151. Kingmaking, De-Risking Every Investment & the Future of Real Estate Tech (Brendan Wallace)

Full Ratchet Brendan Wallace

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Brendan Wallace of Fifth Wall Ventures joins Nick to discuss the massive opportunity in real estate tech and how fifth wall can be a startup Kingmaker.ย  In this episode we discuss:

  • how building a fund is different from a startup
  • why fifth wall invests in real estate tech
  • why they take a different approach to workign with LPs and portcos
  • how large corporate LPs get comfortable with threatening tech that can destroy existing asset value
  • Brendan gives an overview of the real estate tech landscape and how it’s segmented
  • why he thinks no other funds are focused on this sector
  • the common demoniator he looks for in startups
  • the concept of the built world and how tech will bridge the gap between physical and digital
  • the most disruptive ideas he’s come across in real estate
  • how the hot trends like AI, AV, robotics and VR/AR will effect the sector
  • and finally, what’s surprised him most since raising fifth wall fund 1

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Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran. And this is the full ratchet

0:22
Welcome back TFR listeners today Brendan Wallace joins us from sunny Southern California. It’s particularly cold and gray day here in Chicago. A great opportunity to give my wife a hard time for convincing me to move out of Santa Barbara seven years ago. Always miss the beach at this time of year. But Brendon is not and he’s here today to discuss real estate tech. In this episode, we cover how building a fund is different from a startup. Why fifth wall invest in real estate tech? Why they take a different approach to working with LPs and port coasts. How large corporate LPS get comfortable with threatening technology that can destroy existing asset values. Brenda gives an overview of the real estate tech landscape and how it’s segmented. Why he thinks no other funds are focused on the sector. The common denominator he looks for in startups, the concept of the built world and how tech will bridge the gap between physical and digital. The most disruptive ideas he’s come across in real estate, how the hot tech trends like aI a V robotics and AR VR will affect the sector. And finally, what surprised him most since raising fifth wall fund one. All that and plenty more in today’s episode. I think Brendan has one of the most compelling investment theses I’ve heard and he has a really insightful way that he d risks every investment he makes. Here’s the interview with Brendan Wallace.

1:57
investment banker turned venture investor Brendan Wallace joins us today from LA Brendan is co founder and managing partner at fifth wall ventures before fifth while he was co founder and CEO of identified that was acquired by workday in 2014 and Co Founder of Cabify the largest ride sharing service in Latin America. Brendan has been an active angel investor and manages one of the largest syndicates on Angel List having led over 60 investments, including bonobos Dollar Shave Club, earnest Phil’s coffee and Zenefits. Prior to his career in tech, Brendan worked at Goldman Sachs and the Blackstone Group with experience doing large real estate deals and private equity transactions. Brendon. It’s a big pleasure. Thanks so much for joining us.

2:41
Thanks for having me excited to be on.

2:43
So you haven’t always been a VC clearly from the bio here. So can you talk about what you did before and why you decided to start a fund?

2:52
Yeah, so my background is probably a little different than a lot of VCs. I’d say my background is kind of a hybridization of both real estate, and tech as an entrepreneur, kind of like like the fund in some respects. So I actually started my career, right out of college, I worked at Goldman Sachs doing real estate, investment banking. And then I worked at Blackstone and real estate, private equity. And I had the good fortune to kind of have my career right during the bull cycle 2004 to 2008. So it’s a really exciting time to be in the real estate world, be in real estate, capital markets, and I learned a lot, but really, that all ended in 2008. And it seemed like a good time to get out of the real estate business. And so I applied to business school ended up going to Stanford. And while at Stanford, I just caught the tech bug. You’re surrounded by entrepreneurs, you’re surrounded by this venture ecosystem. And it was, it was just a really exciting place to be. And in the early days of Facebook platform, me and another classmate built a company called identified. We raised capital right away from actually our professors at Stanford, grew that business raised 35 million as we graduated. And then workday, big public enterprise SAS company acquired us in 2014. So I kind of had a really exciting run as an entrepreneur, really an about face from my earlier career In, in real estate. And I’d also started another company called Cabify, which is today the largest ride sharing service in Latin America. It’s kind of like a Uber of Latin America. So through those experiences, I kind of had this unique vantage point of having had a foot in the real estate industry and a foot in the tech community in the tech world. And I think fifth wall was kind of just an organic creation of that. I think part of it also came Nick from my experience as an angel investor. I had actively invested in a number of companies during that time I was very active on AngelList thing I’ve done about 30 companies on ANGEL The list invested in probably 60 companies total, including like Dollar Shave Club and bonobo Bose, an open door and a number of businesses. And so through that, I think I saw this opportunity where there really wasn’t a venture capital fund focused on a massive category of the US economy, which is real estate and real estate capital markets. And I think that was the genesis for fifth wall.

