William Leonard
Hey, ladies and gentlemen, welcome back to the Atlanta Startup Podcast. I’m William Leonard, your host and investor, Valor Ventures, a leading seed-stage venture capital firm here in Atlanta, Georgia. And today, I’m excited to sit down with Josh Lloyd and Joe Ashkouti, co-founders of Yieldi. Gentlemen welcome to the podcast.
Josh Lloyd
Thank you.
William Leonard
Awesome. I’m really excited to have both of you on and talk about all things real estate investment here and given what you’re building at Yieldi. But before we proceed, I’d love for you, Joe, to kind of give us an overview of the business and what you’re building here in Atlanta.
Joe Ashkouti
Sure. Thanks for having us. Happy to discuss our business as always. Yieldi is a double-sided marketplace that gives retail investors and accredited investors an alternative investment class that typically is reserved for institutional-type investors. We’re basically private lenders. We’ve got what I would call the perfect marriage between technology and experience. My background is real estate development, and Josh’s background is in technology and so when we formed the company, it seemed like the perfect marriage between the two of us. That’s how we started Yieldi.
William Leonard
Awesome. And Josh, do you want to dive into a little bit of your background? I saw you’re an entrepreneur, repeat founder, you’ve built in the health space, and the e-commerce space. Talk to us about how you met Joe.
Josh Lloyd
Yes. A little bit about my background first, and then how I met Joe. I moved to Atlanta in 2008. And primarily, I moved here because the co-founder of my first startup in Atlanta, called ShopVisible lived in Atlanta, went to Emory, and was a big part of the community here. I loved the city of Atlanta and was welcome to a change. My first tech startup taught me a lot, both in terms of growing the business, employees, managing all those types of things, also about losing a lot of money along the way, and raising money. You know what all that kind of process looks like. But I was pretty fortunate, we found a niche in the e-commerce space as you said, and we grew that business from about 2008 till 2014. We exited at the end of 2014. About three or four months prior to exiting, I had met another co-founder, and we had a good idea in the health and fitness space, which is something I’m pretty passionate about, working out and all that. It was called FitMetrix. The business model there was really providing boutique fitness studios and gyms with an ability to help their clients better measure the results that they were getting and create an engaging experience for customers. We built all sorts of tools that sat on top of the billing systems in that space. We grew incredibly fast. I think the first customer in August 2014 until we exited the company at the end of 2017, we went to about 12 150 customers. That was a sort of an exercise in keeping the wheels on the bus, I guess, along the way, and learning a lot about scaling a business really quickly. After exiting that company, I was kind of burnt out, as you can probably imagine selling two companies in three years. Each company had about 50 employees and then being acquired and having to go to the parent organization and integrating and all those things that are involved with that. I was sort of at a point where I just wanted to kind of scale myself back personally. I started to lend money in the real estate market, and that was sort of from my half of this, the beginning of Yieldi. And as I mentioned health and fitness are a pretty important part of my life, that’s how I met Joe actually. The funny story there is that we were working out of a small fitness studio here in Buckhead, and it was about six in the morning, and our trainer was running late. When he got there, he’s like, “Just go run around the building five times to warm up.” It was like 45 degrees out and I can assure you, neither Joe nor I wanted to be there. We were running and we started talking and I asked Joe what he does for a living. He told me and he asked me what I did for a living. We both realized that for different reasons, we were actually investing our own money into lending in real estate. Over the next few months, we just kind of kept those conversations going, working out at six in the morning every day, and eventually, we were able to do some loans together. Going through that process, we realized there’s a lot of opportunity for us. And that’s kind of how Joe and I met, how Yieldi started, and a little bit of my background.
William Leonard
Awesome. That’s one heck of a story to meet. 5:45 in the morning, it’s super cold outside, but I feel like that’s the foundation of this great business today. Diving in a little bit more to Yieldi, are you all working across various asset classes within real estate? Are you on the commercial side, or the residential side? Going into a little bit more about the loan offering and what Yieldi practically does?
