Nate Dodson sits down with Umed Latifov, Co-founder and CEO of RealtyBits Inc., to discuss the future of blockchain in the real estate industry. Mr. Latifov has over 18 years of experience in global finance, infrastructure investments, energy, banking, and information technology. Most notably, spending the past four (4) years focused solely on banking, finance, and digital currencies in private and public sectors. RealtyBits.com is the first full-featured marketplace app for digitized private offerings.
Nate Dodson: Please allow me to introduce you to Umed Latifov, which I probably butchered his last name entirely. And so I’m just going to apologize in advance.
Umed Latifov: You’re good. You’re good. Yeah.
Nate Dodson: The founder of RealtyBits, realtybits.com, and frankly just an amazing person, an amazing background. Umed, nice to meet you.
Umed Latifov: Nice to meet you. Thank you. Hi everybody. Thanks for the kind words, Nate.
Nate: Of course. You know it’s… one of the most amazing things about you, I mean, you’re one of the most highly educated people that there can be in the industry in America, you know? But past that, you have just this amazing kind of background experiences. I was hoping that you could kind of explain where you came from and your past experiences and kind of what led you to RealtyBits.
Umed: Sure. Yeah. So I came… I was born in the former USSR. I came to the U.S. in high school through an exchange program backed by the U.S. government in the 90s. And I’ve been back and forth and I ended up going to college here, worked for a very large power company and energy sector out of Virginia. And then came to business school in California at Stanford. And after that… that’s where I really got involved in technology and start-up scene because Stanford business school is such an entrepreneurial school. Just the whole environment, the whole area is.
Umed Latifov: And then I joined a private equity shop out of Colorado dealing with energy and private equity and natural resources. And a couple years after that, I came back to Palo Alto, back into the entrepreneurial and start-up world. I was in entrepreneur residence for a venture capital firm out in Palo Alto and I started a few companies. Which, it didn’t go anywhere but it was a great learning experience. And in 2014, I was offered a short-term project to go back to Central Asia, to Tajikistan, to restructure a couple companies in the banking and infrastructure sectors. I did that for a year and it was time to come back and I was another request to help out and join the Central Bank and join as one of the governors of the Central Bank, as a vice-chairman of the Central Bank of Tajikistan.
Umed: They were going through a tough time when Russian ruble was devalued. So these satellite economies were facing pretty harsh currency conditions in 2015. So I did that for another year. And then it was time to come back and I was asked to join the Ministry of Finances, vice-minister of finance, which I also was intrigued by and I did that for another year. So it’s been a whirlwind of different experiences involving infrastructure, real estate, investments, regulations, banking sector, and the treasury department equivalent in Tajikistan. And in 2017, I came back to [crosstalk 00:03:20]
Nate: I love it. Before we get to some of this amazing stuff, everybody that’s listening, they’re into investments, putting together their investments. Do you have any great takeaways that somebody that is either early or late in their kind of capitalization working with investor careers and business? From your experiences with the private equity, any just, “Hey, this is a lesson that everybody should know and take away from today”?
Umed: Yeah. So I would say the biggest thing in private equity is knowing the GP, the asset manager, and being comfortable with their vision, maybe their skill set, and honestly their personality. Because if it’s restricted assets, these are unregulated assets and you put a lot of faith in the hands of the main decision-maker, which is the general partner. And I would make sure that I am comfortable with their background and abilities. Of course, you cannot de-risk. The other thing that is important to understand is that private equity investments are not 100% risk-free, no matter how talented, smart the general partner is, the main asset investment decision-maker. But you can de-risk it a lot by just doing a little bit of research on the sponsor who’s making the main investment decisions like collecting your funds as an LP and making the investment and managing your capital basically.
Nate: In terms of like due diligence if you’re looking at an investment in the sponsor of it, what kind of due diligence or background or getting-to-know-you information would you be asking about? What would you expect to see?
Umed: So typically in the private equity world, especially on our platform, there’s already offering memorandum, there’s marketing materials, there’s a lot of information about the sponsor that’s behind the asset. They tell you about themselves, their past, their success, their deal volume. And another simple thing is just simply… we do background checks on them. Also, there’s reports about… we don’t just work with any GP. There’s all sorts of types of personalities and different kinds of track records and we try our best to choose and work with the ones that have the most likelihood of success. Of course, it’s never guaranteed. Nobody will guarantee that. But we do extensive research and filtering.