5:26
Awesome. Can you talk a little bit more about the two startups that you founded and sort of the build process for those startups versus, you know, creating a fund and being an entrepreneur on the investment side? Yeah,

5:37
so there’s, you know, there’s quite a lot of differences, obviously, between building the venture capital fund and building a company. But I would actually argue this more similarities than differences. You know, one of the things you learn as an entrepreneur, certainly, as a young first time entrepreneur, as I did is the importance of team in hiring the right people around you, I was fortunate to have, I think, I’ve been fortunate three times as an entrepreneur now to have exceptional co founders. And I think that’s a critical element in building any new venture. I think also, hiring the right employees, and the right teammates early on, is also really, really critical. Obviously, in a startup, I think I learned that made some mistakes as an entrepreneur, but I learned that on the ground, in my first couple companies, and in VC, you know, you’re you don’t really have a lot of true IP as a as a fund versus a technology business. And so it’s even more critical that you both hire the right people, but also build the right culture and the right systems and the right operational model. And having seen now, a lot of venture capitalists, a lot of venture capitalists, I actually think don’t have that background and don’t have that emphasis on like, how do you really staff an exceptional team to execute your vision as a fund. And it’s much more about individual contributors, Kennedy’s called sub personalities at the general partner level. And so I think what I brought to venture capital, based on my experience, as an entrepreneur, is building an approach to how do you develop talent, investment, talent, and support talent for the portfolio companies in a highly operationalized way. And that was something that Brad and I had been very thoughtful about from the very beginning. And I think it really came from my experience as an entrepreneur.

7:29
Is the focus more on the development side, as opposed to selection? Or do you feel like you have sort of equal emphasis on those people that you choose to bring onto the team as the efforts that you put in after they join?

7:43
You know, it’s a good, it’s a good question. And I think we try to strike a balance, you always want to have, you gotta have a baseline level of competency. And I think, obviously, having the ambition to do what we do, but I think it is important to be able to show to show someone that you can develop very, very quickly think, well, we’ve been fortunate here at fifth walls, we’ve hired investment professionals that are probably on slightly on the younger side of where a lot of funds would hire. And we have a very different investment model and investment mandate than most venture funds. So it’s actually not something that you could take from a generalist fund a typical big Silicon Valley generalist fund. And what I mean by that is, we have this collaborative approach where we collaborate with these large corporate anchor LPS structure port partnerships with our portfolio companies that can rapidly accelerate their growth. And then we invest in those companies sometimes in a pretty structured way to kind of think about our approach is kind of King making, in some sense. And there’s a lot of interested parties, a lot of a lot of kind of consultative work that goes into that both with the portfolio companies, and with our strategic LPs. That’s a quite different set of activities as it relates to investing than a generalist VC does, which is kind of much more ground up, you’re kind of looking closely at the company, looking at the technology, and speculating on what is going to happen in the market, as opposed to making a reality or making an outcome in the market. So as a result, I think we’ve had more success training, younger, really strong investment talent in our model. And I actually think we’d have less success, hiring in frankly, really talented generalist VCs that have been successful in kind of this more, kind of bottom up more speculative way of investing in our mandate and our model. So we actually, I think, emphasize development more as a fund.

9:42
Interesting, so little abstract, tell us more about this Kingmaker sort of methodology. And, you know, what does fifth wall do? What’s the investment focus? How does that work?

