276. How COVID Has Instigated a Massive Demographic Reshuffling, Accelerating the Transformation of Retail, and Why Real Estate Will Become the Largest Consumer of Climate Tech (Brendan Wallace)

Brendan Wallace of Fifth Wall joins Nick to discuss How COVID Has Instigated a Massive Demographic Reshuffling, Accelerating the Transformation of Retail, and Why Real Estate Will Become the Largest Consumer of Climate Tech. In this episode, we cover:

The world becomes more flat over time, and w/ mobility tech, like Uber and others, the distance between points shortens over time, which all fundamentally disrupts urban planning of the cities themselves but also the suburbs and beyond… now we’re in a situation where a wild card factor comes into play… this pandemic… that has altered how people live and work more fundamentally than ever expected?
First off… trends where you will deploy dollars?
Do we go back to a primarily in-office environment post-covid? why or why not?
Have you seen more value creation or more value destruction, in real estate, from the pandemic?
What strategies will cities implement to stay competitive post-covid?
We have a new administration in office… How do you think this affects real estate and your strategy at Fifth Wall?
Climate issues and the net carbon effect of construction on the planet… is technology the primary solution to these issues, or is it even more basic than that?
Financial side or real estate, construction and AEC side, there’s the post-construction in-service opportunities/retrofits for buildings whether residential, commercial or industrial… what part are you spending the most time in and do you feel there’s the biggest gap between current state and desired state?
What are the most common mistakes founders make when building in this sector?

Guest Links:

Transcribed with AI:

0:00
Brendan Wallace is back with us today from LA. He is the co founder and managing partner of fifth wall, the largest venture capital firm focused on technologies for the real estate industry. Prior to starting fifth wall, he co founded cabify. And he co founded cabify and co founded identified which was acquired by workday in 2014. Brendon, welcome back to the show.

0:22
Thank you for having me. Yeah, so

0:23
I saw you the public news of your SPAC but I hear you can’t talk about it.

0:29
Unfortunately, no, I’m not not talking about that right now. bomber brutal.

0:35
Well, you know, it’s, uh, I think it’s been since December of 2017. Since we last had you on the show. good place to start, maybe bring us up to speed on the firm, you know, fifth wall over the past few years.

0:48
Yeah. So you know, we spoke was when we launched, it was first one or $212 million fund. And I think as we discussed, the conceptualization of that fund was one a sector focus on built world technology, what is kind of now the nomenclature is prop tech. But that was really differentiated and unique at that time. And I think the second thing that was unique about how we build the firm was how we architected our LP base. So one of the dynamics we saw in real estate tech, my co founder, and I was that the largest real estate owner, operator developers, had had this lightbulb moment go off in their head sometime around 2016 2017, where they recognize that technology was now increasingly existential and critical to their business. But yet what they were doing and kind of corporate venture capital dabbling wasn’t sufficient, it wasn’t the right solution. So kind of the way we thought about our fund is that we mediate between all that distribution that the real estate industry represents and bring those real estate corporates, owners, operators, developers of real estate, in as LPs to our fund, and in so doing, we’d have an informational advantage about what the real estate industry is going to do, we’d have a distribution advantage to support our portfolio companies. And our view is that that would kind of represent a almost one stop shop for the best in class real estate tech companies. But it was, as we discussed, it was an entirely new paradigm of venture, this kind of industry consortium model where you bring in corporate says your LPs. So since then, we’ve deployed that fund. That was our first fund. And we had seven big real estate owner operator developers in that fund. We were really fortunate out of that fund, in part, because we had all this intelligence about what the industry was going to do to have invested in some of the emerging category winners in real estate tech. So companies like open door, lend Hippo states title, VTS clutter, and all were in that that first fund. So that fund is performed very well, financially, but also strategically for those corporate investors. Because for many of those portfolio companies, partnerships with our strategic LPs were transformative for them. So after that, we really leaned into this consortium model. And we said, What if we could expand the number of corporates we work with to represent increasingly the entire real estate industry. And so we expanded from our first fund to our second Fund, which ended up being $503 million. We expanded the number of corporates that we work with from seven us strategic LPs to 40, strategic LPs from 11 countries. And what’s interesting is like, in some categories, like homebuilding, for example, we have lonar, Dr. Horton polti, and Toll Brothers, so four of the top five largest us home builders, which represent 180 percent of all new homes built so as you can imagine, it just further accelerates our distribution, advantage or informational advantage. Right, as prop tech was maturing. And so we’ve continued to invest in a number of category winners out of that company out of that fund. So companies like smart rent, and loft are in our fund Aurora, solar are in our fun, too. So what we started to see though, was a maturation of the real estate technology ecosystem. So at the beginning, it was kind of like North American real estate tech, I think we were calling it builtworld tech at the time. It was kind of a big blanket statement, and then contours and features of that started to appear. The first for us was retail and retail disruption. So we also started a fund called the fifth wall retail fund that is backed by major retail landlords in the US and it invests in emerging new occupiers of space. So like brick and mortar tenants, so digitally native brands that are opening up stores, emerging healthcare concepts, a lot of what is kind of governed under like the omnichannel, right mantle of both DMV bees, but also new retail concepts. We started a European Fund, which does the same thing we do in the US just in Europe for Europe backed by major European real estate owner, operator developers. And we started a climate tech fund which invests that kind of the intersection of real estate and technology, but now sustainability, and decarbonisation, because that is kind of emerged as almost a orthogonal opportunity to what we’re doing in our core North American real estate tech fan. So today, first of all, is 1.3 billion under management. And we have 65 Real Estate owner, operator developers as LPs. And we’re constantly exploring new ways that we can invest in the this collision that we have always believed in between real estate and tech.

