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First Democracy VC

Zeehaus

Real estate equity sharing marketplace using blockchain

191%

Investors

161

Time to Invest

Security Offered

Convertible Debt

Minimum Investment: $100

  • 2018 Top Pick for TechCrunch Disrupt San Franciscoi

  • Patent-pending marketplace for equity sharing is expected to launch 60 days after offering ends

  • Launching blockchain-based community to pay users for advertising while offering opportunity to control use of personal data

  • Building blockchain on top of the Stellar network and the Hyperledger network


Terms

Security Type: Crowd Note

Round Size: Min: $50,000 Max: $1,070,000

Valuation Cap: $5,000,000

Discount: 25%

Conversion Provisions: In connection with an equity financing of at least $1,000,000, Zeehaus has the option to convert the Crowd Note into shares of a series of non-voting preferred stock, at a discount of 25% of the price per share of the new preferred stock sold in the equity financing, or a valuation cap of $5,000,000, whichever results in a lower conversion price. Please refer to the Crowd Note for a complete description of the terms of the Crowd Note, including the conversion provisions.

Perks

*You are investing in Crowd Notes in this offering. Perks are meant to be a thank you from the company for investing. The perks below are NOT inclusive of lower dollar amount perks. 

$1,000: 600 future Zeehaus utility tokens

$2,500: 2,000 future Zeehaus utility tokens

$5,000+: Equivalent number of Zeehaus utility tokens and a 40% discount on future token purchases (discount is capped at the amount invested in this offering in U.S. dollars) for example, a $10,000 investment in this offering will receive 10,000 utility tokens and will be entitled to a maximum discount of $10,000 on a purchase of $25,000 in tokens

Overview

Opportunity

According to the Urban Institute, Americans have aggregated a tremendous amount of untapped equity in their homes. Unfortunately, given its illiquid nature, it is not easily accessible for homeowners looking for cash.ii To do so, homeowners typically go to a home loan lender and must fill out a great deal of paperwork to qualify.iii Further, for individuals looking to buy a home, they can be priced out of the market due to high prices and/or rising interest rates.iv Millennial renters may also have an especially hard time coming up with the down payment required.v At the same time, purchasing an investment property not only requires a significant down payment, but purchasers must also go through a potentially complex mortgage approval and closing process, and must provide property maintenance if they intend to lease it out, along with high selling costs in the future.

Zeehaus is developing a real estate marketplace that seeks to connect existing homeowners and homebuyers with real estate investors. By combining trust agreements with blockchain, Zeehaus aims to fractionalize equity ownership and facilitate real estate transactions through a digitized buying process. Existing homeowners will be able to access cash by selling equity in their home and new homebuyers — by sharing homeownership with investors— will be able to purchase a home at a lower cost both in terms of upfront and monthly payments. Investors will be given the opportunity to have fractional ownership in properties, monthly cash flow, and potential appreciation.

Product

Zeehaus aims to be a digitalized and automated end-to-end platform where investors, buyers, and sellers can connect to buy, sell, and invest in real estate at a fractional level and co-own property. Zeehaus also aims to become a rewards-based community to connect homeowners and homebuyers with advertisers by leveraging secured property ownership and verified user data stored on blockchain while offering users the opportunity to maintain control of personal data.

Phase One: Homeowners

The first phase of the Zeehaus platform is geared toward homeowners. Homeowners will be able to receive cash by selling a share of their future home equity (the value of a homeowner’s interest in their home) to an investor while still retaining sole ownership.

The homeowner and investor will enter a contract for a future purchase. A future purchase is a contract that gives the investor a claim for future potential appreciation, either through selling the contract or purchasing a share of equity in the home at a future date. This is a type of Memorandum of Contract for Sale of Real Property. The future contract is recorded by the County Recorder office under the name of Trustee, who will be an independent financial firm, its representative, or a licensed attorney. The price of the future contract will fluctuate based on property value.

Potential Homeowner Benefits:

  • Homeowners keep their existing mortgage
  • Homeowners retain full tax deduction from mortgage interest and property tax
  • Homeowners can get access to cash without selling their home
  • Homeowners retain sole ownership

For most homeowners, there is no monthly payment required under the future purchase cash out. Zeehaus plans to offer an option to homeowners to reduce investors’ equity share in exchange for making a monthly interest payment.

Homeowners are eligible to receive up to 20% of their property’s appraised value. The owner is required to maintain a minimum home equity value of 10%.

Steps for Funding:

  • Homeowner applies for cash-out.
  • Homeowner passes pre-screening and decides the percentage of equity to share. Zeehaus verifies the homeowner owns more than 10% equity.
  • Order appraisal. Owner and investor agree on property value.
  • Investors review qualifications, property metrics, and commit funds.
  • Complete closing process. Memorandum of Contract and Deed of Trust are recorded. Owner and trustee sign contract, with the investors as owners of the Trust.