9:52
So I mean, just like my background, I would say, we’re a venture capital fund that’s focused on built world technology or or fund is 212 million and about half of that 212 million is strategic real estate capital. So we raised half the capital from the largest owners and operators of real estate in the US and globally. Got it. So one of the reasons I think we saw this opportunity, and it might be helpful just to walk through this is, you know, real estate tech is obviously a massive opportunity within venture simply because real estate is the largest industry in the US, it’s 14% of US GDP. It’s the largest asset class, it’s the largest lending category. And I think everyone knows it’s one of the least technologized. So as an industry, it spends very little as a percentage of industry revenue on it, and just impressionistic Aliy you walk into a building, or you walk into a house, and there’s not a lot of technology, right, it’s a kind of largely under technology space. So when you look at that, we saw a huge opportunity. I mean, clearly, you can see the kind of tides changing. And large real estate companies are hiring CIOs, they’re investing in technology. And they increasingly see technology as a core part of what they do to improve the tenant experience to improve operations to drive energy efficiency. So a lot of kind of macro tailwinds behind behind this investment category. What’s really hard about real estate tech as an investment category is that because there hasn’t been much innovation in real estate, what constitutes true innovation is oftentimes very lightweight, and very simple. So what I mean by that is, things that are just not innovative and say corporate enterprise software, are extremely innovative in real estate technology. And the reason for that is the baseline is zero. The baseline is almost no technology, or very little technology, or some internally developed bespoke technology. So as a result, real estate tech doesn’t have the what I would call the existential risks that you face in a lot of venture investing, that kind of doesn’t work. Is it better than the status quo? Does it have positive ROI? Most ideas, Nick and real estate tech are good ideas. But we’re all the risk hinges is around distribution and go to market. So if you have corporate, you know, brokerage technology focused on the real estate industry, and you don’t sell to CBRE or Cushman, you don’t have brokerage technology, right, everything depends on getting a distribution deal with a small set of major institutional real estate owners and operators, success or failure is distribution driven, driven, versus technology driven. That’s a weird characteristic of this whole real estate venture economy that we saw. And so the approach that fifth wall took is we said, well, what if we could raise half the capital in our fund from the largest owners of real estate technology, largest operators that the the organizations that when they adopt a technology are defining the next generation of winners, and who increasingly recognize this and want to have a hand in shaping the outcomes in the venture economy. So that was really the rationale for half of our capital coming from these large corporates. So what we did this was in early 2016, we systematically broke the real estate universe up into kind of its major food groups, and we tried to raise capital from one of the largest US corporates and retail and industrial and hospitality and multifamily. And so our LPs are CBRE, which is a largest commercial brokerage Prologis, the largest industrial real estate owner winnaar, the largest home builder, equity residential, the largest multifamily owner host hotels, the largest hotel owner, Heinz, one of the largest office developers may search third largest mall owner and Lowe’s home improvement. And so I know they’re long wind up to kind of your your question. But to put a fine point on what we do. We collaborate very closely with our LPs. And we identify situations where they’re looking for a technology solution to a particular need or pain point they have. We look at all the solutions that are in market. We kind of pair that large corporate with the company, we want to be the winning technology, and then we invest in it. So as a result, there’s a lot of parties involved there. And it’s a it’s a more dynamic. It’s a more complicated process than a typical venture deal. But as a result, I think we’ve we’ve been able to de risk our portfolio companies to a great extent.

14:43
So I worked for a large organization previously and part of the challenge we had or I had within that organization is that technology can be seen as a threat or an opportunity, and most often with large asset holders. It’s seen as a threat So how do you how do you manage mitigate that with with DLP set?