Umed: What I would say in addition to that, is just Google the name. There’s an amazing amount of information on anybody’s background. It’s very rare that somebody doesn’t have a digital profile. If they don’t, then it would be a red flag honestly. But a combination of what’s available through the platform, a combination of your own research. And typically what happens is there’s a lot of word of mouth, there’s a lot of introductions that happen in this domain. You go by what your friends think about it. So it’s sort of you make a decision based on all of those factors.
Nate: Wonderful. All right. And now, why we’re all here, please tell us about the founding of RealtyBits and a little bit about the company.
Umed: Sure. So in 2017, I came back to Palo Alto and I met with my co-founder Ola at a meet-up event. And I knew I wanted to do something in the blockchain space. This is when it was very hot getting… at the time it was like a new and exciting thing. But I’ve been involved in the blockchain world since my Central Bank times where I saw this as a… because I was in charge of the payment systems in the country and there was a lot of remittances coming into Tajikistan from Russia and other countries. And I saw this as a more efficient infrastructure or rails to transfer units of value from one point to another. It was, of course, in it’s very beginning and we ended up not doing anything with it because there’s just not a lot of adoption. And anything you do in a Central Bank part, from a Central Bank perspective, there has to be regulation around it and there was no laws that could specify how the funds moved, how to determine what the funds are. All that stuff wasn’t… it still doesn’t exist.
Umed Latifov: So I decided to come back to the private sector in 2017 and we started a very early version of RealtyBits. We wanted to target an asset class and make it more efficient, an asset class that would benefit everybody, that suffers from the most inefficiencies and is a very large addressable market, which happened to be real estate. So hence the word RealtyBits. So we wanted to create a platform and application that made it easier for people to buy and own real estate properties, real estate assets. And that’s how we started RealtyBits in 2017.
Nate Dodson: Wonderful. And since you started, the market, crowdfunding, everything has changed so much. Since that first little spark of an idea, how has the growth and development process gone for you all?
Umed Latifov: Yeah. It’s been an interesting and very busy three years and COVID actually added a pretty interesting twist to it. So in 2017, we created a very early version of the product. Trying to bridge this blockchain solution with a traditional world, a traditional way of doing things, is a pretty tricky and not an easy thing to do. And we realized right away that these are not cryptocurrencies, so to speak, in a traditional sense. These are real asset ownerships. There has to be compliance in place, there has to be KYC, AML in place, there has to recourse, right? If you subscribe to somebody’s offering, even though it’s run on the blockchain, there has to be a verifiable link that you actually own the asset. So there’s this whole slew of contracts, legally enforceable contracts, that’s behind every subscription that we process right now. So it doesn’t make it a smart contract in a sense, but it’s a very streamlined smart contract or efficient contract that the infrastructure provides.
Umed: So that’s kind of what we started with. Then we applied to Y Combinator. In 2018, we went to… for those who don’t know Y Combinator, it’s a very large, well-known accelerator program in Palo Alto, Mountain View, in California. Companies like Dropbox, Instacart, Coinbase, Airbnb. They’re all Y Combinator companies or Y Combinator alums. They came out of that program.
Nate Dodson: Best known of the country. So it’s amazing to have you as a part here.
Umed: Yeah. We were really happy to get accepted there. And then we went through that and we got our first investor backings from other investors in Silicon Valley and international investors. And we built the first version of the product and we have a major blockchain partner who also had been very instrumental in the development of this platform. It took us two years to build it and have a working version of the platform because we had to create a platform that did everything. We couldn’t do partial. You couldn’t just do document signing and subscribe you to an offering and leave it at that and still go through the traditional banking channels of wiring money or getting distributions because we were all about efficiency and streamlining.
Umed: So we created the platform, we tested and retested. It took a long amount of time. We now have a platform that allows you to launch your asset on the blockchain, even though the blockchain piece which could confuse a lot of people is pretty invisible. You don’t need to understand blockchain because blockchain is like… you don’t need to understand how the Facebook database works or Airbnb database works. It’s the same analogy here. So we made it efficient. It’s an application that you log into, you get verified, we run background checks on you. Once you’re verified, we open your account, you get the ability to deposit currencies, digital currencies as well as U.S. dollar, and make an investment into certain kinds of offerings that are offered by the asset sponsors. So that’s the gist of it. Of course, there’s a lot of details that go behind it. There’s security layers, there’s verifications, there’s account servicing, there’s maintenance, there’s a ton of things that goes behind what I just described.
