Fractional Lands Raises $5.5M for Collaborative Real Estate Investing

Fractional: Democratizing Real Estate Investment

Stella Han and Carlos Treviño, colleagues at the “buy now, pay later” fintech company Affirm, discovered a common ground in their upbringing within real estate-focused families. The core principle of Affirm – enabling purchases with flexible payment schedules – presented a stark contrast to their direct experience with the significant time demands and substantial expenses associated with property ownership. This disparity ultimately sparked the concept behind Fractional.

Making Property Ownership Accessible

Fractional, a San Francisco-based startup, is dedicated to broadening access to real estate investment. Participating in Y Combinator’s Winter 2021 program, the platform facilitates co-ownership of investment properties among both acquaintances and individuals who are new to each other. It streamlines the often-complex process of property acquisition and lowers financial barriers by enabling investors to contribute smaller amounts collectively.

The platform has already attracted over 400 users during its beta phase, who have collectively invested in 95 different properties. This traction has resulted in substantial early-stage funding; Fractional recently announced a total funding round of $5.5 million, establishing a company valuation of $30 million. The seed round was spearheaded by CRV, with additional investment from Y Combinator, Will Smith, Kevin Durant, Goodwater Capital, Unusual Ventures, Global Founders Capital, On Deck, Contrary Capital, and Soma Capital.

The Three Pillars of Fractional’s Process

Fractional structures the home ownership experience around three key stages. Initially, the startup either connects potential co-owners or assists existing friend groups in initiating the underwriting process, leveraging the co-founders’ expertise gained at Affirm. Subsequently, it simplifies the purchase process through integrated legal and financial tools. Finally, Fractional collaborates with property management companies and related service providers to ensure the upkeep of co-owned properties, minimizing the time commitment required from investors.

However, while Fractional mitigates some financial obstacles, the potential for strain on personal relationships when investing with friends remains a concern. Disagreements regarding selling timelines or property improvements could arise, potentially creating conflict.

Understanding the Complexities of Real Estate

Recognizing the inherent complexities of expanding access to real estate investment, the co-founders proactively sought a deeper understanding of the process. Han and Treviño personally invested capital in a land purchase in Mexico to gain firsthand experience. Leveraging Treviño’s family’s construction business in Mexico, they secured an off-market deal and ultimately constructed a retail space on the property. Han noted, however, that “the process wasn’t super smooth,” requiring legal counsel at a rate of approximately $750 per hour to navigate the intricacies involved.

“We engaged a lawyer to ensure a clear agreement between us regarding decision-making and conflict resolution,” Han explained.

A Symbiotic Investment Environment

CRV general partner Saar Gur highlighted Fractional’s unique social networking aspect – “where new and experienced investors participate in a symbiotic environment” – as a key differentiator. According to a statement, this feature also enables Fractional to foster continuous platform engagement beyond simple transactions and drive growth through organic referrals, reducing the need for costly marketing campaigns.

The Rise of Alternative Investments

The growing popularity of alternative investments, ranging from Non-Fungible Tokens (NFTs) to private equity, is likely to fuel further adoption of platforms like Fractional. Consumers are increasingly comfortable diversifying their investment portfolios beyond traditional stocks, and Fractional provides a gateway to a well-established asset class – real estate.

A Scalable Business Model

Packy McCormick of Not Boring Capital, an angel investor in Fractional, believes the startup is transforming a traditionally difficult-to-scale, low-margin business into a highly scalable, high-margin operation.

“What has impressed me most,” McCormick shared with TechCrunch, “is their ability to deliver a software-driven approach that maintains ease of use while still providing investors with a tangible sense of property ownership, in an industry historically reliant on significant asset holdings and complex construction projects.”