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Founder & CEO of QuantmRE on Fractional Equity Ownership

Expert Interview


 
Matthew Sullivan, Founder & CEO, QuantmRE

Matthew Sullivan

Matthew is the founder and CEO of QuantmRE. He is a serial entrepreneur, author and host of the Hooked On Startups podcast. He worked with Richard Branson’s Corporate Finance Team in the Virgin Group and was a director and trustee of Virgin’s London Air Ambulance.

Matthew went to Westminster School in London, UK and studied Law at Birmingham University before pursuing a career in finance and stockbroking, specializing in the South East Asian markets. In 1997 he founded Europe’s first internet billing application service provider.

Since then he has founded and led companies in the United Kingdom, India, Australia and the United States in the finance, telecommunications, technology, crowdfunding and real estate investment sectors.

Transcript


 

Adam Chapnick:

Hey, everybody. It’s me again. Adam Chapnick, with the Security Token Academy. We’re here in Los Angeles at the Crypto Invest Summit 2018. I’m joined by one of my favorite companies in the last hour. This is CEO Matthew Sullivan of Quantum RE. Thanks so much for joining us.

Matthew Sullivan:

Adam Chapnick, it’s a pleasure to be here.

Adam Chapnick:

Okay, so, I’m a little bit nerding out on this because for many months on the show, I joke around with guests about when are we going to see the opportunity for me to tokenize and divide up my house so that my neighbors can unlock my equity? Now that I’ve met you guys that may be upon us. Am I right?

Matthew Sullivan:

It is. That’s exactly what we do.

Adam Chapnick:

Oh my goodness. I’m just very excited.

Matthew Sullivan:

Shall I tell you more?

Adam Chapnick:

Tell us what is Quantum RE.

Matthew Sullivan:

If you’re a homeowner, Quantum RE allows you to unlock the equity in your home without taking on more debts. What we do is we do that by using cryptocurrency in the blockchain. We are creating a token backed by real estate assets.

The money that we raise from the sale of those security tokens goes into a traditional rate structure that is audited and allows us to buy the equity in your home, which means that you get some cash without having to move out, without having to sell, and most importantly, without having to go back to the bank and borrow more money.

Adam Chapnick:

Incredible. For argument’s sake, I don’t know if I’m using the right terminology, but it becomes like a cap table on my home, where I own most of it and some other either person or group of people own the rest of it in the pie.

Matthew Sullivan:

It’s less complicated than that.

Adam Chapnick:

Oh, even less complicated.

Matthew Sullivan:

There’s no transfer of title, which means that the banks don’t get upset. There’s no acceleration clauses. We don’t insist that we move in and take your spare room. What happens is you sign an option agreement with us, where we share in the potential future increase in the value of your home.

Adam Chapnick:

Got it.

Matthew Sullivan:

That option runs for 30 years, so you’ve got up to 30 years to either sell your home or refinance the option. The way it works is that we agree a percentage of the value of your home and that’s subject to underwriting and we can release up to 30% of the value of your home.

What we then do is we then send an appraiser around and if everything checks out, we write you a check for the amount that you raise. When you sell your home, you pay us back together with a percentage of the increase in value of the home, so that’s how we make our money.

Adam Chapnick:

And in the event that it stays flat or goes down?

Matthew Sullivan:

Because it’s a partnership, we take that risk. Unlike a bank where they take your money come rain or shine.

Adam Chapnick:

That’s right.

Matthew Sullivan:

If your house stays flat, we just get our money back. If it goes down in value, we run the risk of potentially sharing in some of that loss as well.

Adam Chapnick:

Got it.

Matthew Sullivan:

So, it’s a true partnership rather than being debt.

Adam Chapnick:

Amazing. That is definitely ... you guys are the first company that are stepping into the use case that we’ve been talking about.

Matthew Sullivan:

Exactly.

Adam Chapnick:

How long have you been around?