Nate Dodson: Well I know there’s a ton of people that are interested in the blockchain and how to have a coin offering, a token offering. But they don’t really understand what it means, how it works with a kind of traditional securities offering structure. Could you speak to that a little bit?
Umed Latifov: Yeah. So the functionality is very similar. Let’s back up a little bit. So blockchain and cryptos are sort of a part of each other, but they’re not the same thing. Blockchain is a method or a protocol to a certain way or manner of confirming transactions in a sort of blind way, in an immutable way. The digital currency, like bitcoin, is, to simplify the analogy, is a by-product or is a product of blockchain. It runs on the blockchain, but the bitcoin itself is an asset. So it’s sort of two different things. So what we do is we take a very similar functionality. We have the blockchain, the main platform, where the assets get created and registered. And each asset now gets its own ownership unit that represents that asset.
Umed: It’s very similar if I were subscribed to a fund offering now that’s offered by you, for example, Nate, where I would subscribe to it and say, “I’m going to invest $10,000 in your fund.” And in those subscription documents, you give me ownership units. You say, “Okay Umed. Your $10,000 is worth 100 units at $100 per unit.” Except that it’s on a paper, it stays on that paper and I can’t really do anything with my units. What we’ve done is we’ve actually digitized my ownership units in that subscription. Now I get actual units which is backed by the contract. That’s why it’s a… we take the paper contract, we turn it into a smart contract in a manner of speaking. And then it helps me and it helps you as a fund manager to track my investment in a much more efficient and scalable way. For example, you get a real-time cap table, a real-time visibility of who your owners are.
Umed: And if I want to trade my ownership or if I want to sell part of my ownership to another limited partner, then I submit a request to you. It will be very easy for you to honor my request, especially when you’ve already collected my capital, when you’ve already deployed my capital, and I own a part of the underlying asset. Of property, for example in this case. So there’s really no reason for the GP not to help me because you want to keep me on the good side so I could come back to your next deal. And it kind of benefits both sides. It helps me liquidate part of my ownership if I want to. I don’t have to because there’s still a lot of utility and a lot of benefits that both the GP and the LP, me as an investor, get from having this ability to actually own units of ownership in your offering that are fungible.
Nate: Got it. So a lot of people still just don’t really understand blockchain and the security of it. And we have slowly learned it’s a very secure technology and instrument to be able to trade. I mean, that’s how the whole cryptocurrency industry has come together. Could you speak a little to the currency to us non-techy types?
Umed Latifov: Sure. So the security part, it’s very secure. So the way the protocol works, the way we’ve set it up is that we give everybody their own wallets where their ownership units get deposited into those wallets. Now, these are restricted units, restricted asset ownerships, just like it would be today if I signed up to any other fund offering. So the wallets that hold the specific offering units can only function, can only transact those units, if they’re enabled to do so. So there’s the first layer of security that you have to first log into your account. Then we have multi-factor authentication that you are required to enable whenever you want to do something with those units.
Umed: Then you have to have the authorization by the GP in order to transact with those units. And anybody else who is trying to buy the units of ownership from you has also needs to be verified and authorized by the GP because the GP is essentially replacing one LP’s ownership with another LP. So the GP, compliance-wise, has to know who that new LP is and has to be comfortable with it. So every step of the process requires authorization. It sounds like a lot of work, but it’s actually very streamlined. It requires confirmations but it’s a lot more streamlined than if you were to do it in the traditional way because it could take you months and emails and Dropboxes and Excels and talking to your accountant, talking to your lawyer. Here, you could still talk to your accountant and lawyer, but everybody sees it in one place.
Umed: But from a security perspective, your unit of ownership for that specific asset can’t be taken and transferred to just anywhere else because that new wallet has to be authorized, the transfer has to be authorized. So there’s a bunch of layers that the GP has to approve in order for this to happen. And worst case, that’s one of the great things about the blockchain protocol is, those units could be retracted. It’s not like they go and sort of get lost in an abyss. This is the nature of restricted units. That’s why they’re restricted. So it’s sort of a deterrent for anybody who wants to steal units so to speak. We make it pretty difficult.