Hypothetical Example

A homeowner with a home that is appraised for $500,000 and put 20% down ($100,000) could request up to $50,000 in cash (10%). Say the homeowner requests $25,000 in cash, that would leave the owner with $75,000 remaining in equity. The homeowner would receive 75% of future appreciation and the investor would receive the other 25%. This calculation excludes any future mortgage payments made by the homeowner.

*Assessed Value is a risk-adjusted value based on the appraised value, typically at a 5% to 8% discount, to account for the risk that investors take on. Principal reduction from mortgage payments is excluded from Investor Equity Gain calculation.

Investing with Homeowners

Potential Investor Benefits:

  • Reduce risk: Diversify your real estate investment portfolio across multiple properties, as purchase starts from 1% ownership
  • Liquidity: Equity sharing marketplace offers investors liquid and tradable contract, recorded on blockchain and backed by a real asset.
  • Security and transparency: Manage your portfolio with complete control and the security of blockchain.

Community and Advertising 

During the first phase of the platform, Zeehaus plans to roll out the community for homeowners and buyers to opt-in and receive advertising. Verified users who sign up as a member of the community will be able to indicate their preferences and get paid by opting into selected email advertising, without exposing certain personal information. Consumers will get paid in cash or utility tokens based on emails opened, click-throughs, and direct responses.

Phase Two: Homebuyers

Potential Homebuyer Benefits:

  • Homebuyer needs a smaller amount of capital for down payment, starting at 5% of property value
  • Lower monthly payment than mortgage loan, by sharing the cost of property taxes, HOA (if applicable), and insurance
  • Eliminate closing costs through partnerships and reimbursements from real estate agents
  • Eligible for refinance to a traditional mortgage in three years

Investing with Homebuyers

Potential Investor Benefits:

  • Diversification: Low minimum investments allow investors to potentially diversify across multiple properties and locations
  • Transparency: High degree of transparency into real estate ownership compared to typical real estate funds
  • Tax benefits: No transfer tax when transferring fractional ownership
  • Automated 1031 Exchange: Automatic matching between selling (relinquished) properties and buying (replacement) properties
  • Liquidity: Investors could transfer fractional ownership by trading it on the Zeehaus platform without having to sell the whole property

Investor Dashboard


Safety and Security

Zeehaus plans to use blockchain to store data on the property, buyer, and seller, and use it to document proof of fractional ownership. Transfers of ownership will also require updating the blockchain and providing a private key to provide safe and secure ownership. In addition, no personal information will be accessible without the private key.

The Zeehaus blockchain for tokens will be built on top of the Stellar network. Zeehaus chose Stellar because of its customizable Know Your Customer (KYC) and Anti-Money Laundering (AML) capabilities and its simplified fund transfer process. The Zeehaus ownership and property blockchain will be built on top of the Hyperledger network. Zeehaus chose Hyperledger because it is permission-based, allows groups of users to create separate transaction ledgers called channels, and data can be stored in multiple formats, along with property history and ownership changes.


Secured ownership and data

With the property, buyer, and seller’s data on the blockchain, Zeehaus’ goal is for the marketplace to become the system of record or 'hub' for property ownership transfer. The technology will aim to offer efficient and digital processing with multi-step verifications, such as requiring a private key and two-factor authentication before ownership can be traded. This digital transformation is designed to enable faster ownership transfer and reduce the cost of manual verification and title review. This flexibility should enable Zeehaus to customize Zeehaus Smart Contract workflows for different approval requirements for ownership transfer for different government jurisdictions.

Intellectual Property

In March 2018, Zeehaus filed a patent for its method and system for equity sharing of a real estate property.

Zeehaus Technology


Use of Proceeds and Product Roadmap


Zeehaus' patent-pending technology has been under development since the winter of 2016. The platform is expected to launch for properties in the San Francisco Bay Area and Los Angeles within 60 days after this offering is completed. Expansion is planned to Dallas in early 2019, the Phoenix and Seattle areas in mid 2019, and Arizona, Oregon, Nevada, and Colorado in late 2019. Zeehaus also has plans to expand into international markets in 2020.

The Zeehaus Property Equity Sharing platform will be rolled out in four phases:

1) Phase One: Homeowners – Launch equity sharing marketplace for homeowners looking to get cash out of their houses by selling contracts on the equity in their homes. Future Purchase contracts are expected to be recorded in Trust Agreement and on verifiable blockchain. During this phase, Zeehaus will be using Blockchain as proof of fractional ownership as well as rewards-based advertising marketplace.

2) Phase Two: Homebuyers – Launch funding platform to help buyers purchase homes by connecting them with investors interested in equity shares. Allow investors to exchange fractional ownership without having to sell entire properties. Record property ownership in Trust Agreement and on verifiable blockchain. Collaborate with builders to build equity sharing communities and help achieve homeownership.

