Proptech: Investing in Rent-tech Startups - With John Helm.

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And today's a guest speaker, we'll have John help manager director at real estate technology Ventures.

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And in these episode we'll talk about real estate investing prob tech and specifically how real estate technology Ventures invest because the focus on a very specific niche of prop tech.

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And also we're going to touch onto the changes that happened in the past 20 years, because Jeff John has worked in these fields for over 20 years. And also John built to his own companies and sold both of them.

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So, we're going to talk about that as well. So, John, let's kick it off by giving us some background on yourself and on real estate technology Ventures.

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Yeah, sure. So hello everyone. Thanks for having me I would, I guess, get started by.

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Saying, I've been in this business a very long time.

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Let's see, I became a real estate tech entrepreneur, almost by accident. I was CFO of a commercial real estate brokers company called Marcus Miller chap back in 96.

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and that hired me after I'd been at Mackenzie for about 6 years and it just so happened that that was.

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In the middle of the dot com, the 1st dot com, boom in the late ninety's, our corporate office was in.

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Palo Alto and we saw the.

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All these businesses going online, and if everyone remembers the 1st business is to go online back then, or.

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Classifieds right make sense, right. To put a relational database of jobs or homes, or or cars or in our case apartments online and.

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We saw that happening and thought that we could do that, too, given that we.

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We knew who all the owners the apartment buildings were, and then actually.

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Worked with many of them so we actually launched 1 of the 1st department dialysis at spun it out a year later. It was backed by.

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Kleiner Perkins, and ever since then I've been in real estate tech so yeah, I guess about 25 years now.

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Nice I did. I did 2 venture back startups. The 1st, 1, as I mentioned, we spun out of Marcus Millichap and then the 2nd, 1.

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I did that was purely venture back started, started up from scratch in about 2005.

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Sold that in 2011, and then, I think like many B, c's.

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Switched from being a player to coach and made the transition over to venture capital.

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Initially in Europe of all places for 4 years. So, after I sold my 2nd company, I moved to.

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Germany, and lived in Munich and worked as a venture partner for a very active early stage fund in London called the capital.

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And did about 13 deals with them, and then when I was moving back to the US.

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I started looking at opportunities. This would have been 2016 and I always had in the back of my mind launching a.

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A real estate tech really rent tech oriented fund given my background in the industry having done 2 start ups in the industry. And I'd seen 1st hand.

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The value of having strategic investors involved in the company. My 2nd company, I actually had 2 large multi family rates 6 and and 2 very large private.

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Apartment owners and Blaine company, and I saw 1st hand the value of having those guys on my cap table and involved in my business. Quite honestly, I also saw some of the negatives right?

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When you're when you're discussing margins and pricing.

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And how much money you're making off your customers in your boardroom and and your customer sitting right there sometimes it's the conversation give you a little awkward. So so.

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And I always thought the best way to.

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To handle that was to have a venture capital fund that was backed by all of the.

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Customers, but with the fund acting as kind of a honest broker, slash intermediary between the customers and the entrepreneur, and I had.

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I had a meeting of minds with the CEOs of.

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My to my investors, the of of, and that's how we got real estate technology ventures off the ground.

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Yes, so while coughing there, I thought I'm using myself and apparently I missed the button. So yes, I do not have code by the way. Great background. Absolutely.

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Love it super reach Super fun story of getting into this, and the most important part over 20 years in the field. That's super interesting. And we're definitely going to get back to us in just a few questions.

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But 1st question is going to be, you've managed to sell both of the companies that you've started may like, 100% success rate. What do you think allows you to get to that? Such a great success rate there.

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Well, luck always plays a huge.

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A huge factor in timing. All right. I think both.

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Underestimated by people, but I, I guess.

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You know, it's at the end of the day.

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You know, especially, I think, in real estate, real estate technology businesses come down to execution.

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Uh, you know, the technology that's being deployed often in in real estate tech.

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Has been deployed in other industries it's.

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It's been out there a while, so I wouldn't.

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Yeah, I wouldn't say I came up with this brilliant idea that no 1 else had and was able to patent it and build a big business around it. It was actually more a function of okay.

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I, you know, I saw it and my 1st company with my Co founder, we saw an opportunity.

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We saw how other people were doing it. We thought we could, we could do it better.

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And we just started building a business and in this industry, I think.

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Building up a customer base and knowing how to sell into the industry.

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And driving penetration of that customer base is really the key skill, at least in the family.