5:58
Well, congrats on the wins over the past three years. And, you know, the growth I think, reflects this is the success. So well done there. It just for my own clarity, if you come across like a retail tech opportunity, does that go into the retail fund that’s mostly doing concepts? Or does that go into the traditional real estate tech fund,

6:22
they’ll be more likely to go into the real estate tech fund, right? The real estate tech one is investing in what we think of as technology. So like technology, enterprise software, consumer software, and in some cases at the edge will do like tech enabled operating companies. The retail fund is much more the main question to ask is, does the company is in the core business of occupying space, specifically, retail real estate space? And if it is, so healthcare concept of fitness concept of food concept, then it falls within our retail fund?

6:57
So last time we talked, I think you your primary entry point was Series B, is that right? Maybe some series A as well.

7:05
Yeah, we have a pretty, I’d say a wide aperture of where we enter, we’re very sector focused, obviously. But we’ll enter a the C D. Part of that just because, you know, when we started, most of our entries were kind of A’s and B’s because the real estate technology ecosystem was less mature than it is today. But now the category has matured enormously. I mean, our portfolio from our fund, one has, I think seven unicorns in it. And I think the companies represent close to like $45 billion dollars worth of enterprise value. So like, just the maturation in the space has almost necessitated that we as a firm widen the aperture of how where and when we deploy capital.

7:55
So So Brendon, you know, world’s become more flat over time as as knowledge increases. Last time, we talked, I think we also talked about mobility tech, and how that is kind of shortening the distance between two points, which fundamentally disrupts things like urban planning of cities, and also suburbs and beyond, right, but now, now we’re faced over this past year with a situation total wildcard factor comes into play the pandemic, and that’s altered the way in which people live and work, I think, more fundamentally than than anything else, and it certainly sped up a lot of a lot of, you know, tech trends. I guess the first question I have is, um, you know, what have you observed from the pandemic? And, you know, what are the biggest things coming out of this, that thematically you guys are interested in, you know, deploying dollars into?