Matthew Sullivan:

We started almost a year ago now. But before that, we had the concept for almost four years. We were looking at how do we tap into fractional equity ownership in people’s homes. The team that we brought on have over 10 years of experience and have originated over a quarter of a billion dollars-worth of this type of asset in the real world. We brought on an incredibly experienced team to deal with the specifics of this esoteric asset class.

Adam Chapnick:

Tremendous. Okay. Does the, for lack of a better word, jurisdiction matter? Does it matter where the house is?

Matthew Sullivan:

It does at the moment. Actually, if you imagine, each state has its own set of regulations around what is essentially a real estate asset. But our team has pretty much jumped through all the fiery hopes in California. California is where ...

Adam Chapnick:

Everything.

Matthew Sullivan:

It’s where 40% of the nation’s equity is.

Adam Chapnick:

Oh my God.

Matthew Sullivan:

There was a report that came out a few weeks ago where there’s over 5 trillion dollars-worth of equity locked up in people’s homes and the only way right now to unlock that is through taking on additional debt. We want to change that. We figure that California’s a nice big place to start. That’s the place where we have all our experience historically.

Adam Chapnick:

Amazing. What phase are you in? Have you launched? Is this pre-launch?

Matthew Sullivan:

We are a few weeks away from launch. We launched our initial NVP, which is our minimum platform, just to show the world, to put our flag in the ground. That was a couple of months ago. But we start offering our security token to the members of the public at the end of November, so literally a few weeks away.

We’re going to start by offering to US accredited investors. But meanwhile, we have our filings busy cooking with the SEC and as soon as they’ve popped out of the oven, which should be some time next year, hopefully, the early part of next year, then we will be able to offer our tokens to accredited and non-accredited investors in the US and beyond.

Adam Chapnick:

Amazing. So how did you decide that this was the space you wanted to be in?

Matthew Sullivan:

It’s something that we’ve been looking at for a number of years. The biggest challenge we had in raising capital for this asset class is it’s not liquid and it’s not cash flowing. Unlike a traditional real estate investment that pays a rental income, we don’t have that benefit, so raising money has always been very difficult.

Having said that, the asset class is a super performing asset class. It’s very distributed and it’s as yet untapped. It’s something that we very much wanted to find a way to get into by using the blockchain and cryptocurrencies we solved the liquidity problem.

By issuing a token that’s backed by those real estate assets, we’re now able to raise capital from a whole range of institutions, family offices and individuals who want to get exposure to US single-family owner occupied real estate.

Adam Chapnick:

Amazing. Okay, so since you are genuinely in the security token industry, like smack dab, what do you see in the coming year, like by the end of 2019 in terms of adoption? Do you think people are still going to be scared and confused? Do you think it’s going to explode where lots of people are jumping into security token issuance or investing? Or somewhere in between?

Matthew Sullivan:

I think it’s going to grow significantly. I think explode is something that we want to avoid.

Adam Chapnick:

Ah, interesting.

Matthew Sullivan:

Because an explosion sort of necessitates the aftermath of the explosion.

Adam Chapnick:

Pullback, yeah.

Matthew Sullivan:

What we want is a slow, no, we want a steady but significant growth. I think we’re going to see that. And the main reason is the regulatory impact of what we’re doing provides some significant comfort to investors, both retail and institutional.

Because you’re offering securities under the umbrella of the various regulatory bodies, whether it be the CRTC or the SEC, that’s a serious undertaking. These guys are obviously not to be trifled with, so I think the understanding if we’re offering security tokens, to be able to do that, there’s a certain amount of comfort that the public get knowing that the SEC is there looking over what we’re doing.

Adam Chapnick:

Great. Thank you so much for sharing with us about Quantum RE.

Matthew Sullivan:

Pleasure.

Adam Chapnick:

You have to come back and tell us how it’s going. You’re neighbors. I think you’re Newport Beach. Is that right?

Matthew Sullivan:

We are indeed, yes.

Adam Chapnick:

And we’re El Segundo. So not terribly far. We’ll have to have you guys back.

Matthew Sullivan:

Thank you very much. It’s been a pleasure.