15:03
So it’s a great point. And I think everyone knows the stories of corporates who have been slow to recognize disruptive, competitive threats, the blockbusters of the world, and they’ve been deniers, you know, sometimes all the way until their death and demise. I think the what happened with Airbnb in the hospitality industry is a lesson or has been a lesson for a lot of real estate owners. Obviously, the hospitality industry deny that Airbnb was a competitive threat, claim that it was a different market, a different use case, a different product than what they were offering in the hospitality industry. Everyone now knows that’s wrong. It is disruptive, it is competitive. And it has had a negative impact on hotels. The rest of the real estate world looked at that. And they said, I don’t want that to happen to me. And so as they look at other trends, highly disruptive trends that are happening in on demand, self storage, co living, co working, what the growth of we work as a category changes in real estate, capital markets, and the view our corporates take, and it is twofold. One, it’s offensive. It’s how do I obviously find technology that helps me do what I already do better cut costs that have my op X drive more revenue. But another part of it is defensive, and in some ways, almost informational. And it’s how do I stay close to the technologies that are radically changing my industry? How do I get involved in them build influence with them, while the clay is still wet. And I don’t think that stops you from getting disrupted. But I think it can help inform changes you need to make in your business. And I need to give a good example there. So we put together a partnership between Luminar, which is the largest home builder in the US, and frankly a pretty complicated residential organization. They have a mortgage arm, they have a title insurance arm, they have a financing arm, and we paired them with open door. I don’t know if you’re familiar with open door, but open door is a now billion dollar company, it’s a unicorn. They programmatically acquire single family homes, they have automatic valuation models that can price single family homes, in certain zip codes, acquire them, and they resell them. And really what both organizations have aligning them is that they have a shared vision of increasing transparency, and increasing liquidity in the US residential housing market, they want to make it easier and more accessible and more affordable and less painful for us consumer to buy a home. The opposite of that would be say a broker, right? That is doing the opposite. But both share that vision. And we were able to bring them together and structure a pretty broad, multifaceted partnership where winnaar was looking to distribute obviously, its financial products and open door controlling so many home sales was a an avenue to do that. I think the other thing that open door saw and Linaro saw is that open door is transformational. It’s, I’d argue one of the most interesting companies in the tech world irrespective of real estate tech. And when I was like we think this is going to have a fundamental change and how consumers buy and sell homes. We think this platform, this programmatic buying and selling this kind of tool that adds liquidity to an otherwise illiquid market is incredibly transformative in a success state. So we as an organization, it’s not so much that we don’t want to be disrupted. But it’s more that we want to have a hand in shaping that. And we want to have influence with that management team. And we want to be able to support them and have a positive relationship. And we actually see that quite a bit in our LPs. You’re right that it is always hard to drive change management in large organizations. But I think that is changing. And we were thoughtful in who we selected into our LP base. And trying to identify anchor LPS that actually had that grand vision. I

19:06
was just talking with Eric Ries about this. So it’s, it’s great to get your take on on a very similar concept. But, Brendan, can we take a step back for a second? Could you kind of paint the picture or an overview of the real estate tech market at large? You know, what are the major categories? How do you think about segmentations within this the sector that you’re focused on?

19:26
Yeah, so I mean, real estate tech is obviously massive. I guess just some stats behind it. You know, $4 billion of venture capital went into real estate tech alone, another billion to 2 billion went into retail tech, another one to 2 billion went into hospitality tech. And I don’t think we have good stats on construction tech yet. Infrastructure tech, but it’s a lot. It’s a big, big category. So maybe I’ll answer that as it relates to our funds. purview, like where we actually focus our investments. And I think where we focus is threefold. fall in the three big buckets. The first is kind of true b2b or b2b enterprise enterprise and consumer software. So software that makes it easier for consumers to identify apartments to get or easier for landlords to interact with brokers to structure leases on the commercial side. So it’s really just software layer that makes the activities within the real estate economy that are faster, more reliable and more transparent, like true software. Got it. The other big bucket that I think we look at, or what I would call, asset light, or tech enabled real estate concepts. So these are concepts that kind of blend what a real estate company is, and what a tech company is. And I’ll give some examples, I think we work as kind of an example of that they are now a massive landlord, and yet they don’t own a single asset. They have technology layers that support their engagement with tenants, other categories that are increasingly important, there are co living, co living is growing dramatically, and has a lot of the same characteristics as co working on demand self storage. So we invested are big investors in a company called clutter, which is the largest national on demand self storage company. And what they do is they literally show up at your house, pick up the stuff that you would otherwise store at a self storage facility. And they pack it into a warehouse that’s usually far outside the city. And they have massive economies of scale in terms of the cost of what it costs to rent that particular warehouse, the distribution to customers. And frankly, it’s just a more convenient product than using traditional self storage. But when you look at that business, it’s kind of like, is that a real estate company? Or is that a tech company? And the truth is, it’s it’s somewhere in between. And we like companies like that. So that’s category two of kind of asset light real estate companies, tech enabled real estate companies. I think the last big category that our first fund is focused on is real estate related fintech. So real estate, capital markets, both commercial and residential, are the largest capital markets on Earth. They’re larger than the US stock market, it’s larger than the US debt market. And it’s dramatically less transparent, less liquid, less data rich. So improving how assets are bought or sold financed, is critically important and represents a huge opportunity, because the flows of capital are so large. So that’s really kind of where we focus as a fund, I would add, there are some other big buckets that we haven’t really yet focused on, but I think will over time become quite large. One is obviously energy efficiency. So, you know, people talk about energy efficiency, and you know, green tech, real estate is 30% of the US energy industry, and 60% of the US electricity industry. So it is the spot to look to drive a lot of the savings and efficiencies that technologies can render. So really is a real estate tech business, even though it might not call itself one. That is a space we have made some investments in but we’re obviously incredibly excited by. And another interesting one, I think is going to be smart buildings. If you really were to think of or conceptualize real estate as being hardware, right, it’s the actual hardware where some human commercial or social activity takes place. It’s pretty dumb hardware, right, unconnected. And yet, at the small scale our phones, obviously, your computers or tablets have high levels of connectivity. And so a lot of the solutions today are trying to pair the two, how do we leverage our phone to open a door? But in some ways, that’s really a patch. And the really exciting opportunity is how do you turn everything that moves in a building literally everything, every hinge, every doorknob, every turnstile is something that’s smart, something that’s connected, and therefore we’re not just relying on our phone. We’re not just relying on our computers, we’re not relying on a central operating system. But how do you truly connect all the pieces of a building? That opportunity hasn’t even really started yet, or in such early days. But just to put that in context, that is probably not a multibillion dollar opportunity. It’s probably a multi trillion dollar opportunity over decades, every single building around us needs to be retrofitted, and will be retrofitted to become smart. So those are kind of I would say the some of the big buckets to paint a picture of real estate tech as a whole.