8:54
So I think you captured it really well, or summarized it really well, when you said, it’s accelerated things kind of feels like we pulled the future forward. Right. So what the real estate industry was going to be grappling with and wanting 28 it is grappling with in 2021. And that is true across all sectors. So for example, in retail, traditional retail real estate, already, there was a tension between how much of traditional brick and mortar retail which three COVID represented about 90% of us retail sales, how much e commerce penetration, would cannibalize of that. And then therefore, you know, how many store closures Are we going to face across the country? How many malls may you know encounter financial difficulty or foreclosure and how many malls do we actually need and how much street retail real estate we need? Really COVID just kind of accelerated that, because it was kind of this forced one time adoption of e commerce. It kind of put pressure on On the e commerce infrastructure, and I think it endure that pressure and in some cases thrived under that pressure. And that only accelerated the consumer behavior change that Abby got the kind of retail Armageddon that everyone had been discussing pre COVID. So really, I think we’re in the same place that we would have been around retail disruption, it’s just, we’re, we’re out in 2028. Right now. And so, a lot of those questions around how much retail real estate does the US truly need to be supplied with? retail real estate owners are grappling with now, at the same time, I do think that represents a unique opportunity for them. So just focusing on this one category, for example, malls, and I would say High Street retail has an opportunity to reinvent itself, right. So consumers still do want retail, and they do want in person experiences, but what they are demanding of it is changing. And so I think what’s really interesting is, because there’s been a lot of store closures, and because there’s an opportunity to almost create a mall as a blank canvas, and reconstitute and re curate the kinds of experiences, the kinds of stores the kinds of brands that you bring together. I think the best in class, retail, real estate owners are going to do that. And they’re going to think of themselves as curators, right curators of experiences. And that’s very different than like what the old, retail real estate industry used to do. Right. And that’s not business as usual, the old business used to be you leased space to Victoria’s Secret and gap and you fill your malls up with them, and you call it a day. Now, it’s just it’s more, it’s more accessible requires more work. And I think it will, long term lead to a convergence of what it is that for example, a firm like fifth wall does, which is invest in these brands. And what it historically meant to be a landlord to these brands, meaning those, the line between being a landlord, and being a VC investor, is getting pretty confusing nowadays, because because landlords are making concessions to companies that are brand new, they’re building out space for them, they’re investing in them, they are marketing them, they are giving them advantage lease deals, they’re giving them percent rent deals, right. So these are very much like equity investments. And so the retail real estate industry is starting to look a little bit like the venture industry. And that’s a profound change in office, and this might be a whole separate vector of conversation.

12:39
That was my next question.

12:40
The I guess my view is, clearly, there was a shock to the US commercial office market. And some of it was just, you know, practical and expedient, right. We couldn’t go to offices. But I think what that in turn did is it led many CEOs, including CEOs like myself to ask themselves more fundamental questions or kind of test assumptions they previously hadn’t tested, which is like, what kind of physical footprint do I truly need for my employees to be optimized and doing what it is that they’re doing? And that might not mean, what it did? Re 2020? And I think that will mean, I don’t think I guess, to summarize what I’m saying, I don’t think that what that means is we’re only going to be operating on zoom in the future. I do not think that is the appropriate conclusion to draw. I also don’t think the appropriate conclusion to draw is, everyone’s gonna go right back to offices just like they did pre COVID. So the answer, like most things, is somewhere in the middle. And I don’t think everyone understands exactly what that means. I think you’d have seen some firms draw lines in the sand that are pretty stark like everyone can work from home forever. I doubt that will persist. What I’m inclined to think is that there will be a kind of work from anywhere model, but that office footprints will look more multi nodal, almost they did previously, where instead of having huge headquarters offices, you will have offices where employees can build culture where mentorship can happen, where everything that we know and love about what an office environment fosters an employee base can be can be achieved, but might not need the look like offices did free 2020. So it’s a little bit of a hand wavy answer, but I guess it means like, no one really knows. But I don’t think I don’t think we’re all zoom. And I don’t think we’re all free. 2020 office, we’re somewhere in the middle and I don’t know the answer to it.

14:43
Which one are we closer to? in office or remote?