Nate Dodson: Got it. And so blockchain right over most people’s heads, let’s talk about the other things that RealtyBits offers. Let’s use me as an example. I’ve done my own developments, I’ve raised capital from investors, I’ve had my own PPMs. Why am I reaching out to RealtyBits?
Umed Latifov: Because we give you sort of a single dashboard to manage your asset in one place. It provides you the ability to register your offering, register your fund, verify your fund, open bank accounts for your fund, have these preliminary set-ups in order to be able to onboard your customers, onboard their capital, and service your customers, and also give them liquidity down the road, liquidity option if they choose to have a liquidity option. It puts everything in one place. So you log in… and we also provide a white label solution where GPs can basically, with a few lines of code in a week or so, can have their own marketplace up and running which they can target their own LPs and just keep it as a private platform for their own offerings.
Umed: Or, depending on the exemption types of the offerings, they can raise capital publicly. You will do this because it gives you new distribution tools and a lot more robust tools to verify your investors and onboard them and service them. It just makes it very easy. There is no, “Send me a docu sign and then chase after me to wire you money and then…” We cut down the processing time by about, based on our calculations, we would like to say it’s 90%. We make it 90% more efficient for you to manage your offering, manage your investors, without the liquidity access. Just the first part even makes it a lot more efficient.
Nate: I love it. And so I know that if I’m doing a Regulation D 506(c) offering, I can advertise online, I can put my offering with RealtyBits directly on the general platform or on the white label. Like having my own independent website? Is that kind of the options there?
Umed: Yeah. So it’s a 506(C) which allows you to publicly solicit, we give you the auxiliary tools, the infrastructure, to manage your offerings. You’re the person behind the offering. We provide the tech support for you to enable you to run your own white-label crowdfunding platform so to speak. We maintain it for you, there’s security layers, there’s a lot of stuff and constant upgrades, features that we push. But we create a Shopify version for private assets where private managers can have their own storefront so to speak, and also manage their clients.
Umed: In terms of 506(c) in terms of the extended network, if you choose to also publish your 506(c) offerings to other distribution channels so to speak, other portals where potential investors could discover your offering, we also provide this listing platform where your assets can be listed and people can subscribe to it and come to your offering through a sort of extension link. They still deal with you, you’re still the GP. They are going to be visible on your white label portal no matter where they come from. It’s the same thing as if you had a 506(c) offering and advertised it on Facebook or Instagram. People can discover it and people can come subscribe to your offering through that unique link.
Nate: Perfect. If I’m doing a 506(b) that does not allow the online advertising and solicitation, would I still be working with RealtyBits?
Umed: Yeah. For 506(b), you can’t publicly solicit because 506… one thing I wanted to mention 506(c), we also require people to verify their accreditation according to the latest SEC requirements before they can subscribe to your deal. 506(b) and other SPV or private offerings are restricted. You cannot publicly solicit and the system or protocol recognizes that and doesn’t allow you or validates against it. It doesn’t allow you to blast your offering everywhere. It has to be invite-only. The GP invites it to the LPs or the sponsor invites to the investors that they have some sort of relationship with and they have some sort of agreement with and they send you the deal package and it automatically adds the potential LP into the GP’s CRM, into the GP’s dashboard, and they can start servicing them and tracking their progress from a single dashboard, from their white label, their own platform.
Nate: Phenomenal. So with the traditional Reg Ds, it doesn’t matter if it could be generally solicited and marketed or really needs to remain private. No matter what, you have the same back-office support and investor management tools with RealtyBits. It’s just kind of the difference of what takes it to… or the process of bringing the investors to the table for processing their investment. Is that correct?
Umed: Correct. Yeah. It checks against the compliance requirements. 506(b) cannot be publicly solicited. It’s invite-only. GP has to send you the invitation. So basically they have to know who they’re inviting. And it checks against their accreditation and accreditation requirements of the 506(b) because you could have a certain amount of unaccredited, self-accredited investors there. But there are certain limitations that you can’t go above. It validates against that.