Joe Ashkouti
Yeah, I’ll jump in on that. I started in real estate development, we were building a lot of grocery-anchored shopping centers, and we did a lot of land development. In 2010, we formed a company called Heritage Capitol Partners that was purchasing a lot of fix and flip properties. We really understood the market we were analyzing, probably 1000 properties every month and buying five to eight. We had a structure. We built some software for that business and so fast forward to 2017, we just felt like the market was getting a little bit overheated. Prices were kind of at an all-time high, construction costs were becoming uncontrollable, and so we still needed to find a way to put money to work. That’s when we started lending on assets that we understood. Coming from a pretty extensive background in real estate, we could underwrite almost any asset type. Whether it was an office, industrial land, residential, retail, we understood it. As long as the project made sense to us, we call it common sense underwriting. Our loan to value was no more than 70-75% of whatever the cross-purchase price was, or the appraised value. We would typically lend on it. We started lending on a few projects on a small scale in 2017 and 2018. I met Josh in 2019. With his technology background, he was doing the same stuff on a smaller scale as well. I said, “Look, with my real estate background and your technology background, we should be able to marry these two and scale this business.” And that’s what we’ve done. The good thing about what kind of sets us apart from a lot of our competition is we’re underwriting all of our own deals. We’ve got a great team that works alongside us at the office. We can provide answers to borrowers in 24 to 48 hours on whether we can move forward on their deal. And another thing that sets us apart is we can close deals as quick as 7 to 10 days. When you go these traditional routes, I don’t know if you tried to get a home loan recently, but it is a painful process. Traditional banks are really only lending to people that don’t need money. It’s really opened up a big opportunity for us to take advantage of working with some really great borrowers and developers to grow the business.
Josh Lloyd
Just to add a little bit to that, speed, like Joe mentioned, is pretty critical to our business. You would think that, just looking on the outside, that a borrower would come to a private lender because maybe they don’t have good credit, or they can’t validate their income or some of those types of reasons and that is for sure the case here and there. But a lot of our borrowers have great credit scores, they have plenty of income, but they also have great opportunities in front of them. They’ll look at maybe on the residential side, there’s an investment property that’s going up. And they need to basically put in a cash offer and close in 10 days because the market’s fairly competitive right now across the nation, especially here in Atlanta, actually. That’s where we come in because of liquidity. We can close very quickly. On the commercial side of things, to your question, we will do, you know, pretty much anything, We’ll do residential, commercial, we’ll look at the land, we’ll do ground-up construction, fix and flip projects, retail hospitality, on the retail and hospitality side. Pretty big opportunity right now, because a lot of the traditional banks have shied away from that. It’s coming back now, obviously, with COVID, which was what caused that. But we’ll look to be pretty opportunistic there, where we can get into a hotel, for example, it may be 40%, of what the valuation of those businesses or that property. And so on the commercial side, what we’ll find is a lot of the borrowers themselves, they’re looking at, “Hey, I own my piece of real estate. And while I can get a private loan and the interest rate is high, it’s a lot lower than maybe doing a traditional business loan against my accounts receivable, like factoring. And it’s a lot faster than the process to get an SBA loan.” And so they’ll use us as a bridge lender, till they do get that SBA loan, and they’ll take our money back out. We’ve found a pretty nice niche there and it’s helped us to scale and grow our business pretty quickly.
William Leonard
I can imagine, and so you’re working across various asset classes for accredited investors. Looking ahead, do you see the opportunity for non-accredited investors within Yieldi? Are you really going to stick to your bread and butter here?
Josh Lloyd
I’ll take that first. And certainly, Joe may have a different opinion even on that question. But from my point of view, accredited investors are educated. And there’s a reason they’re accredited investors they are kind of easier to work with. It will help us to scale our business a lot easier. We have in the past talked about that. There are some folks that do focus on the unaccredited investor. The amount of scale it takes to grow a business to support that is a lot larger because you’re talking about minimum investments dropping down to a low enough point that you could have a $100,000 or $500,000 loan with hundreds or even a thousand investors in there. And that scale requirements are pretty great. Our focus right now is to stick with accredited investors that are looking for alternative investments. They’re smart, they’re strategic, they understand the need for Yieldi in their portfolio. The market for that’s pretty large. I think that the white glove treatment we can offer them is what we’re really focused on at the moment and not to say that won’t change. Joe may have a different opinion, that’s just my kind of off-the-cuff thoughts on that.