14:47
Great question. I’m pausing because I know exactly what you’re asking. And I actually legitimately don’t know I don’t have a strong intuition. My sense is, I guess the way to answer it is is a lot more office than the shareholders of zoom would assume. And it’s a lot more zoom, then office CEOs would assume.

15:11
Yeah, it’s interesting to me. I mean, this is a very generic sort of point of view, but I was talking with some founders. And it’s, it’s very clear that a plus na players can operate at really high productivity over zoom, assuming they don’t have really challenging, you know, family home situations where they’re working. But you know, when you have b minus or, you know, lower players, it becomes really tough. And so, as I think about working in corporate America, in the past, in CEOs and want to control like, I could see some liberties with zoom until, until they feel like maybe productivity is, has gotten a little to, you know, far away from expectation, and then give it time. I think a lot of folks are gonna end up back in office environments, maybe not five days a week. But

16:06
yeah, I think that’s right. You know, and I think this predates my time, a little bit, but my guess is similar, maybe less sudden, like, big, existential questions about what the office environment looks like, we’re asked, probably back when email became a thing. And my guess is I wasn’t running a real estate tech fund around them. But my guess is that a lot of the questions were like, oh, are emails going to kill meetings? And the answer is no, they didn’t. It didn’t kill meetings. But it probably changed meetings, and it changed communication. Absolutely. And it virtualized communication, and in really profound ways, it didn’t kill the telephone, either. And so by that same token, my guess is the long term outcomes of what zoom does to an office is it just changes it a lot. It changes the dynamic a lot, but it doesn’t eradicate it, it doesn’t render it useless. And Silicon Valley is very prone to kind of unitary binary conclusions about where the world goes. And I think that when you spend a lot of time in an industry like real estate, as I do, you realize that there’s the whole economy moves a bit slower than Silicon Valley might like to assume. And as a result of that, there are opportunities as those you know, we kind of find that middle ground, we strike that tension that will evidence themselves you know, I think in the near term,

17:43
you Yeah, there’s general overreaction to technology, you know, you see, see the iPads come out, and parents freak out about their kids, you know, getting lost in the iPads. And I’m sure when, when TV came out, you know that that was a problem. And even back to the printing press, I’m sure parents were worried about their kids just getting lost in books all day, you know, and not experiencing life. So there’s a general I think, overreaction to a lot of tech. But to your point, I think the email thing is a really good thing. You know, people, people think the worst, but it ends up being sort of additive to the entire picture of what you do. It’s not a replacement.

18:21
You know, it’s funny, just to draw another historical example that made me think of that is, you know, I get asked a lot about well as e commerce going to represent the death of retail real estate, I do get asked questions that Stark, and almost that lazy. You know, that’s what sells exactly that click Beatty and lazy. But what I didn’t know, because this also predates my time, is that similar questions were being asked about the catalog business. Back in the day, people thought the catalog business wouldn’t kill retail. And it did have an effect on retail. And it did cannibalize some of it. But long term, a lot of brands figured out this kind of middle ground where you’d have physical footprint stores and would also have catalogs and you’d have distribution. And like many things that the the truth reveals itself as being far more complicated, far more nuanced, but far less radical than most people expect. especially as it relates to all things real estate.

19:26
Very good. I’d love to touch on some of the other sub segments but in the interest of moving on, you know, what about cities, you know, what our city’s gonna do? Moving forward to you know, stay competitive. Everyone I talked to who like LPs friends that live so we’re HQ in Chicago. I’m in California at the moment, but it seems like everyone I talked to is getting out of dodge and many people have listed their their real estate on the market. So you know, what do you think? Think cities do to sort of remain competitive post COVID? Or do you think it’s just a timing thing and it comes back?