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100% yeah, I completely agree with you. Luck and timing. That's honestly the 2 major components of pretty much every single start founder who managed to sell their business the 100% agreed and.

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Agreeing on the idea process as well, you know, whenever you think of some idea, you're like, oh, shoot, I patent this idea and most likely I mean, come on this idea already existed. Like, 4 other people came up with it. So.

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Just go for its education is the key pretty much every single time in every field not just prompting so yeah 100% think right here.

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So let's talk about being the 1st time preparatory, especially in the earlier days when there was no, I see no information out there.

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No, podcast fundraising radio where you had to go through the complete darkness, can you tell us a little bit more about that experience? And how does it feel to be the 1st, entrepreneur?

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In the dot com bubble basically. Yeah, well, we, you know.

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We had it in some ways better than a lot of the early on experiments. Right? We were a corporate spin out.

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So, I would see of a large.

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Private company and was able to collect my paycheck and my salary while incubating this this business internally we,

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we actually hired another individual to be president and then when we spun it out,

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I stepped down to be the full time.

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So,

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for me,

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it was it was pretty seamless now that the adverse side of that is,

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of course,

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since it was a corporate spin out,

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I didn't own the company or even a significant chunk of the company entrepreneurs that,

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at the time were quite literally working out of their garages and running up there.

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Their credit card bills and working for no pay.

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So, I had that that going for me, and it was a, it was kind of an easy way to ease into being an entrepreneur because I had the whole support network of a large company behind me for really the 1st year that we were doing it.

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So, I'm probably not your best example of the early stage guys that were starting companies during the initial days the dot com bubble. I certainly saw it all around me.

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All right and those guys were the real pioneers.

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That's for sure. That's for sure. And, I mean, a lot of them had a great success so prop to them for going through all those hardships to get to eventual success. How bout the 2nd, time you started a company? What do you think was the major mistake there? So, you know, looking back at that story.

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Nearly 20 years ago, what do you think were the, let's say 3 major mistakes that you have made there while starting your own company.

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Yeah, I mean, I can give you the, that across both companies right? I mean, when we spun out, we were still very small. It was the dot com bubble things. So things were measured in dog years. It seems back then but yeah, I think.

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I think since since the title of this is fundraising radio, all.

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Yeah, I'll speak to fundraising, right? You didn't make a lot of mistakes in fundraising.

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So I'll, I'll pull up the a few of the many mistakes I made in fundraising, because I think that's much for the 1st would be everybody.

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And I did this as well. Right? You get so excited when you're when you're out trying to raise money the 1st time that.

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The 1st, good term sheet you get from, you know, a good name D. C. you jump on it and you're off to the races.

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And I've seen this both as an entrepreneur, and now as a B. C that.

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You know, a lot of entrepreneurs don't do a lot of diligence on the people that are investing in their company.

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Yeah, when when we make an investment, we do a ton of reference checking and diligence on the CEO.

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But I can't tell you how many just go for the highest offer.

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Grabbed the term sheet and go and you know that the initial investors that you bring into your business can really.

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Shape the direction of your company and have a huge impact on how you run the company and then ultimately, you know, how things work out for you. So, yeah, I would say 1 of the.

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1 of the biggest lessons I learned, and I applied it for my 1st company and my 2nd company was trying to make sure that I got.

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A group of like, minded investors in my boardroom that I could work with.

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And, you know, for example, in my 2nd company.

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My a round was led by attorney Ventures and there's a partner there named no Fenton who.

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God, he's been there I think he started the firm.

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Maybe 40 years ago, 35 years and and that was after he had taken a company public.

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Right so he, he's, he was very experienced, but more importantly, he I knew he was somebody I could work with somebody that I could I could use as a mentor, and that kind of goes to the 2nd mistake. Right?

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You got to remember at the end of the day that the guy's giving you money, they'll.

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Yeah, they'll all say that they're, they're there for you and you can talk to them about anything and but at the end of the day you got to remember they're still your investors and so you may not want to talk to them about everything. Yep.

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And, but having guys that at least you're, you're comfortable with and note that have your back and can work with you, especially when times aren't going well, is really important. And so.

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Well, I guess that that's all wrapped up in a lesson of.

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Do the diligence on the people giving you money?

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If you are in the position that you've got multiple parties looking to back you and I know everyone often isn't in that situation.

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Really, you know, don't don't place valuation at the top of the stack.

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Uh, place at the top of the list who do you think you can work with? Because that's going to matter much more in the long run and I've sacrifice valuation to work with the right person.