Umed: Reg A+ offerings could be publicly solicited. You could publicly advertise it and run it from your own website, enable it on our extended network of potential investors, advertise it on Facebook or anywhere. We do give you the tools to check the backgrounds and identities of the potential investors and there’s certain requirements for income levels and other things that you have to verify. Same thing for Reg D 506(c) where you have to validate against their accreditation. Regulation CF, crowdfunding offerings, our solution also works with that. We give you the tools to run your own crowdfunding platform and also have the extension where people can discover your crowdfunding offerings and link with you directly. It sort of creates this peer-to-peer mechanism where it’s more of a discovery and solicitation service.
Nate: Wonderful. And to talk a little bit more about the Regulation CF, the regulation crowdfunding, and just to make a little mention, I’ve got kind of more into the weeds within the last couple of weeks just because it’s become so much more useful now. Increasing the maximum amount of a raise from a million dollars and change, now you can raise up to 5 million dollars. Amazingly, it is just simply more useful. However, you still have to work with a crowdfunding portal. That’s part of just the Regulation CF requirements. And I know that RealtyBits, you’re also even supporting the crowdfunding portal areas. How’s it rolling out? I don’t think… are y’all qualified to be the crowdfunding portal or are you just setting them up for other people?
Umed: So we are not a crowdfunding platform. We give you the tools to run your own crowdfunding platform. So I believe, correct me if I’m wrong, if it’s your own crowdfunding offering, you can run it on your own website. Right? If you have the ability to do so. The one thing that is not such a benefit for… there’s two things to using crowdfunding portals. The benefit there is that most of them already have a substantial amount of investors that could discover your deal. But the reality is that most people end up actually doing a lot of self-marketing, even if it’s on the other crowdfunding platform. And there’s a bit of an unfair setup where the crowdfunding platform ends up having and keeping information about all your customers and they don’t provide the investor management tools. So once you’re done with your raise, then you’re kind of left on your own. And I don’t even know how people manage their investors. It could be like hundreds of thousands of investors they have to now service.
Umed: So we give you the tools to do… if you want to just run it through another crowdfunding platform, you could still do it. You end up just using it for investor management platform services. Or you could just launch your own crowdfunding platform from your own website. You have to register the offering with the SEC for the exemption of course. But that’s actually a question for you. Am I as a sponsor allowed to run their own crowdfunding offering from their own website if it’s just whatever asset they manage?
Nate: You still have to be working with a crowdfunding portal. So there is always that component and involvement of that. There’s protections with the unaccredited investors. But it is one of those wonderful situations that you can work with any unaccredited investors. It’s just there’s some caps on how much they can in fact invest.
Umed: I think it’s 10% of annual income.
Nate: You got it. If they have an income and net worth of about 107,000 but they’re still not accredited. If it’s below, it’s limited to only 5%. So there’s just limitations on the unaccredited. For accredited investors, there are no limitations there. So it is an amazing platform, unlike the 506(b), where you can actively solicit and market it online, Instagram, Facebook, et cetera. And you can have an unlimited number of unaccredited investors. On the 506(b) side, you are capped at the number of unaccredited investors. But even that, the SEC is making it a little bit easier to run your deals. Now, it’s 35 unaccredited investors every 90 days rather than 35 unaccredited investors for the entire offering. So that’s literally part of all these changes that just happened in March.
Umed Latifov: Okay. So for 506(b).
Nate Dodson: That’s correct.
Umed Latifov: Okay. The reality is 506(b)’s end up having less than 30 investors and most of them are accredited because their minimums are so high. That’s what we’ve seen on our platform so far. In terms of the crowdfunding platform, it is in our plans to register to be a crowdfunding… to provide a crowdfunding platform services as a separate entity. There’s just been so much demand in what we’re trying to do. We’re having to prioritize where we need to focus. But it’s a relatively new thing. Our tech stack, our technology is actually already enabled to handle the situation. We are planning to enable and launch the portal for Reg CF offerings.
Nate: And I look forward to working with you on that as well.
Umed: Yeah. The difference between that and what we would do… because our main goal isn’t… we’re not going to charge 7% of the capital raised because I honestly think that’s unfair because I charge you 7% and I keep your LPs, your investors. That’s a rotten deal. We’re significantly going to lower the processing costs and you get to manage your own investors. Because if you benefit from what we provide, you’re going to come back and reuse our product. So we’re going to be very aggressive in terms of cost and benefits to the asset issuers, to the folks that are managing the offerings. So we want to really… our main mission is to kind of open up this inaccessible and previously hard to get asset class to a wider portion of the population because that’s how we create wealth. Owning real property is one of the ways of creating wealth and we want to help enable that.
