Benjamin Miller is the cofounder and CEO of Fundrise which offers an alternative to investing in stock and bonds, the first low-cost, and direct private market investment built. The company raised initially from Camber Creek, Renren, and Guggenheim Partners. The company later crowdfunded $1.2 billion.
In this episode you will learn:
- Balancing your technical and creative talent
- Clickbait versus what really resonates with customers
- Embracing one of the most regulated markets
- Raising money in China
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About Benjamin Miller:
Benjamin Miller is the CEO and co-founder of Fundrise, an investment platform on a mission to build a better financial system by empowering the individual.
Right now, that means making real estate investing simpler, smarter and more effective for investors of all sizes.Fundrise is the first investment platform to create a simple, low-cost way for anyone to unlock real estate’s historically consistent, exceptional returns. By combining innovative technology with world-class active, opportunistic real estate private equity management, Fundrise delivers access to a level of investment performance that only the wealthiest investors have enjoyed — until now.
Founded in 2012, this DC-based startup has now transacted on nearly $5 billion of real estate and manages more than $1 billion in assets for its more than 130,000 investors.
Benjamin Miller has nearly 20 years of experience in real estate and finance, spending time as Managing Partner of WestMill Capital Partners and President of Western Development Corporation, prior to founding Fundrise. Benjamin Miller would love to discuss real estate, real estate investing, macroeconomics, private equity, and entrepreneurship.
Connect with Benjamin Miller:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we’re going to be talking a lot about real estate, and we have an amazing founder, a founder that I’ve known for quite a bit, and I think that we’re all going to learn a lot. I mean, a lot of really interesting stories here that he’s going to be sharing with us. So, without further ado, let’s welcome our guest today, Benjamin Miller. Welcome to the show.
Benjamin Miller: Yeah, thanks for having me.
Alejandro: So born and raised in Washington, D.C. How was life growing up there?
Benjamin Miller: Yeah. Washington, D.C., everyone thinks it’s a political town, but it’s really a real estate town, and I come from a real estate family, spent a whole life in real estate. What’s interesting about that is that I learned in the late ‘80s and the early ‘90s when the S&L crisis happened, the real estate industry blew up worse than 2008 – way worse. I saw my father have to deal with that, and I just think it gave me a really interesting longer-term perspective like the kind of pattern recognition you get from growing up in something. It’s been really informative to my whole career.
Alejandro: So, what did you get from seeing your parents or your family in this field and building the business? What were some of the key lessons that you got?
Benjamin Miller: Yeah. I was so lucky that my father is an entrepreneur, and I watched him get ulcers. In early 1991 and 1992, there was no money. The financial industry collapsed. It used to be that lenders could call your loans whenever they wanted. They’re called demand loans. They’re not prominent anymore. So when the crisis happened, they called all the good loans first. We had 800 million dollars of loans called in on one day. He told me his network was negative-hundreds of millions because everything was also personally guaranteed back then.
Benjamin Miller: Which is not that case anymore, and just watching him struggle through that and seeing how much a crisis – basically, the crisis is what determines the success of any financial company, any fintech. The crises are the biggest challenges and opportunities for anybody in the financial industry.
Alejandro: Absolutely. Definitely, in those tough moments is when you really learn, and you get to grow as a human being. I’m sure that you had some of those moments that we’ll talk about them as well. But, in your case, right after school and all of that, you went into private equity, and then, right after, you did a little bit of real estate with the family. So what were some of those things that you really experienced being on the investment side and then on the development side when it came to real estate?
Benjamin Miller: Yeah. From 2000 to 2010, the first part of my career, the whole idea was if you can work with the big institutions, the big private equity funds, that’s the key to growing the business and scaling. Then, in 2008, they all blew up. We had hundreds of millions of dollars of real estate deals that blew up with our partners, and our lenders went bankrupt. The multi-billion-dollar companies, the companies worth 250 billion dollars, were the ones that went bankrupt. It was the opposite of what you’d think because it was a topsy-turvy world. You think that you’re the little guy, not a big guy, and then it just flips. Dealing with that in 2008 and the stress of it, and having to lay people off and having to go through – we had to buy our projects back out of bankruptcy because the partner’s ownership in them was held by a bankrupt financial institution. That completely changed my opinion of the financial industry, and it ended up very much like The Emperor Has No Clothes view of big finance. Personally, I believe that it’s going to happen again. It happens every seven to ten years. It’s like part of their design, actually, to blow up every seven to ten years. It’s like they’re misconstructed. An interesting lesson, Alejandro, is if you’re going to start a business, pick a really big problem. Don’t find a solution. Once you’ve solved it, it’s over. But if you have a really big problem, probably it will outlast your life. You can keep finding opportunities inside of that. The fundamental problem with finance and the agency middleman dynamics of how they’re constructed in such a multi-trillion-dollar opportunity and, obviously, challenge. That’s what I came out of my first decade of work learning.