24:39
Well, I’m an IoT guy. So you’re speaking my language there. But clearly, the opportunity size is massive. I mean, you’ve laid out the numbers. And we’ve seen a lot of industry focused or sector focused funds out there, but not really in real estate. So you know, with all this low hanging fruit with lots of great ideas for technology to apply to the sector. Why do you think there’s no other VC funds focused on it? I

25:05
think there’s two reasons. It’s a great question. And it’s one we wondered about when we were starting this font are like, are we missing something? Why are why are there more focused venture capital funds on, say education tech, all right, which has produced a fraction, a small fraction of the value of real estate technology. There’s frankly, more funds focused on cannabis technology. And there are real estate technology right now. Yeah. So we were like, why is that? And I think there’s two reasons. One is sociological, there are just not a lot of people in the venture capital world that came from the real estate industry. I don’t know why that is. But it’s just the case, we have yet to meet a general partner at a at a generalist VC fund, who has had meaningful professional experience working in the real estate industry. So part of it is just, there’s not a lot of relationships, there’s not a lot of industry experience, and, you know, acumen around real estate investing in real estate relationships in the venture world. The second, I think, actually comes down to our model, which is, it’s very hard to invest in real estate tech, unless you can de risk distribution, it really is a category of venture that is really wholly and almost solely dependent on distribution deals with big institutional players. So how do you de risk that if you’re a generalist fund, and you don’t have those relationships, so in some ways, the way fifth wall approach this by bringing in large corporates by bringing in the biggest buyers of real estate tech to our fund, was it like an existential solution to how you could realistically invest in this massive category. But I think those are the main reasons. And so, so much of our work is obviously building deep, dynamic, intimate kind of very high touch relationships with our corporate anchor LPs, and then iterating on that, and adding more, and making sure that we can take a young, fast growing technology company, and with great technology distributed massively throughout the real estate ecosystem.

27:18
Amazing. Have you, by chance, heard about Marc Andreessen ins sort of bantering with his father in law, I think his his father in law is a real estate guy. And, of course, Mark clearly is a tech guy, and I guess they have kind of an ongoing debate about whose industry is, is a better one to be in.