Nate: I love it. You know, if you could really differentiate RealtyBits versus really the direct competitors, people that are in that same market, how do you differentiate yourself?
Umed: Yeah. So it’s kind of hard for us and this is a question that our investors ask us, our partners ask us. It’s kind of hard for us to pinpoint an exact competitor because no one quite does it in the full stack, so to speak, manner. No one does everything in one place. Most crowdfunding platforms have the front end, the application, but their KYC, AML, their investor onboarding is done by FundAmerica or North Capital. We provide the whole thing in one place and it runs on the blockchain.
Umed: So speed and efficiency, and when you verify some investor, it could take you a day or three days to verify their identity and process their capital. For us, you can verify your investors, it takes two minutes, and they can start processing payments and subscribing to your offering right away. You could subscribe to an offering from a size of $500 to $500,000. Within 10 minutes, you could be done. Even five minutes. So we focus on efficiency.
Umed: And the biggest other difference from the crowdfunding portal perspective, because we have so many different angles to what our business does, from that one example, the biggest difference is the investor management portal where if you were to raise your capital at a third-party crowdfunding portal, you don’t really have the tools to service those investors after you raise your capital. You kind of have to do it on your own. We give you those tools prepackaged. You can service them, you know what they do, we know what their situation is, and you can ask them questions, you can send distributions back to them directly to their accounts, they can redraw it to their subsequent bank accounts. You can kind of service the entire asset lifecycle in one place. That’s the biggest differentiator.
Umed: And also the ability to process digital currencies. Just one clarifier, people cannot invest in your offering with bitcoin. What they can do is we give them the… We work with very reputable, very large exchanges where if you want to invest with bitcoin, we give you the tools to form your RealtyBits account to liquidate your bitcoin first and then invest with the dollar proceeds into a particular offering.
Nate: So just out of my own curiosity, with the wallets that you set up for the tokens from the offerings that we invest in with RealtyBits, can you hold your bitcoin and your other crypto-currencies, or is it limited?
Umed: Yeah. So you can create… you have a wallet that holds your bitcoin. Your bitcoin is held by our third-party license and qualified institution. Even though it’s in your RealtyBits wallet, but the actual asset is securely held and it’s insured by a third-party service provider. But you can make a deposit and wait for the right opportunity to make the investment. Yeah. We’re not a crypto exchange so you don’t get to exchange and this is not coin-based. We don’t do high-frequency exchanges. In fact, we like to call this low-frequency. It’s a step-by-step manual approval method of private equity investment that we provide the infrastructure and the tools for the GP and LP to interact with each other.
Nate: Wonderful. If I am a sponsor, I love what you’re talking about and I’m ready to start moving forward. Kind of what’s the process of onboarding with RealtyBits?
Umed: So if you’re a sponsor, you just go… right now, we launched this. After building it for almost three years, we launched it recently and over Christmas of 2020. You just sign up, get early access and if it’s… we want to work with sponsors who know what they’re doing because we put a lot of qualifiers for the sponsors because this is people’s money and we don’t want to work with people… we try to avoid working with people that they are new to this or they don’t know how to handle and make an investment. Because these are very large sums of money, there has to be definitely a know-how, an experience, in making these kinds of investments. It’s not for everybody. Not everybody can be a sponsor. You have to know. It’s a complicated process. You have to know what you’re doing and for the right reasons because we don’t want somebody to raise capital, then lose that capital for their investors. We want to avoid that. We cannot guarantee that of course, and we’re not in the business of promoting one deal over another. It’s a service we provide for the sponsors, but we do carefully choose our sponsor partners.
Umed: But if you’re a sponsor, you sign up, you tell us a little bit about yourself, and then we do our due diligence on you. And then once everything is okay, we open your account. We sign an agreement of platform usage and technology usage agreement. And then you’ll be ready to start servicing your investors and onboarding your assets. And it’s literally a 30-minute process once we are comfortable with who you are.
Nate: That process is six months. I’m joking.