Joe Ashkouti
Yeah, it would be very tough to be able to manage it to the point that we’re at right now to manage unaccredited investors and have, you know, like Josh said, potentially 800 investors in one small loan. We’re trying to keep it where it’s all accredited. We’ve got no more than 10 investors in a loan. It really does give me the whole purpose of Josh and I starting the business was for us to put our own money into loans to find something that was safe, secure, and paid out on a monthly basis. A good return. That’s what all these accredited investors have been looking for in today’s market. You’ve got inflation happening. And so sometimes, the stock market isn’t a good investment against inflation, and everybody’s looking to get into real estate and get in right now. With prices where they are on purchasing real estate, and cap rates, sub 6%, this becomes a really good alternative investment, especially for folks that are looking for a consistent monthly income. That’s backed by real estate. Yeah, first position on everything.
William Leonard
Joe, you mentioned this back a few points ago. Back in 2017, the market was overheated. High construction costs, high prices, and you think about the present day, a lot of the supply chain disruptions caused by COVID over the last year and a half or so, I feel like the market is at a similar point with higher construction costs. You mentioned inflation. How does the general macro environment impact what y’all are doing at Yieldi on a day-to-day basis?
Joe Ashkouti
Well, I mean, I think what happened with the pandemic, it really injected a steroid into the real estate market. With all the money that was pumped into the economy from the government, at low-interest rates, of course, has driven our big driving force but it’s caused a lot of people to go out and buy properties. People are leaving condos or small apartments, and they want more land out and they want to live in a house. People are spending a lot more time at home than they were before. It created a lack of inventory. I think it’s really given the real estate market a tailwind. Prices just continue to go up every month. Atlanta, we’re seeing record sales on residential properties. $3-5 million is not a big deal in Atlanta anymore. That used to be an absurd number five years ago. I think the real estate market has some legs. I think it’s going to continue on for at least two or three more years. There’s a lot of liquidity in the market. Investors and everybody’s trying to try to diversify their portfolios and get more into real estate right now. I think it’s just going to continue to drive up prices. And until builders can get their hands on enough land that’s entitled and start building to catch up to all this need that we have, we’re still going to see a lopsided market for at least two or three more years, especially if interest rates continue to stay low.
Josh Lloyd
And the thing I would say, also, this is something Joe and I talk about a lot, obviously, because the valuation on these properties is a critical part of our business, it will look at a property that is worth x in 2018 now it’s worth double. In some cases, I mean, literally double, which is crazy, but it happened. What we do on our end to really protect ourselves is we’ll never be, like Joe said, more than 70 or 75% of the value on that property. But usually, I think on average across our portfolio of properties that we have loans on, we’re closer to about 65%. What COVID actually provided us with is some pretty amazing litmus tests, because if you think back to last March/April/May 2020, no one knew what was gonna happen, right? No one knew the market was going to do this. I think there was a lot of thought that the market actually was gonna go completely the other way at that point. And so what we found through that process and all the way through now is that our borrowers have so much equity in these properties and we make sure they actually have their own skin in the game. We won’t do it unless they have their own cash and into one of these properties, they would sooner pay their payment to us than their own house. That was a pretty remarkable litmus test for us to kind of work through and what that really has caused over the three years or four years Joe and I have independently been doing this is a very, very low default rate. Literally less than 2% default rate across our portfolio. We think that will continue. But we’re also very conservative because we have our own money, we treat everybody’s money like our own because it is our own money. We’re very conservative on these valuations and we think even though the market can continue with an upward trend, if it does come down sooner, if the Fed does raise rates, things change, we think we’re pretty well insulated.
William Leonard
I think that the default rate is very impressive. You think about the risk that is associated with this. That’s very impressive. As you think about your portfolio of properties, is it primarily across the United States, or is it specific to one region for now? What do you all think about that?
Josh Lloyd
We do work across the United States. There’s a handful of states, primarily California and New York, that we won’t be lending at all, because the lending laws in those states are very prohibitive to lenders. They’re very friendly to the folks that live in those houses. If you do get into a foreclosure situation, even if it’s not their primary residence, because we don’t do loans on a primary residence, it’s still very difficult for lenders. We really try to stick to states that have lender-friendly laws. About, I would say, three-quarters of the country, the foreclosure process, including in Georgia, is very friendly toward lenders, especially again, on primary residence property. Right now, I think we’re actively in about 18 states. We’re about to do a few loans in Minnesota so that’ll bring us up to 19 states. I would say by the end of 2022, we’ll probably be in over 30 states, and so it really helps us to diversify our portfolio. Obviously, we know Atlanta really well. We do a lot of business here because we understand the market very well here.