Alejandro: Obviously, at that point, when everything blew up, it was that moment when you encountered the problem that led to Fundrise. Tell us about what the process was and how you incubated this concept and bringing the company to life.
Benjamin Miller: It’s so funny. When you come up with an idea that’s actually novel, which I’m not saying that I came up with some great idea, but the idea of using the internet to change how the financial industry works and basically building it around individuals rather than institutions. I first went to Wall Street or the major players. They thought I was a joke. They were like, “That’s crazy. [7:31]” I got a meeting through a connection to probably the second most powerful offer in the country that represents all the investment banks. Everyone has heard of them. I went to the top of their skyscraper, the [7:49] building in Times Square, and I met with the head of their securities practice and the head of their real estate practice in this conference room overlooking the New York Skyline. I was pitching them on how the system is broken. We have to come up with a new way where people are at the center of it and not like big institutions – all of the things that were wrong with the system. When I finished this impassioned pitch, there was a dead silence. And then, the guy responded with, “Why would you bother with the little guy?” It just didn’t seem like a good idea to them. It seemed like a bad idea to them. I remember thinking and walking out just devastated like, “Oh, my gosh. This idea is not a good idea.” It wasn’t until I got down the 100-story building to the bottom on the elevator that I realized, “This is amazing. They don’t get it. There are people protesting in front of their building by Wall Street, and they think there’s nothing wrong with the system.” This is also about technology. You learn about technology that incumBenjamint businesses can’t help but fold the sector around themselves. So the financial industry is built around them, around them, basically, around the middle man, the agent, and every great technology business is built around the customer. Facebook is built around the customer. They want to own the customer. Amazon wants to own the customer, and that’s not how the financial industry is built at all. So, it’s completely antithetical or unintuitive to them. So, I just didn’t get it. It took me a long time to figure out how to create a system that could scale and actually thread and create an alternative to the status quo financial solution.
Alejandro: So, in that regard, Benjamin, what ended up being the business model so that the people that are listening get it?
Benjamin Miller: One of the things that I came away with is, my personal mission is to remake the financial industry. This is what I saw from my father in the early ’90s. Every 20 or 30 years, the financial industry actually completely changes itself, completely remakes itself, and I think it’s high time for it to happen. But in order to do it, you have to be independent. You can’t be beholden to it. It’s obvious, but if all the capital comes from that system, you can’t actually be different than that system. So we raise our money directly from individuals, through our mobile apps, through the website. We have, I think, 150,000 investors. I have a million customers. When I talk to real estate private equity funds, they can’t believe it. They can’t believe we’ve raised billions of dollars, and we deployed into real estate. So the model is to give people, individuals, the same sort of product and return profile, like a Blackstone, but to collapse the whole financial supply chain. Like, Charles Schwab, Blackstone, the sponsor, everything clasped into a single service, like a Private Equity as a Service that is on a technology backbone, which allows you to cut the costs to a 10th of it and deliver real estate private equity or private market returns and product to an individual that didn’t previously have access. People have access to stocks, bonds, but not to the private markets, and we’re going to change that.
Alejandro: So, obviously, for something like this, you need some capital to develop things, and I know that there’s a really interesting story there, but before we go into this, how much capital have you guys raised to date?
Benjamin Miller: We raised 1.5 billion dollars of equity. Our customers actually own the platform, like Vanguard. If you’re an investor in Vanguard, you also get to own part of Vanguard. We’re a different model. It’s differently constructed. We don’t have to go raise venture money, and we’re not beholden to a traditional financial industry.