Umed: No, no, no. It’s not. It’s not. We need to know who we’re dealing with because some sponsors honestly, they’re mid-size funds or 10 to 15 million dollar AUM. They’re not large, multi-million dollar funds, but these are guys who come from those for example. Guys like the sponsors that we deal with, our former partners at KKR or Apollo or the Blackstone group. Those guys have worked there for 15, 20 years. They are in their late 30s, early 40s. They are the new and upcoming fund managers. These are the next managers of KKR that are starting their own future KKRs. So we provide the technology for them to become that future KKR, using the next-generation technology.
Umed: So these are the people that we target specifically. You don’t have to come from KKR. You could be a mid-size sponsor that is really good at picking up residential properties, for example, and managing them and you have your own investors that you currently manage through whatever methods you manage. We just make it a lot more efficient for you to manage your investors. And you know about this, Nate. People who don’t know what a PPM is, we want to make sure they’re comfortable with this and have done this before. So we do qualification before we open up a sponsor account.
Nate: Absolutely. So if you do open up a sponsor account and now I’m an investor, I’m going through the process, I’ve signed everything, am I sending my money directly to RealtyBits? Or does it go directly to the investment?
Umed: So when you are investing, you open your investor account of the investor account, LP account. Once you verify, once you are qualified to be an investor, and we run all the background checks which takes a few minutes. You deposit your funds; it is still your funds. It’s not the GP’s funds. And then when you get an invite or discover a publicly available offering that you want to subscribe to, that’s when you do the interaction. You subscribe to the offering, you sign the documents, you connect with the sponsor, talk to them and ask them questions. Once you decide to make an investment, then that’s when you send the funds, depending on the offering.
Umed: If the GP wants you to put a minimum deposit in order to… Make a $500 deposit to make a $5,000 investment, then when you subscribe to the offering, you have to submit that deposit. If the GP accepts your subscription, then the deposit at that point is transferred to the GP, to the sponsor. If they don’t accept it or reject it, your funds get automatically refunded back to your account. If the GP for some reason wants to cancel your subscription, then they will also refund the funds back to your account. If they don’t, let us know. That’s absolutely a requirement. GPs can’t just take your money and not do anything with it.
Umed: But yeah. Those are the processes. You get the subscription, you get ownership in the asset. That’s when funds transfer. Until then, your funds are your funds. You can deposit them, redraw them back to your account. It’s under your control. It’s the same thing as having an E-Trade or Schwab account, except that this is for private equity offerings.
Nate: Love it. So are there more things that we should be asking you about? The floor is yours. Something else that you’d like to share?
Umed: Yeah. So we’re kind of taking a very careful approach here. The site is still in early access, invite-only basis and we just want to make sure that everything is going to be running without any hiccups. We are a start-up. There’s things that we fix, bugs that we fix on constantly, daily basis. If it’s a sponsor, we’re happy to talk to sponsors. We are open to work with sponsors now. And for investors, if investors sign up, they get added to the waitlist and we’re starting to send invites targeting late May or middle of May. We have a few offerings that are already available, 506(c) offerings. One is an energy investment opportunity fund that is being launched by these guys that have a fantastic record. They’ve already launched 506(b) offerings, invite-only offerings, using our platform, and successfully processed capital. Now they want to do a very large fund where they are replicating what they’ve done for a limited amount of investors to anybody, qualified investors, that want to invest in their offering. It’s a 506(c) offering.
Umed: We have a few other real estate offerings that are being onboarded now that would be also available publicly. So if you’re a sponsor, we can work with you now. If you’re an investor, if you get invited by a sponsor, you can start investing right away. If you’re a sponsor that wants to have access to all these deals, we will start sending invites. Our target right now is the second half of May. So that’s what I want you to know.
Nate: Wonderful. You know what? Just for all of our benefits, do you have any good book recommendations?
Umed Latifov: Oh. Honestly, starting a company for the last three years, I could recommend how to optimize on sleep. The book recommendations… there’s an interesting book that I read recently. It’s about the history of money. I can look it up and let you know the author’s name. I forgot their name. But it’s on AWS. Not AWS, sorry. Amazon. AWS is the instances that we’re working with. I had a long discussion about those today. Yeah. I think people that want to understand… nobody thinks about money as a product. The first time I started thinking about money as a product is when I joined the Central Bank. Because you think about money as like, “What’s in my wallet? How do I pay for this coffee?” And that’s it.