William Leonard
Right. The business has been around for a couple of years now, you all are really starting to get the swing of things. What does success look like for Yieldi for the remainder of 2021?
Joe Ashkouti
I think, to continue down the path that we’re currently on, and just streamlining the processes for each division of the business every day. If we just get a little bit better every single day on loan origination, or Investor Relations, or the closing process, or the pre-closing process, that’s the key right now. As we grow and scale, you go through those growing pains, and you’ve got to learn how to deal with each and manage each little process to make sure it’s completely streamlined. Josh does a great job of implementing technology into each of those processes. It helps us grow the company with the five people that are currently running it. I think the goal for us is to continue to get loans on our ballot, good loans on our balance sheet to continue to find good borrowers to work with to help us grow our business and to continue to reach out and grow our investor base.
William Leonard
Awesome. As we wrap up here, well, I know Joe, you’re from Atlanta. Josh, you’ve relocated here to be with one of your first co-founders. I’m curious, was there ever a point at the inception of Yieldi where you all thought about building this company in a different state or a different city? Or was the goal always to build here in Atlanta?
Josh Lloyd
Just from my point of view, yeah. I think always from Atlanta, Joe’s got significant relationships and family here. I do at this point as well and Atlanta is a great place. The technology community is growing to be one of the best in the United States at this point. There’s a ton of Fortune 500 companies that are continuing to relocate or at least expand within the market here. A lot of what that has caused, Joe touched on this earlier, is a huge demand for real estate products here. So you couple that with the venture capital money that’s in Atlanta, the technology growth, and it just really makes a lot of sense. For me, personally, it’s my third startup here. It’s Joe’s second startup here. We understand that there’s a lot of smart people here and really to help us on our way.
Joe Ashkouti
Yeah, I totally agree with that. I mean, Atlanta is just a great place to do business. My parents, my brothers, and my sister would probably kill me if I ever thought about moving and starting the business somewhere else, just because we have such strong real estate ties here. We own and manage a lot of real estates as well. This is definitely our home. But with the movie industry here and all the fortune 500 companies, I mean, there’s just so much opportunity in Atlanta. It is a great place to do business. I feel like Josh and I were in New York or LA, we might get distracted a little more, and maybe not focus as much as we needed to do what we needed to do. Atlanta is a great place for us.
William Leonard
I think you touched on all the points there. You think about the large Fortune 500s that are here. You have Microsoft that’s going to be building here this decade, Airbnb, Google’s expanding their office space here. You think about them, the whole metro Atlanta area, just really expanding and Cobb County now. I think you’re right Atlanta in its metro area is ripe for and
Joe Ashkouti
And with the airport. A big bonus. That’s probably why we attract so many Fortune 500 companies. The airport, you can get anywhere you want in the world very quickly.
William Leonard
Definitely. You think about company building as well, the universities here, the talent pool is just so diverse and is so expensive.You got schools like Georgia Tech, Georgia State, Morehouse, Spellman, continuously putting out great talent that could potentially work for you at one day, in some capacity.
Josh Lloyd
100%. When I started ShopVisible back in ‘07, I moved up here in a way and one of the big reasons for that was the talent pool between Georgia Tech, Georgia State, all those other schools you mentioned, and Kennesaw State as well. It’s continued to prove it through both the last two startups after that, and I couldn’t agree more.
William Leonard
Awesome. Guys, this has been a really great, insightful conversation. I think our listeners will extract a lot of value out of your insights and hopefully, they learn a little bit more about Yieldi. You may have some customers come to you off of this podcast episode as well. Really appreciate your time, Josh and Joe, and I look forward to seeing how you’ll grow throughout the year and over the next few years.
Josh Lloyd
Great.
Joe Ashkouti
Thank you so much for having us. We appreciate it.
William Leonard
Awesome. Cheers, gentlemen.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