27:36
I mean, the truth is, I try one I don’t know about that debate. It’s, it’s certainly a fascinating one. I’d give an interesting example, maybe just to add to that dialogue, if you look at Airbnb, which is clearly an incredibly disruptive hospitality slash real estate concept that has emerged recently. It’s generating in the billions of revenue by charging 7% Commission’s, let’s just say it’s two $3 billion of revenue that Airbnb is generating, that probably means it’s generating net new real estate income by between 4050 $60 billion to homeowners, apartment owners, landlords all throughout the US crazy, if you were, if you were to put a cap rate on that, which is how you value real estate, that probably translates to somewhere between 700 million to a trillion dollars of real estate value. So contrast that right? You have Airbnb, massive, incredibly successful operating business, that is a $30 billion business that has created unto itself close to a trillion dollars of real estate value. That’s obviously fascinating. And I think where some of the big opportunities in our space are, are where the line between a real estate tech company, a real estate company and a tech company blend and merge. Because there’s, there’s just so much hard asset capital that can complement some of these strategies. You know, we worked, just launched a real estate fund alongside we work, I would expect many of the CO living companies to do the same. We facilitated a major credit investment from Luminar in open door. So it’s kind of broader than just the operating companies there’s real hard asset true real estate opportunities that are starting to become complementary to the disruption that’s happening in the real estate venture capital world.

29:33
So Brendan, is there. I mean, as you’re looking at your portfolio, and and maybe even prospective portfolio companies, you know, is there a common denominator across these companies that you’re looking for? I

29:46
mean, we look for situations where we have a unique ability to de risk the outcome. That is really the one common denominator we’re focused on as a fund. We kind of did all this work to bring in large do real estate corporates into a venture fund, which is kind of a new approach a new model to doing venture so to speak. And we look for situations that kind of conform to three criteria for us, which is one situations where we have asymmetric information we know about a partnership decision, or an adoption decision or a distribution deal before anyone else does, you know, our corporate LP is telling us, we’re going to spend 10 $20 million on this particular product over the next three years. So we kind of look for an informational edge, or at least we can influence that. Number two is we we don’t really try to participate in competitive rounds. So a lot of venture funds are kind of in the market waiting for companies to raise their hands and say, I’m raising a Series A or Series B, and it ends up being high price wins, or maybe high price wins. Unless you’re Sequoia or benchmark. We don’t participate. Typically, in competitive rounds, we kind of take a top down approach, where we look at many companies in a space, most of them obviously are interested given our partners and finding a way to work with us, we select one that we want to kind of make the winner, and then we programmatically invest in it. So it would call us a kind of off financing cycle investor, we don’t really wait for financing cycles. And the last criteria is we try to create very aligning structures. So sometimes we’ll tie performance, how much value we deliver to our portfolio companies, to how much capital we can put in. And that tends to create a lot of alignment, obviously, for the entrepreneur, that we’re actually going to deliver value, and it creates upside for us. So the situation’s we’re looking for conform, really, to all three of those. And it’s really important to kind of invest on mandate to us.

31:50
What’s the common entry point? Are you guys entering at sort of a seed stage or series A stage? I know you said, you found off cycle but you know, is there sort of a valuation range,

32:01
I say we kind of invest in the series A Series B, sorry, series A to Series C range, probably with the most deals happening at the series B stage. Part of that is that I think seed is too early. And you know, there’s not enough product market fit, there’s not enough scale, not enough proof points to truly make a big bet for us. Too late, right, it’s very likely that the value we can deliver as a company already has, so we just can’t add enough value. So it’s really companies that are at the series, a stage have some proof point, customers are starting to scale, but want to take their product and get it in front of many different real estate owners really fast. And that’s where we step in. And we will want to invest and to open up our universe of real estate partners to them and try to scale them. That’s our sweet spot. Typically, that means we’re investing anywhere from 5 million to $15 million per deal. Got

33:00
it? Got it. And you had mentioned earlier in the conversation, this concept of the built world all around us. Can you talk more about this concepts, you know, where real estate and tech are meeting and maybe some of the disruptive ideas you’re seeing in built world technology?