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Nice so that was not I think you've made are there any like, particular mistakes, you know, like.

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Looking back at its will experience that you gain recently with the experience of when we see that you are right now looking back at something you've done there, you're like, oh, gee, that's just real bad. Anything like that.

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Yeah, well and I'm sure other speakers and talk to this, right?

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It especially in early company, right?

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People and culture is just critical and yeah, there's the old adage quick to fire and slow to higher right or slow at a higher click to fire every time.

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And I've learned this the hard way. Right? Every time I've, I've had.

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Somebody on my team, that kind of just.

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Didn't sit right with me, right? And I.

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And I thought this just really isn't working. This person isn't working out and I, and early on I've invested a lot of effort early in my career. Well, I got to make them work. I got to invest effort and time and then.

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As, as I became more experienced, I realized that.

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You just got to move on, right? It's it's 1 of the hard. I think it's 1 of the hardest lessons to learn as an entrepreneur is sometimes you, you actually make a mistake in hiring somebody.

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And you're doing yourself a favor and them a favor by just ending that relationship and moving on. And often when you do it.

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The whole organization around chief relief and says, oh, my God time he figured this 1 out, you know.

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I'm so glad that person is no longer here. So I would, you know, what I would say is.

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Um, when it comes to people.

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You really got to be disciplined about if things aren't moving out, cut the cord and move on more quickly. I think that a lot of people are.

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Are really willing to do.

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Right here, I'm imagining that firing people is super hard gone through the process a few times myself and it's horrible. Absolutely horrible. You're like, okay, well, I've hired this person myself.

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I was the 1 choosing them, you know, and now I have to say that they're not actually as great as I thought. It's tough. It's tough, but yeah, usually when you fire them that.

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There is the relief and the whole team and so yeah, totally agree with you here. You're the last 1 to know.

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Yeah, that's the whole team is, is wondering when it's gonna happen, you know, you're usually the last person. Yep. Yep. That's true. As well.

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Yeah, 100% agree on that topic. Uh, absolutely. So, yeah, now, let's talk about the massive experience that you had in these 3rd world.

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So, you've been working there for over 20 years, nearly 25 years, as you said, what is the major changes that you see in the startup world that to cover that to place in this time period.

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Well, I think you hit on it earlier.

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I would say that the biggest change is infrastructure and I would, I would.

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Categorize that in multiple dimensions, right? Back in the 1st dot com bubble and things were just getting going.

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The whole venture capital ecosystem was certainly there.

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But it wasn't nearly as robust as it is today. And technology was very different. I mean, I, I don't think people realize just how easy it is today.

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To get to an MVP and stand up a business, right? It.

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You can for for 1, there's there's a ton of open source software and code out there for people to leverage.

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And number 2, a huge thing that people really don't think about is cloud computing. Right? I mean, we've got Amazon Web services now when we did our 1st company.

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We were buying sandboxes for 250,000 dollars a pop.

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And we had to run a cage down in a, you know.

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A data center, and my, my poor head of technology was down there at 3 in the morning, hooking up boxes, because you didn't want to bring your your website down in the middle of the day to do any of that.

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Right so,

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and so the amount of money we spent on on just the technology infrastructure back,

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then,

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which was millions of dollars just to get a company up and running and launched,

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you just don't have to spend that money anymore.

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Right? Just open up an account on Amazon Web services, and you're off to the races. So when I look at my 1st company, we had.

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Yeah, we had our tech team and a big part of our tech team was the op side.

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The guys running the physical infrastructure. Well, companies just don't even have that anymore. Right? You don't need that 1 guy.

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And a help desk to to keep Outlook or or Microsoft Office running, or whatever you got it going, but but back then, right we had to maintain our entire infrastructure.

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You know, we were writing stuff basically from scratch and Java.

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And so that's probably the single, biggest change from a technology perspective. And so what that's done up from a venture capital perspective.

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Is it's moved all arounds forward right?

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Yeah, company used to have to raise millions of dollars just to get off the ground. Now, you can do that with a few 100,000 dollars in angel money.

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Yeah,

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100% I mean,

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there are so many no Co tools that even I,

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the person who actually who's not great with tag,

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who has no idea how coding works even I can do an MVP basically,

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I've actually done 1 of myself,

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so yes,

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people,

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if you're not familiar with the no code tag.

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Definitely. Google. No code tools. Uh, there is the 1 that's just super simple. I think it's cool. Bubble.

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Yeah, bubble ball. Definitely. That's the 1. so yeah. Check it out. If you need an MVP just check it out on bubble. I'm pretty sure you are going to be able to Bill yourself and not have to spend millions and millions of dollars.

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Like, John had to do in the in the old days, so check it out. Hopefully you're not going to spend so much money on the MVP, because that's on the necessary in 2021. so now let's move on to the guarantees, John.

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You are working in funds, real estate technology Ventures and I believe in our preinterview, you mentioned that you're investigating a very, very specific niche in prop that came tell us a little more about that.

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Yeah, sure. So we are focused on what we call, which is the technology is to run a rental real estate portfolio and.

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Yeah, within real estate, right? Everybody usually breaks real estate up into 2.

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Primary asset classes residential I E.

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You know, for sale homes and then commercial.

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Which is an office industrial and multi family has been traditionally lumped in with commercial. But multi family really is its own.

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Unique asset classes quite large. Roughly a 3rd of the U.

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S population lives in some form of a round property, whether it's a large apartment building, a small duplex, or a single family home, roughly over or over 40Million households.

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And within that group.

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There's on the apartment side, you know, 2628Million, depending upon how you define it.

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Apartments in the US, and then within that chunk, you've got roughly a little over half of that.

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Is what we would call the institutional marketer that, you know, the large.

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You know, 23400unitproperties that everybody sees that are owned largely by institutional investors.

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And, you know, it's a big market. It's, it's increasingly sophisticated.

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And when you're running a big 3400unitapartment building.

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There's quite a bit of technology increasingly.

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Being leveraged to run that building very efficiently and so we're investing in technology that.

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Effectively enables the the more.

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Efficient operation of those properties and increasingly, and I'm sure you've seen this right? The single family rental space running homes.

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Is also becoming institutionalized and leveraging technology much more than in the past. So you have companies like invitation homes who's in our fund?

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They're managing over 90,000 single family homes, spread across the US and.

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To to do that, they really have to leverage.

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Uh, technology and so we're investing in technology that helps them as well. And a lot of the technologies use the same, whether it's a big apartment building.

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Or I distributed a group of single family homes.

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And so our fund is, I think relatively.

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Unique even among what what people call prop tech funds.

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And by that, I mean, we're all the other pop tech funds are focused on real estate.

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In general, so they might invest in technology for office buildings, or industrial properties, or retail malls or single home sales right title companies, things like that.

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And also technology for apartment buildings and they might have a handful of limited partners spread across all those asset classes.

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Our fund has over 40 limited partners across our funds 1 into that own and operate over 2,000,000.

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Apartment units in the US and.

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Our entire group is comprised of owner operator managers of some kind of rental property.

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So, we, we like to think that we've got a much closer.

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Pulse on that market and can obviously.

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Help the companies we invest in to a much greater degree, given that we've got basically a predefined group of potential customers in our fund that represents maybe.

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16th 17th of the entire institutionally on market in the US.

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This isn't saying this is absolutely great. And this is exactly why I like niche focus so much. And by the way I just spoke with a company that.

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Maybe you've heard of them rent, check.

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You check? No, we haven't come across them yet.

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All right, I'll follow up with you after the call, so you can definitely you absolutely have to take a look at them. Think you're going to love them. Absolutely. Great fit there. Now, we've covered that. Let's talk just a little more about product and specifically.

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What do you think is the major trend that's going on in prob tech industry average we had quite a few investors in this field, but never ask them this question. So, what do you think is the major thing that's coming up in prop tech?

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Well, we think about the industry and themes, right? I'll restrict my, my, my answers to.

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What we call rent tech right? Since that's that's where we're specialized and that's what we're focused on. And I would say 1 of the.

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1 of the things right now that we're aggressively pursuing is this concept of self policing or self service lacing.

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Right. Renting an apartment in the U. S. is still very time consuming difficult often, laborious process both for the renter and for the for the property owner.

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You can't just go online and rent an apartment like, for example, you can book a hotel room or increasingly, you know, buy a car. It seems.

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And we've been investing in a series of companies that when integrated when the technologies are integrated, allow you to rent an apartment.

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Without ever having to kind of go in to an office.

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And deal with people and and do lots of paperwork and especially in this coban environment.

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Right. That's been a huge plus in the companies that we're fairly far down this path. When cobit.

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Were able to keep up leasing velocity and keep their buildings rented.

