The following letter was written and shared by Haniel Lynn, former Group President of CEB (NYSE: CEB) and current member of the Board of Directors of Rise Companies.
Our society seems to be in a constant conversation about alignment these days.
The alignment of the sun and the moon in the August solar eclipse. The alignment of business and social interests for tech and social media companies. The alignment between political factions of the US government, attempting to join together to get things (anything) done.
As luck would have it, my joining the Fundrise Board this year was in many ways an incredible (and very opportune) instance of alignment: a unique intersection of my personal perspective, my belief in Fundrise’s business opportunity, and, ultimately, my trust in the leaders of the company. When Ben, a talented entrepreneur whom I’ve known for many years, asked me to join the Fundrise board, the decision to sign up was an easy one.
Let me state explicitly what you might already be thinking: I don’t match the profile of an ideal Fundrise investor — the company wasn’t made to serve customers like me. I’ve been fortunate enough to have had privileged access to a broad range of investment vehicles, which have helped my portfolio perform (maybe slightly) better than the average investor’s.
However, I don’t believe there is anything intrinsic to my personal situation that should grant me better exposure to these investments. Yes, I’m an accredited investor. The accredited investor restrictions have existed ostensibly to ensure some kind of guardrail, to protect potential investors from risk. To be clear though, a wealthy investor doesn’t make for a more sophisticated one. Broadening opportunities to invest, or “democratizing access,” as Ben has talked about extensively, and providing higher returns to the mass market feel to me like forces for good that can benefit both investors and those seeking investment.
There are certainly still regulatory protections that help shield the average investor from betting beyond their means. But now Fundrise has shifted the choice to investors themselves, rather than keep some investment decisions—and opportunities for returns—out of their reach. Leveling the playing field for all classes of investors is a very resonant idea for me. Of course, beyond serving the cause of democratization, a company that sets out to meet a fundamentally unaddressed need also can capture outsized business returns, because of their ability to create disruption and business opportunity.
Disruption and Business Opportunity
Across my work, I’ve naturally been in close proximity to a range of business models, which has taught me one key thing: premium access to a market segment isn’t a sustainable business model.
When an artificial line separates the ability for one segment (a class of investors, in this case) to have privileged access to a certain product (again, here, investments that yield higher returns in commercial real estate), the underlying business system feels ripe for disruption. Clayton Christensen, a Harvard Business School professor, coined the term “disruption” in The Innovator’s Dilemma. A disruptive product addresses a market that previously couldn’t be served, often times by attacking the low end of the market that had proven too expensive or too unsophisticated to serve.
On a related note, my former company, CEB, now Gartner, has written about challenges facing firms whose growth stalls because they’re held captive to their high-end segments and premium products (a position that CEB calls “premium position captivity”).
Firms that aren’t able to respond effectively to new, low-cost competitors face dire consequences.
In the 1980’s, you had to call your stockbroker to buy shares on the public markets, and pay them sizable fees just for taking your order. Disruptors like E-Trade redefined the game by providing retail investors with direct access to data and information and the ability to trade on their own. Disruption often happens when firms aren’t proactive enough to attack fundamental shifts in their markets or to take advantage of technological changes to continue to win. Fundrise has already been responsible for fundamental disruption in the real estate market and the potential enormous impact lies ahead.
Trust in Leadership
On some level, a board member’s ability to work with a company’s teams and executives is founded on something infinitely personal. Building a business for the long run and tackling thorny strategic and operational issues require deep reserves of trust — trust that the executives will “do the right thing” to be successful.
Real estate and financial investment firms are fraught with risk and, sometimes, suffer from misaligned incentives between their leadership and their customers. I’ve known Ben for a long time and trust that he will effectively lead his team to build a strong company that serves the market and its future well. I certainly can’t guarantee that Ben and Fundrise will make the right decision every time, but I believe in his capabilities and his ethics well enough to know that at least this one, very important dimension of business risk is well under control. The business world is challenging enough as it is and this gives me confidence as much as anything in the future of Fundrise to participate as a board member.
As we have seen recently, around the world, alignment doesn’t come easily. But when everything falls into place, great things can — and do — happen. It is my privilege to join Ben and the rest of the Fundrise board to help change and disrupt the real estate funding market, while creating a better investment mechanism for investors and real estate developers alike.