33:15
Yeah, I mean, we we developed the concept of built world to be a little more broad than real estate tech. Because where we focus is a fun is a fun is where technology is touching the physical environment, the physical world we live in. A lot of that is real estate tech, a lot of that is you know, hardware and energy efficiency. And it touches on big themes that a lot of people are talking about. So I’ll just give one example that I think might be relevant. You know, when you think about autonomous cars, there’s a lot of talk and a lot of hype about how autonomous cars are going to change the automotive industry, which is in itself a very interesting question. But the US, the US real estate industry, is defined by the automobile, right? And it’s certainly defined by the fact that the average American spends about 40 minutes a day in a car driving to and from work or driving to shop or driving driving to do things. So it defines where bedroom communities are, where, where offices are, where industrial parks are, and if our airports are our entire built environment is conditioned on the fact that we drive here. So in some ways, the changes that autonomous cars will bring to the automotive industry is an interesting question. But they pale in comparison to the changes that the autonomous car will bring to the real estate world. When, when the first automobiles were mass commercialized in the early part of the last century. It more radically changed the real estate world than it did the automotive world and the value created and destroyed in that world was a multiple of what happened in the automotive of industry. So what’s so fascinating and I kind of use that example to highlight that the built world is just such an important, omnipresent part of our lives. And we oftentimes think about technological changes is happening in a device or you know, in a in a computer or in a particular context, like an autonomous car. But it’s the first derivative knock on effects of how that changes the physical world around us that are oftentimes more profound, right? The iPhone, wasn’t the the killer app of the iPhone wasn’t that you can watch movies on your iPhone, it was the killer app was logistics that you could request a car to come to you on demand and take you to wherever you’re going. It was a value out of utility that was happening in the real world, in the built world, not in the digital world. That was so profound about it. And so as we think about the built world, and these big technological paradigm shifts, like virtual reality, and autonomous cars, and augmented reality, I think it’s really interesting to think about how does this change the physical world around us. And that’s really been our focus as a fund.

36:09
A little scary to think about the potential value disruption here as well, you know, the bedroom communities that could go away, you know, overnight after autonomous driving, and who knows autonomous flight eventually comes in.

36:23
And, and to think about what the use case, or what the form factors of cars, how they change, when you don’t have to sit, you know, facing forward with your hands at 10, and two, and what you could actually do in a mobile environment that we never used to think you could so you know, could you sleep in your car? Could you work in your car? Did you ride a stationary bike in your car? Could you eat a meal in your car at a table not facing forward? So I think what’s fascinating about autonomous cars also is a lot of the activities, the basic human activities that we typically associate with taking place in a stationary environment, could very well take place in a mobile environment. And as that changes, then tons of things start to get transformed in the world around us, right? The use cases of retail real estate might radically and forever shift. So yeah, those are ideas. I think that interests us and we want to stay abreast of because every single technological change that happens in a device or in the digital world, has usually a more profound and far larger effect on the physical world around us.

37:34
It’s amazing. Can you talk about some of the investments in the wall portfolio that that you’re excited about?

37:41
Yeah, so we’ve made a number of investments and probably can’t talk through all of them. We’ve made about 14 investments so far, in the first year and a half of operations. So we are investors in open door, which I referenced earlier, it’s kind of a liquidity platform for residential real estate. We’re incredibly excited by a company called VTS, which is leasing and asset management software for the commercial real estate industry. This is an industry that literally does not have true enterprise software, it doesn’t have the Oracles and saps and sales forces within it. And so all of that enterprise software stack is getting built de novo right now and adopted de novo right now, within these large organizations. And VTS is kind of clearly the front one or runner as kind of the true enterprise software stack that supports the commercial real estate industry. We’ve invested in, in digital mortgage lender called ethos, which is really exciting and building as a cheap direct to consumer alternative to traditional mortgage finance. We’ve invested in a title insurance company called states title that has built a cheaper, just more efficient alternative to title insurance, just kind of this archaic, offline industry. We invested in clutter two, which is a on demand self storage company. They’re the largest kind of nationwide and what they do is pick up your stuff and store it remotely. We’ve invested in convene, which is kind of like a hospitality concept that supports tenants within a building so kind of renders a building. It gives a building we work like amenities to its existing tenants flexible workspace, flexible event space, and just a level of amortization that you couldn’t replicate in your own office and drives more retention and stickiness for tenants of that building. That’s a decent cross section of I think the companies that we’re investing in. super

39:42
interesting. So you know, what, what didn’t we cover related to real estate tech and or, you know, what, what surprised you since since starting the fund.