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Even though they had to close their leasing offices, and they couldn't, they couldn't meet tenants face to face in the property. So specifically, you know, what am I talking about? I'm talking about.

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Advanced products that leverage, perhaps chatbox and ways to communicate with a.

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You know, and chat bots way to communicate with the renter.

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When there's a human, not involved that allow the the property to track that runner and then engage with that the prospective runner and get them to the point where they're ready to take a tour of the property.

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And then when you get him to that point.

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If you're not meeting them on site and there's no 1 there to check them and check their ID. Obviously you want to make sure you're letting somebody on to your property.

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Where, you know who they are so, for example, we invested in another company called checkpoint ID that validates the person's driver's license.

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And they can do that in person or online, and when they do it online, the person takes a photo of themselves selfie. And then also the front and back of their driver's license and they can.

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Facial recognition software make sure it's, you know, that person who they say they are, and then paying the databases to make sure that's a valid ID. Once you verify who it is.

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The person that needs to show up to tour the property.

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And that's where another company we invested in called smart rent, comes in.

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And they have a full smart apartment kind of package, which includes most importantly access control at the front of the building. And then also in the units.

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And the systems are now so sophisticated it's really cool to actually have an intercom panel.

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Where the person can walk up and the camera can read their face.

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And, you know, the system that says a hot, this is the person whose ID, we just validated. It's the same face. They're here for their 4 o'clock tour, because the software told us, they were coming.

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And I'm going to give them access to the building, but then only give them access to these 3 units. And I'm only going to allow the elevator to stop on those floors where the and.

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And then that allows the prospect to tour the property on their own.

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The system reports back well, maybe the person spent 10 minutes a unit 1 or 2.

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But only spent 2 minutes in 301, right? So they get some information on where the person was in the building, what they did and then.

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And that that access is only allowed when they've got their tour scheduled.

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So, it's very secure and interestingly, we have actually seen in some cases, like, in single family.

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Where this technology was really pioneered, because if you're if you're managing a couple of 1000 homes around Phoenix, Arizona, it's logistically very difficult and and exposed to a leasing agent out to meet people. Right?

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So, you single family guys invitation homes had to do this on a necessity and a single family guys have found that the close rates are actually higher when there's not a.

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Leasing person present, right because people and I don't know about you, but whenever I buy a house, I don't want the realtor following me around the house. Right I don't want to explore my own time and my own pace and renters are the same way.

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So, that technology enables that.

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So, it's, it's a better experience for the prospect, and the building owner saving time and money. Right? They don't have to have a person meet that person. And during cobit, they couldn't do that.

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And then when the person is ready to sign a lease, we've got another portfolio company.

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Called a funnel that has all the online leasing capability sales funnel. Right? Software makes sense. And they can get that lease executed completely online.

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Nice, I love how you cover the entire process and yes, I mean, I'm gency I do not like to interact with people when it's not necessary, so yeah, I'm 100% bind into the idea love it. Absolutely. Love it.

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So, now that we've covered all of that, the trends as well and what you guys specifically are investing in moving on to the very last question after days. So.

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Call to action, John what do you want to Lisa had to do it as soon as the episode is over.

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I'm sorry say that again what do you want to send to do as soon as that? Because I was over.

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Well, for all those would be entrepreneurs if you're if you're starting a business that touches our industry, we'd be happy to talk to you. You know, we, we will talk to anyone's.

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That's got a company that's in our space right? That's 1 of the beauties of having a focus specialized fund is, is we're happy to talk to everybody. Even if it's not at a stage.

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Where we would invest, we're primarily.

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What we call seed plus in a round investor so we like to invest in companies that have a product out in the market.

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And is producing revenues and has customers. Typically, we like to see at least about.

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50 to 100,000, in our monthly revenues and companies at that stage, we think are at the perfect point where.

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We have something that we can show our limited partners. Right? Who are the potential customers? Get their feedback find out if it's something they think they would be interested in deploying within their portfolios and obviously.

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If we get positive feedback, that's that's great. Due diligence for us and makes it much more likely. We're going to make an investment.

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Nice love it. Great quotation. I'll make sure to leave links to both LinkedIn of John, and also to the website of real estate technology Ventures. So people, if you're in contact definitely check it out.

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Look at their website to I'm pretty sure there was a bunch of information there so check it out and also leave a link to another episode on prop tech.

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So, if you want to learn more about product, if you want to hear another episode on, that, definitely check out the description of this episode, and as usually have a good day.