20:08
So it feels like COVID has instigated a massive demographic reshuffling. Right. So people are more mobile than ever before. And they are now making decisions around which city to live in and asking themselves questions like, cost of living taxes, culturally, sociologically, convenience wise, what city do I want to be in? And again, those are questions that people didn’t wake up every day free 2020 asking themselves, but a lot more people are asking themselves those questions now every day, postcode, what I think that has the effect of doing is, is putting cities in competition with one another, much more acutely than they were aware they were previously in cities are always they’ve always been in competition with one another. That is the reality of demographic movement in a country. But I don’t think they self conceptualized as being like, I am marketing to residents, right? I’m marketing with my taxes, I’m marketing with my, you know, leisure opportunities, I’m marketing with, you know, everything that makes the city great look at what Miami is doing. Like, just look at the social media, right from the mayor of Miami, if you don’t recognize that as marketing, and basically a billboard, to say, come live in my city, from somewhere else, I don’t know what else you call it, it’s marketing, and it’s working. And I think that some cities are going to capitalize on this moment, to attract, you know, very high quality knowledge workers that, you know, bring culture with them, that bring diversity with them in ways that I think are going to shift the balance of power permanently, probably, in the US between what are our cultural cities? And I guess I have this is almost definitional, right? I decided to base fifth while in Los Angeles and not in San Francisco. And that is a certainly back in 2016, we would get asked all the time, by investors, why are you not in San Francisco? And actually, I gave a very honest answer, which is, I don’t particularly like living in San Francisco. But there was probably a more nuanced reality to that, which is, it’s not that I think you can do the business of venture capital from anywhere, I just think that there are actually inherent advantages to doing it not in San Francisco, in part because you one compete for talent in a way that I think that almost hit a high watermark and 2019. And I think the second thing is we kind of referenced it before, Silicon Valley suffers from a ideological echo chamber that I think limits its ability to predict how industries are likely to change, actually. So what that lends itself to is lots of confidence at the very early stages of a business to, quote, disrupt industries, or radically transform consumer behavior in profound, unexpected, contrarian ways. The reality, like we were discussing is that the world moves more slowly than venture capitalists would like, and there’s more more bureaucracy, there’s more reasons good or bad, why things are the way they are.

23:43
And what I think being outside last, San Francisco offered fifth well, by virtue of being in Los Angeles, was an ability to step outside that and paired with the fact that we were having these constant dialogues with our real estate, corporate LPs. It gave us I think, a very, both optimistic, but also realistic view of which technologies were likely to succeed and fail. And obviously, I can paint that story in kind of the success cases of our portfolio companies. But I could paint the flip side of that in the companies that we didn’t invest in, in prop tech, that were, in fact, kind of Silicon Valley darlings that were contemplated or expected to disrupt industries, that if you were talking to people in the real estate industry, it was pretty notable and obvious that they were not going to or certainly were not going to at the pace that Silicon Valley was expecting them to to justify the valuations that they were investing in these companies that so that was a benefit and I feel fortunate to that. But I guess to put a pin in that what I think happens is a city like San Francisco, doesn’t lose to Los Angeles or lose to Miami. It loses To the field, like it is it is losing to everywhere else. And I think that is going to represent that is going to require that San Francisco kind of re examine what made it great in the first place and lean into those things. Right. It was, it is a, it is a epicenter of the highest educated lainnya of higher education. It is the seat of counterculture in the US. It has real problems as a city that weren’t real solutions, right? I’m not sure Uber would have been built anywhere else. So it has these advantages, and how does it lean into those advantages? While while not shedding? You know, the, the talent base that made it so exceptional, and the kind of lifeblood of us innovation for decades. So I think it’ll be really fascinating to see what what happens to San Francisco. Love it.

25:59
Brendan, transitioning a bit, we do have a new administration in office. The number of things we could unpack there, but you know, at a high level, how do you think this affects the industry, and then what you’re doing at fifth wall?