Umed: But money is a product. It is a tool. It has a history. It evolved over thousands of years and it turned into what we have now; digital money, crypto money. But it’s a fascinating thing to learn about. People say it’s whatever we trust, it’s based on our trust. But it’s a lot more complicated than that. But it’s a very good thing to understand. I don’t think you can 100% understand it because you hear about these things like the Federal Reserves just injected new money into the system. What does that mean? It’s a hard thing to understand, but it’s understanding .1% of it for curious types. It’s pretty satisfying.
Umed: There’s another book if you want to learn about… I would recommend everybody to read the first white paper about bitcoin. It’s seven to eight pages if I remember correctly, depending on the spaces. The double space, single space. For most people that are not tech oriented, it’s probably going to fly over their heads. But again, anything that you want to learn, if you understand 2% of it or 5% of it out of 100%, that’s still learning because this knowledge gets collected over time and then it becomes more and more obvious.
Umed: There’s another book called The Code that I would recommend. It sort of simplifies the methods and how the blockchain works and how this crypto-currencies work. But crypto-currency is just like money works, right? I know I’m just becoming just like everyone else. “Oh, it’s just simple.” It’s not simple because it has a different name. But the way to think about it is just it’s a new way of exchanging ownership in a more verifiable, secure way.
Umed: The way the blockchain works… imagine you buy a property. You go to the county registrars office and there’s a person behind a desk who can’t wait to get out of there to go to lunch before 12 is going to stamp your papers. You stand in line. The way the blockchain works, the immutable ledger works, is whenever you make a transaction for owning a certain asset, there is thousands of those county registrars that stamp your transaction. They don’t know what is being exchanged; they just know there’s a transaction. So that’s why they call it trustless. So I went from book chain recommendations to how blockchain works. But this is sort of related, right? It’s a part of the 1%. I’m adding to your bucket of knowledge. Hopefully it added a little bit more.
Nate Dodson: Completely appreciate the above my head education that I can catch about a half a percent of.
Umed Latifov: That’s good. It’s better than zero.
Nate: Absolutely. I do want to say thank you so much for being here, sharing a little bit more. Encourage everybody that’s listening, if you’re looking at your own deals or looking at other’s deals, check out RealtyBits. And I also want to bring up, next week we are going to do another webinar for PPMs and how they come together, structure them and the important things to pay attention to. So hopefully we’ll see everybody next week as well. And Umed, thank you so much for your time today. Truly appreciate it.
Umed: Yeah. Thank you. One thing, one other comment that I want to make, last comment is the PPMs, the offering documents, the subscription documents are very important. I want to clarify that we’re not replacing those. We’re actually very much relying on those to create these assets that will then get these ownership units issued that then will get owned by people between GP and LP. It’s managing, it’s all revolving around those legal documents because that’s what creates recourse. That’s what verifies your ownership. At the end of the day, through the court systems, through established case law, through the ownership verification, that is very much a part of these units that you get to own in the asset. In fact, the papers come first. The units come based on those papers. It’s just an additional verification tool for your ownership based on what you sign. And what you’ve exchanged, what you’ve transferred money-wise, the refunds you got, there’s valuation reports, there’s investor updates, a lot of other things that creates a whole file for that asset.
Nate: And my takeaway from that is thank you for not replacing us and putting Crowdfunding Lawyers completely out of business.
Umed Latifov: I don’t think we can. I think it’s… we don’t take that approach. We don’t hate banks, we don’t hate lawyers. They are actually there for a reason.
Nate Dodson: Oh, I do. Not only am I one, do I employ them, I’m married to one. And yeah. Necessary evil sometimes.
Umed Latifov: I shouldn’t say… so it’s the documents, right? The documents are very important. It’s just we make the paper ownership a lot more efficient, without complicating it any further. It’s basically making the traditional ways of owning these assets a lot more streamlined, a lot more accessible now. This is the next step that we’re adding to these private asset ownership.
Nate Dodson: I love it. Thank you so much for your time today. Appreciate you. Everybody else that’s visiting and watching, thank you. See you again soon.
Umed Latifov: Sure. Yeah. Enjoyed it. Thanks for having me. Bye.
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