Alejandro: Got it. So then, in this case, one of the first transfers of money that you actually raised for the business – this was early on – included a flight to China, so tell us about this experience.
Benjamin Miller: Yeah. We got to this sort of Vanguard model, but in order to get there, we did need seed capital or a Series A. We self-funded it in the beginning, but we got this LinkedIn invite one day from a company I had never heard of called Renren, which turned out to be the Facebook of China. I almost didn’t take the invite. I was like, “What is this?” The CEO comes in. He’s totally nonchalant and wearing a tee shirt and jeans, and he and I had a conversation. It was an hour; we were talking about business and what I think about it. He walks out. I don’t think about it again until I get an email. He said, “What terms would you want to have for us to invest in the company?” I hadn’t really thought about that. So I just sort of named my terms – the amount of money we had, the control we thought we needed to deliver the right product. Everything in an email, like, “We need $35 million, founding shares,” and I went down the list. He wrote back, “Okay.” I was, “Wait a second. What is going on here?” So I said, “I’m going to fly to China and diligence you because I’m not believing this. This is completely dumbfounding me.” So we got on our plane. We flew to China. I land in China. I remember that we got there, and they’re like, “We’re going to take you to the spiciest restaurant place in all of China.” I had been on our plane for like 18 hours, and I was so ill. I was like, “Great.” They just started feeding me very exotic Chinese food.
Alejandro: What was the craziest food?
Benjamin Miller: It was this fancy table, and they bring out this dish, and it’s a pancake turtle. The whole turtle, including the shell. They chop it into four pieces, and you eat the feet, and the lucky one gets the head. Yeah. I see their office, and we closed the deal while we were there. They wire the funds. I look at the account, and we got it. Later, they told me that they were just messing with me and feeding us all sorts of ridiculous Chinese food just because they thought it was hilarious.
Alejandro: Oh, my gosh. Did you end up getting the head of the turtle?
Benjamin Miller: My brother got the head.
Alejandro: [Laughter] That’s amazing.
Benjamin Miller: You’ve got to eat it.
Alejandro: Oh, my. Obviously, you’ve got to eat it. You’ve got to get those funds in.
Benjamin Miller: Right.
Alejandro: So, really cool. Once you got this, and obviously, you guys were up and running and really executing, there was a really big breakthrough for you guys in terms of how you were approaching and looking at deals, and that involved the World Trade Center. So tell us about that experience.
Benjamin Miller: Yeah. The essence of a startup company is making mistakes. There’s no innovation without failure. So we made all these mistakes. Essentially, it’s almost like we got to the right answer through the process of elimination. Winston Churchill has a saying, “Democracy is the worst form of government except for all the rest.” What we initially thought is that the customer wanted really exciting projects. My real estate bias was like, “Let’s go get the most impactful, incredible real estate deals that transform neighborhoods and change the way people live.” On our board is the family that owns the World Trade Center. They were building the World Trade Center, and they got me a piece of the deal. It was huge, a multi-billion dollar fundraise at that moment, and the investment bank running it, which is the biggest, the most successful investment bank. Everybody knows who they are. They may be infamous, if you will. When they found out I had a piece of the deal, they immediately cut me out of it. I kept getting back in the deal, and they kept cutting me out of it, so I ended up having – we’re so lucky. This family office that’s also a billion-dollar family office, 25-billion-dollar family office, bought it for me and then sold it to me at par because the investment bank wouldn’t let us in the deal. I thought that they might actually try to litigate it so that we wouldn’t – if you think about it, they’re selling to their customers this exclusive access to the World Trade Center, which is probably the most famous real estate project in the country if not the world. You can get the exact same product on the internet with no commissions. They did not like that. So we were able to figure it out. We put it on the website. It was so hard to pull off. It was like an incredible undertaking. We launch it; we get all this press, and it turns out to be the worst-selling product on our website.
Benjamin Miller: All the other products are these boring, safe, high-yield real estate deals, like a high-yield multi-family, like 10%, 12%, 14%, and this is a tax-free 5.25%. Investors are like, “The World Trade Center – super safe – 5.25%. I’ll just buy the 12% return.” We came away. Slowly, but surely, we realized that we had to build a product really around the returns and the simplicity and the real estate – even though I thought it was very interesting – the customer was much less – what the customer wanted, the idea of building a product for the customer, not for me, it took me years to unlearn all my real estate and finance bias and learn the product mentality of empathizing to the customer, building for the customer, and not even caring about what I want or what is gratifying from a press point of view. In some ways, everything the press was excited about was like the least successful product. The more the product became successful and boring, the less the press cared and the more we scaled.