39:52
I think one of the things that surprised me, and I kind of talked about this earlier is that building a venture capital fund When Brad and I built this, it wasn’t, it wasn’t all that different than building a operating business. And I think that’s actually a really original approach to building a venture fund. And I had the benefit of building it obviously, very early in my career and with experience as an entrepreneur, but one of the key things we focused on was just as you would any business you’re building, how do you build something unique and defensible? The business of investing is hard, because you’re selling something that’s inherently commoditized, you’re selling capital. And I think increasingly that is a struggle for generalist funds is they’re all competing, they’re selling the same thing. And they clearly add value to their portfolio companies. But that value is not so differentiated. And so what we’ve really focused on is, where is our value differentiated? How do we carve out our space of the venture ecosystem? And how do we deliver outsized, exceptional defensible value to our portfolio companies? And I think that’s just a lesson, right? Of being an entrepreneur, which is like, how do you constantly try to drive more and more defensibility more barriers to entry to support your your core thesis? That’s been something that was surprising to me how little that’s focused on in the venture world.

41:21
So Brendan, if we could cover any topic here on the program, or have any guest? What topic do you think should be addressed? And who would you like to hear speak about it?

41:30
So I would strongly encourage you to chat with Eric Wu at open door. I just truly think it’s one of the most transformative companies in all of tech, solving a problem and an area in the investment world that is just so grand. The reason I say that is nothing changes consumers, financial lives more than making it easier and more transparent to buy a home. Buying a home is the single biggest financial decision anyone makes in their lives. It’s the largest store of consumer wealth. And it is to anyone who’s ever bought a home, it is incredibly painful and inefficient, and archaic, and open doors philosophy, and how they’re approaching it is, I just think beyond fascinating. And it’s fascinating in its own right. But it’s fascinating in terms of like, the implications for what that can do to US consumer behavior and the US economy. Because those changes are just so profound, and how they can impact people’s lives. So I would, I would encourage you to chat with him, I think it’d be a great conversation for your podcast, love it.

42:36
Even on the sell side, it’s tough, you know, I went through the painful process of buying a home and then I went through the painful process of of selling a home. And fortunately, I ended up getting what I wanted for it, but had to sit on it for quite a few months to reach that point.

42:53
And I think you’re exactly right. And that’s actually where Open Door started, is they started by making it really easy to sell your home. That was the go to market was, you can get out kinda like the way you sell a car on Carmax, right? You don’t have to haggle, you go in, get rid of your car, get a fair price, you walk out and you trust that they’re not ripping you off. That is very powerful. Nothing like that exists in residential real estate. There’s no one you can turn to where you can trust that you’re getting a fair deal fast on your home. And if you did, how would that change consumer behavior around home buying and this huge purchase they’re making with their lives and their financial future and their families? It’s it’s just a really profound I think, interesting question.

43:38
Love the fifth wall focus this. One example of many of the opportunity sizing your segment. But Brendon, what what investor has influenced you most? And why?

43:50
It’s good question. I’d say Antonio Gracias, who is the founder of a fund called valor. They’re pretty broad fund in their mandate, they invest in venture, they invest in operating companies. But the thing I learned from Antonio, and one saboteur who’s there as well, is they built such a differentiated model. Their model is different than ours. They’re focused on going really deep into companies and helping them improve operational efficiency and improve their teams. And they literally send people out to factories to help support their portfolios, their portfolio companies, and that model and that differentiation, it resonates so much with entrepreneurs. And when I looked at that, I think we borrowed a lot of that positioning in a different way for fifth wall. And we sought to say, well, how can we build a differentiated advantage that entrepreneurs want as well? And we did it with more of a vertical focus focused on real estate but he’s an exceptional entrepreneur. There. are investments that are in SpaceX. They’re in Tesla, they were deeply involved in the turnaround in Tesla and the very early days. They are just an exceptional exceptional fund.

45:09
And then finally, what’s the best way for listeners to connect with you?

45:14
Best way to connect with me is to send me an email. My email is Brendan, b, r e, n d am at fifth wall, that VC. And obviously just, you know, make it clear what what the company is and important also make it clear how we could be strategic. We don’t speculate. We don’t just invest in anything real estate Tech, we only invest in companies where we see a unique ability to influence the outcome. So I would encourage entrepreneurs to just make that clear in the Outreach. Well,

45:45
Brendon, thanks so much for spending the time with us today. I appreciate your patience with the the tech issues on the phone call here. It’s confounding how we, this Skype technology thing still still fails us at times. But I appreciate the patience and that thanks so much for sharing your thoughts today.

46:02
Of course, yeah. Take care.

46:10
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot him an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening