pudding is in the heating of it, the institutional buyers are buying the same credit that we started off originating just for retail investors because we needed to build our own factory. And so [00:14:00] what you're saying, I think that's a great insight for somebody coming from the outside because we lived it, we built the company from the ground up, as you put it, to build that factory so that we would have the care, and in fact, the fact that we wanted to be regulated as an issuer required that we actually did that. So we didn't really have a lot of choice in it, right? We were forced down that path and I'm so glad we were.
And you bring up a good point, is that, for a lot of other firms, they start institutional and then try to go to retail.
Brian Dally: Sure.
Robert Varghese: We actually did it the other way around. Which gives us, I think a greater sense and intuition about that customer base, right? Everything we do starts with thinking about what's right for the retail customer, and as you said, [00:15:00] the products that we come forward with are of such quality that institutions will then naturally say, well, heck, we want some of this as well. And so we kind of go upstream in that, and that's another key differentiator.
Brian Dally: As an entrepreneur, I always enjoy attacking from below. Much better.
Robert Varghese: Yeah.
Brian Dally: I'm a disciple of Clayton Christensen. Alright, that's interesting. Thanks for sharing that. I appreciate it. We have a rapid fire Q and A. Just a few questions. There'll be four. Try to answer them in one sentence if you can. If you want to get a little longer, that's okay. We have some time.
Robert Varghese: Can't make any promises, but here we go.
Brian Dally: Other than this podcast, of course, which, episode one, so not a deep library yet, what do you read, or what podcast do you listen to, that makes you smarter about private markets?
Robert Varghese: I try and consume quite a bit of information on a daily, weekly basis, but I will say, for [00:16:00] the people listening in, one that I've discovered more recently is the High Yield Investor by Sam Smith, that I think does a really good job walking through private market opportunities and even a few public market opportunities that can help people create wealth. And so, that's one in particular that I would say is worth.
Brian Dally: I like that one, too.
Robert Varghese: Yeah.
Brian Dally: Yeah, that's a good one. Alright, second question. Rapid fire. If you could go back 20 years and invest in one asset, what would it be and why is it Bitcoin?
Robert Varghese: While that would be certainly an answer that most people would say, even when I'm doing hypotheticals, I try to maintain some sort of realism in it. And if I were to go back 20 years and I'm being honest, [00:17:00] I probably wouldn't have been that familiar with Bitcoin, or even know how to go about it. So I'm going to take that up...
Brian Dally: In your defense, it didn't quite exist 20 years ago.
Robert Varghese: So I'm going to take that off the board. Twenty years, so we're talking March of 2006, more or less. Okay.
Brian Dally: Before the GFC.
Robert Varghese: Before the GFC, but only one asset class. I'm going to say I would back up the truck on precious metals. I would load up on gold and silver in any which way I could. That would be the one asset class.
Brian Dally: So the old fashioned version of Bitcoin.
Robert Varghese: The old fashioned version. Yeah.
Brian Dally: Alright.
Robert Varghese: And that would, I think, have served you well, given all the crises we've experienced over the last 20 years.
Brian Dally: I love it. If you knew that the GFC was coming and the big print was coming, you'd be well [00:18:00] served. I would agree. Alright. Third question. What's one misconception that investors still have about private real estate debt that you wish we could clear up once and for all?
Robert Varghese: Private real estate debt. So, I think, as it relates to real estate, and you think about private lending, there's a term that's used in the industry, hard money lender. And when you think of hard money lender, it conjures up this image that you're walking down the street and going to Big Tony or Teddy KGB to get a loan. We are not loan sharks. Okay? That is not the business that we are in. This is not usury. Okay?
That is the one misconception that I would love to clear up, that, look, private market lending plays an important function in the economy. We [00:19:00] provide capital to small and medium sized businesses, to entrepreneurs who are trying to build and create. So don't be afraid.
Brian Dally: I like it. The hard money lending industry is, checkered past for sure. Lots of misperceptions. Okay, last question. For anyone who might be listening, that is thinking about investment management as a career or just getting started, maybe they're a new fund manager out there working out a fund. What advice would you give them as they start their careers?
Robert Varghese: Good question. People go into the investment management business for a lot of reasons. Perhaps you're just sort of fascinated with assets. Perhaps you're hoping to go into wealth management or become an RIA and become a lifestyle firm. [00:20:00] That's your prerogative. Or maybe, just maybe, you view yourself as an alpha generator. I did for sure. If you view yourself in that lens as an alpha generator, and as you achieve success and greater success, and as you move up in your career, people are going to be tempted to put you in a box. Okay? Resist. To quote Chuck D in Public Enemy, fight the power.
And here's the reason why. As they try to put you into that box and paint you into this corner, alpha is going to start to look more like beta. And as that starts to look more like beta, you are going to get indexed away. Now, there was a lot of inside baseball in that explanation [00:21:00] and reference, but...
Brian Dally: Some people are Googling it right now. They're asking ChatGPT, what does this mean? I know what you're saying. If you know, you know.
Robert Varghese: Yeah.
Brian Dally: That's sage advice. Thank you. Let's wrap up now. I just want to thank you for being our first guest on this show. This was great. I really appreciate the time and energy that you brought to it.
For our listeners, you can check out all of our podcast episodes, many to come, at groundfloor.com/podcast. And if you're an investor that wants to give private markets a try, check out options at groundfloor.com or download the app. Thank you all for tuning in.