Alejandro: That’s unbelievable. I think that one of the other interesting areas here is that you guys were literally innovating and creating a completely new thing that hadn’t existed before. I even remember that you and I testified together at the U.S. House of Representatives when they wanted to learn about how you were pulling in money from non-acreds and how all this was going to impact. Obviously, it was more on connecting startups with investors, which is a completely different angle here. But here, not only are you building and scaling a company, which is obviously a challenge of its own, but then also dealing with the regulatory landscape that is opening up. So how was that for you guys?
Benjamin Miller: Yeah. That’s true. It’s probably the biggest advantage of being based in Washington, D.C., which is where our company is based, is understanding the regulator, being close to the regulator. The SCC is absolutely integral to our business. Our business is basically product or technology, real estate finance, and regulatory – multiple in-house security councils. Our first deal was down the street from the SEC headquarters, and when we first went in there, I hired the former head of the corporate finance division of SEC, which is all of the public companies that regulate them. He took me in there, and we’re going to raise like $350,000 from on the internet for $100 a share. SEC knew the building was down the street – became like a building where they go and have lunch. The fact that it was so tactile to them changed their view of it, and I think it opened up their willingness to let us do something that they thought was hopeless and crazy. We spent $150,000 on a securities attorney to raise $350,000 to do the first deal. It’s always been understanding to the like Byzantine regulatory system and matching that to the product technology needs and the real estate. It’s a puzzle – constant puzzle.
Alejandro: 100%. I remember when you and I were there, I got a question from these guys that I’m never going to forget. I think they asked me, “Do you think the SEC is doing a good job?” [Laughter] I was like, “Oh, my gosh, I don’t know if I want to take that question. Anyhow, that’s definitely something that I’ll tell my grandchildren about. So for the people that are listening to get an idea on how big Fundrise is today, is there anything you can tell us about maybe the number of employees or anything else?
Benjamin Miller: Yeah. We really started scaling the last 24 months. In terms of fundraising, the amount of money we deploy in a single year, maybe today, we’re the 45th largest real estate private equity fund in the world. I think next year, we’ll be in the Top 25. The year after that, I think we’ll be in the Top 10. So the amount of money we deploy and the scale of it is like starting to become – I mean, it’s an institutional scale, and when institutions find that out, they still can’t believe it. We have 130 people. We currently have $4 billion in real estate, but we’re doubling every year, so we’ll buy next year, 2021, about $3 billion to $4 billion of real estate in a single year. That’s what I mean by the scale we’re operating is absolutely an institutional scale. People start reconnecting me to that law firm that told me, “Why would you bother with the little guy?” Now, they’re like, “Oh! We should help you with your securities files.”
Alejandro: Well, that always happens. Especially when you’re making noise and doing good things, is when not only the people that have perhaps rejected you really want to work with you but then also, you have the larger players being very worried and trying to put you out of business. There’s a story here that was quite interesting that happened where you had this billionaire telling you something. So what was that story about?
Benjamin Miller: Yeah. What happens is like – anytime you build a company, at first, you blow the radar, and nobody cares about you. As we started raising hundreds of millions – and next year, I think we’ll be raising a billion-plus a year. All these big players start like, “Oh, that’s interesting.” Pick the top 10 or 20 institutions you’ve heard of, and they’d be with us, and they’d say, “We’ll help you out. We’ll take this capital off your hands. Trust us. We’re a big institution. We’ll do right by your customers.” I met with one of them. At that time, I think they were the third biggest real estate asset manager in the world. He was in New York. You know the suits where they have the blue button-down with a white collar? And the huge, huge gold cufflinks. He’s very New York. He’s telling me that I should just give up and hand it over to him and that if we don’t do that, he literally said that he would destroy us and crush us if we didn’t do that. I remember looking at him like, “Is this real? Is this actually happening?” He’s a billionaire and was telling us he was going to destroy us if we didn’t hand over the company to him.