3) Phase Three: Blockchain Ownership – Record property deeds and full ownership exchange on blockchain, if governments start to recognize blockchain as legal way to hold real asset. Obtain money exchange licenses and start accepting Zeehaus tokens as payment tools for real estate transactions on the Zeehaus marketplace.

4) Phase Four: Mortgage marketplace – Launch a mortgage referral marketplace for investors and homebuyers who completed an equity sharing purchase. These co-owners are eligible to buy out the investor’s fractional ownership by qualifying for a mortgage after three years. The mortgage referral marketplace will seek to allow mortgage brokers to join and get referrals. Zeehaus plans to partner with mortgage brokers to provide them a free platform and free tool and charge the brokers flat referral fees when a transaction closes.

Zeehaus plans to launch a custom utility token in early 2019 as a payment tool for real estate transactions on its platform. The goal of the utility token is to facilitate these transactions, to reward community users, and to pay for advertising, real estate commissions, and various transaction fees on the marketplace.

Phase 1 service for homeowners is expected to be launched 60 days after this offering is completed, while the rewards-based advertising marketplace is expected to be rolled out 90 days after the utility token is launched. Phase Two is projected for late 2019 with tokens being accepted on the platform, while Phase Three is targeted for 2020. Timing for Phase 3 launch is subject to legalization of blockchain by state and local governments, as we work on the application and adoption of blockchain as legal way to hold title and asset ownership.

If the minimum $50,000 is raised, Zeehaus plans to use over half of the proceeds on future wages for the COO and CMO. If the maximum $1,070,000 is raised, Zeehaus plans to use just over one-third of the funds on future wages to hire on the CEO, COO, and CMO full time. The next two largest categories will be for purchasing a Software-as-a-Service subscription for cloud-based servers and storage, blockchain network, Banking API, KYC/AML API, Email Automation API, Marketing and Customer Support software, e-Signature API, Messaging API, and Property metrics API, as well as general working capital.


Business Model

Zeehaus plans to initially focus on homeowner, investor and advertising capabilities and later roll out buyer and seller capabilities. Zeehaus plans to roll out the first service for existing homeowners to get cash out. Homeowners exchange home’s fractional equity for cash by selling a share of their home, while investor receives a share of the home’s potential future appreciation, through a ‘future purchase’. The company will seek to generate revenue by charging homeowners a percentage (expected to be 2% to 3%) of the property value funded as well as advertising fees. Zeehaus plans to receive a percentage (10% to 15%) of the fee paid by advertisers to consumers who opt-in to receive advertising. The consumers are paid the remaining 85% to 90% of the advertising fee.

Historical Financials

Zeehaus plans to launch its platform to the public within 60 days after this offering is completed. The company does not plan to begin generating revenue until then. In 2018, Zeehaus has had approximately $108,000 in expenses through July, nearly 80% of which came from development work to build out the platform. In 2017, Zeehaus had approximately $103,000 in total expenses for the year, two-thirds of which came from development work.


Press

TechCrunch: Announcing the TC Top Picks for Disrupt SF 2018

Markets Insider: Top 20 Blockchain Startups Announced for Founder World Championship 2018

Industry

As of Q2 2018, there were more than 138 million homes in the U.S., approximately 120 million of which were occupied.vi Overall, these Americans have a large amount of untapped equity in their homes that is illiquid. According to the Urban Institute, the untapped equity in the U.S. totals over $11 trillion. There are several types of financial products available that allow homeowners to tap into their home equity. Four popular ways include a home equity loan, a home equity line of credit, cash-out refinancing, and selling the home:vii

  • A home equity loan uses a portion of the accumulated equity as collateral in exchange for cash that must be paid back monthly in principal and interest.
  • A home equity line of credit is issued by a financial institution that allows the borrower to request money over time using their house as collateral. The borrowers only pay interest on the portion of the credit line they are borrowing at that time.
  • Cash-out refinancing is the process of paying off an existing mortgage with a new loan in an amount greater than what is currently owed on the home so they can receive the difference as a lump-sum payment. A cash-out refinancing requires new closing costs, new interest rates, and a new, later payoff date.
  • Selling a home to get money requires homeowners to rent or buy a less expensive home.viii

Housing starts are projected to increase steadily over the next few years with Mortgage Bankers Associations (MBA) projecting housing starts will reach 1.4 million in 2020, up from 1.2 million in 2017. New home sales are expected to increase to a seasonally adjusted 696,000 in 2020, up from 584,000 in 2017. Existing home sales are also expected to increase to nearly 6 million units (seasonally adjusted) in 2020, up from 5.4 million units in 2017.ix