Alejandro: Wow. That’s ridiculous. How did you come out of that meeting? What were your thoughts?
Benjamin Miller: Usually, the institution is way more genteel about it. But that message isn’t delivered to us now. That happened to me enough times, where now, I’m like, “Oh, this is a good sign.” As we transition from being like, “Oh, that’s like blogs.” You look at blogs. Did anybody think that a blog would put newspapers out of business? Newspapers were the most powerful monopoly in media for 100 years, and then they’re basically all bankrupt because of a blog. The financial industry is now transitioning from like, “This was silly to wait a second,” to “What’s happening here?” Over time, they’re so bad a technology that the big companies are just absolutely atrocious at it. It started making me more comfortable competing with them because they just don’t get technology at all. It’s so fundamentally different than how they think the world works that they’re actually not – our thread is like something else, probably. Not like some big company copying us.
Alejandro: Yeah. There’s one story here, as we’re thinking about deals and perhaps things going south. There was something that happened with a building that involved stealing money. So what happened there?
Benjamin Miller: Yeah. We are fiduciary to our investors. I’ve been in real estate for 20 years, so I’m very, very skeptical of the real estate players. You end up pretty cynical about them. So as we invested with them, I was always worried that one of them might pull some shenanigans. So, yeah. After maybe about 200 deals, low and behold, one of the real estate companies, we invested like mezzanine debt into a building that I got built. Then they sold the building and gave the title company – I learned later, they gave the title company fake documents and stole millions of dollars. I remember getting the phone call and being like, “What?! Where did the money go?” and having my heart drop into my stomach. Then, immediately, dropping a bomb on them with litigation, and they were like – the thing is that everybody underestimates us, which is actually a gift. At first, you think that’s a problem. Being underestimated is a really good strategy. They’re a real estate player, but we’re billions of dollars, so we crushed them, and they gave us all the money back, plus maybe a – I don’t remember now – maybe a 10% return or something. Being able to have that power, that hammer, is part of how you make money in real estate. But for a couple of months, it was so – I mean, I have ulcers from that experience.
Alejandro: Wow. I can’t imagine. That sounds definitely stressful. So, Benjamin, this journey has been remarkable. You’ve been at it now for more than a decade, and you’ve had your ups; you’ve had your downs, your successes, your learnings, and all in-between. I’m sure that if you had that opportunity of maybe of going back and having a chat with that younger Benjamin, maybe that younger Benjamin that was seeing things blowing up back in 2008 and thinking about a better way of doing this; if you had that ear of that younger Benjamin to give one piece of advice before launching a business, what would that be and why knowing what you know now?
Benjamin Miller: That’s such a tough question. It sounds like an easy answer. When I look back at myself, one of the things you learn as a person and also as a manager is people’s strengths are usually the source of their weaknesses. Somebody might be really good with something technical, but then they get lost in the weeds – somebody super creative and they’re not organized. I came out of Washington in the 2000 financial crisis. I went through the 2001 financial crisis; then, 9/11, and the [30:51] blowing up. I was pretty close to the financial crisis of 1992, so I was obsessed from 2008 on about preparing for the next financial crisis. It put like a governor, like a restrictor on our growth because I was so worried about protecting on that crisis. As it turned out, in March 2020, it happened. Right? It happened again. So the advice to myself would have been: be more aggressive about your macro. Your macro is right. I’m a paranoid person, high-high anxiety, and so I basically I think a lot of times, I have a lot of self-doubt or question myself. Like, “Is that right? How do I know that’s right?” I think I could have been way more aggressive about what we’re doing and taking more risks, hire more people, spend more money, lean in more so that the learning is like you’ve got to be aggressive on the macro, but still be hyper-realistic and maybe even cynical on the micro. And execution – the execution has to be hyper-realistic, but the vision and the macro and the big things need to be extremely and aggressively optimistic and almost idealistic.
Alejandro: I love it. I love it, Benjamin, and for the folks that are listening, what is the best way for them to reach out and say hi?
Benjamin Miller: I love Twitter. I’m @BenjaminMillerise. You can also write me on LinkedIn. This is a great conversation.
Alejandro: Amazing. Well, Benjamin, thank you so much for being on the DealMakers show today. It’s been a pleasure.
Benjamin Miller: Yeah, absolutely.
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