With the rise of home sales, comes an increase in home mortgages. The MBA estimates that home purchase mortgage originations will total $1.2 trillion in 2018, a 7.3% year-over-year increase, and almost double the growth from 2016 to 2017. Further, home prices are expected to continue to rise due to a strong job market, favorable demographic trends, and increasing availability of mortgage credit.x However, high property prices and rising interest rates could price out many potential homebuyers.xi Currently, renters outnumber homeowners in 52 of the 100 largest U.S. cities, based on data from the 2015 U.S. Census.xii Millennial renters especially have had a hard time coming up with the down payment required to purchase a home.xiii

In 2017, global venture capital investment in the real estate technology sector jumped to over $12.6 billion, triple the $4.2 billion investment in 2016. A significant part of this growth was due to Softbank’s $4.4 billion investment in coworking giant WeWork. U.S.-based real estate tech firms accounted for nearly $6.5 billion of venture capital funding in 2017.xiv

Venture Capital Funding in Real Estate Tech


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Competitors

Zeehaus faces competition from multiple companies across its business lines. For services to homeowners, Zeehaus is expected to compete with Point.com. For services to real estate investors, the company’s closest competitors are investments in traditional REIT, online rental investment, and direct buy/sell real estate platforms. Point provides equity sharing for existing homeowners with a mortgage. With respect to online marketplaces in the residential real estate industry, notable competitors include, but are not limited to, LendingHome, Realty Mogul™, and RealtyShares.

Point: Founded in 2015, Point is a platform where homeowners can sell equity in their homes. Point typically buys an equity stake of 10% of the current value of the home in exchange for giving the homeowner cash. When the home is sold or refinanced, Point gets back 10% of home’s value at the time of the transaction as well as greater than 10% share of any appreciation in the home since then. Point also charges a 3% fee of the amount the homeowner receives.xv Point is currently available in select areas of California, Washington, Oregon, Colorado, Georgia, and Massachusetts.xvi In September 2016, Point received $8.4 million in funding led by Andreessen Horowitz to bring total funding to $15.4 million.xvii

LendingHome: LendingHome is a technology platform that serves borrowers looking for financing to purchase or refinance residential real estate properties as well as institutional and individual investors looking for access to high-yield real estate assets. In October 2017, LendingHome announced it had raised $457 million in capital from equity and the launch of LendingHome Opportunity Fund II. The LendingHome Opportunity Fund II will seek to invest solely in residential bridge loans originated by LendingHome.xviii In August 2018, the company announced it had originated over $3 billion in mortgage loans over the past four years, with the last billion generated over just the prior eight months.xix

Realty Mogul: Founded in 2012, Realty Mogul is a real estate crowdfunding platform that provides access to private real estate opportunities for investments as small as $1,000.xx The platform connects investors who want to invest in real estate with real estate companies that need capital (debt or equity). Realty Mogul has raised over $318 million on its platform and has 150,000 investors.xxi The company has raised over $44 million in Series A and B funding rounds led by Sorenson Capital and Canaan Partners, respectively.xxii

RealtyShares: RealtyShares is a real estate crowdfunding platform founded in 2013. The company provides debt and equity to residential and commercial real estate properties. Investments are curated by the company’s underwriters and only 5% of deals are ultimately approved for funding. Investment minimums start at $5,000 and fees are capped at 2% of the invested amount.xxiii As of January 2017, RealtyShares had raised $300 million on its platform.xxiv In September 2017, RealtyShares raised a $28 million series C round with participation from Union Square Ventures, Melo Ventures, and General Catalyst Partners, which brought total funding to $63 million.xxv

Team

Justin Lee, Founder and CEO: Before founding Zeehaus, Justin worked at a data/business intelligence startup in San Francisco. Previously, he spent 15 years in data and system consulting at Accenture, working as an architect and designer in the business intelligence, data analytics, and enterprise resource planning integration. Justin is a licensed real estate agent in California and has experience in system integration and web technology. He holds a Bachelor of Science degree in Electrical Engineering from Cornell University.



Chris Garrett, COO: Chris has a background working in operations and business development roles with SaaS, executive recruiting, and venture capital firms. Previously, he was CEO and co-founder of ICO Masters, a global consulting firm for blockchain technology companies that supported clients scaling businesses and raising capital. As COO of Zeehaus, Chris is responsible for strategic planning, business operations, and business development. He holds a bachelor’s degree in Business Management from Westminster College.



Hila Shpigelman, CMO: Hila has 15 years of marketing experience, starting her career at Brink, a Fortune 500 enterprise, before working with startups. She's also been the CMO at two startups that had successful exits, where she helped build the marketing from the ground up. The most recent company was an apartment marketing tech firm, Modern Message. Hila has an MBA from the University of Manchester and bachelor’s degree in Business and Information Technology from IDC Herzliya.


Endnotes

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