26:15
So I mean, it affects it in a lot of ways that I’ll focus on one in particular, that I think is pretty extreme. So, you know, the Trump administration was, I would say, in arguably, the most environmentally regressive administration in our lifetimes neck. So the real estate industry, which is the single largest contributor to climate change, the real estate industry, and this is a shocking stat to most people, most people think it’s shipping or or the automotive industry, or pet, you know, mining, but it’s not, the real estate industry is by far the single largest contributor to climate change. It’s responsible for 30% of all energy consumption globally. 30% of all greenhouse gas emissions globally. And it’s responsible for 40% of all raw materials consumption. So the real estate industry is like the climate culprit that has been hiding in plain sight. Now, what’s happened, or what happened under the Trump administration is that there was the US withdrew from the Paris Agreement. And as a result, the real estate industry, which is is subject under the Paris agreement to decarbonization, measures, standards and timelines, basically didn’t have to comply with them. So what did happen is that in certain more progressive cities, cities like New York and Los Angeles, the mayors, but their cities, right back in the Paris Agreement, they enacted carbon neutrality laws, like the one in New York and Los Angeles, that penalize real estate owners who do not who do not aggressively decarbonize.

27:48
And that’s just new builds or is that also, existing real estate, both?

27:53
It applies to both the standards are different, the timelines are different, the fines are different. But yeah, it governs all assets, all commercial assets within a city. And, you know, the obvious characteristic of the real estate industry is that one cannot move a building, right. So if you don’t like the local regulations, you can’t pick up and move the Empire State Building to Austin. So the real estate industry is especially subject to these rules. What the Biden administration represents is now a federal Overlay and the Biden administration re enter the Paris agreement that will require now federal standards around building emissions and building energy efficiency that the real estate industry has kind of, I guess, almost skirted the last four years in terms of decarbonisation, and the application of energy efficiency technologies within the assets, they’re going to have to adopt them at warp speed. Part of the problem is that the real estate industry also has under invested in the tech to decarbonize, it is an industry meaning or an existing building that we are retrofitting, even if we apply all the best technologies that exist today. So all the stuff that Silicon Valley has funded, we only get about halfway there to carbon neutrality. So the real estate industry needs Silicon Valley and needs venture capitalists to aggressively deploy capital to reduce the the deployment timeframes and increase the ROI on decarbonisation technology. So one of the questions that we asked ourselves, and one of the reasons we started our climate tech fund is, why is the real estate industry itself, not investing into these technologies? It is imperative that they exist, or the real estate industry will be fined into oblivion.

29:44
Well, if they’re your LPs,

29:46
they are our LPs. Exactly. They are so so that’s exactly why we started our climate tech fund was we not that we predicted a Biden administration by by any leap of imagination. But we did anticipate that real estate owners investing in decarbonisation technologies was the right side of history. And that is that is the secular trend that we are headed towards, or we’re certainly writing right now, and that it was going to accelerate in the event there was administration change. And I guess what I would say is what’s what’s fascinating when you look at kind of clean tech and green tech and kind of be the 1.0 bubble, and it’s subsequent bursts that people talk about all the time is that what always plagued it was the absence of demand. The absence of demand mean that the technologies worked, and wasn’t that the technologies didn’t work. In some cases, they work more efficiently today, or they have faster payback periods, or faster ROI. But they weren’t wasn’t an

30:47
incentive

30:48
to adopt, no one adopted. And now, the government just created demand, because they actually are requiring that real estate owners adopt this. And so I guess, to put a put a conclusion on that what I think is the real estate industry is about to become the single largest consumer, of what we now call climate tech, be carbonization Technologies reduce its carbon footprint. And I guess I saw fifth was being in a unique position to mediate that and to, you know, identify those technologies that can really help the industry, support those entrepreneurs, give them access to the real estate industry, and honestly do the right thing in the process that actually seems like a quite virtuous cycle. And that’s exactly what we’ve pursued. So the Biden administration, I think, represents a tailwind for all of climate tech. And it represents an especially intense tailwind, or climate tech related to the real estate industry.

31:48
And just play devil’s advocate there is it? Is it technology and software that will deliver the biggest gains on the carbon side when it comes to real estate? Or is there just other basics in blocking and tackling when it comes to real estate and construction, etc, that that need to be addressed?

32:07
So in answering that, you have to kind of draw a distinction between new build and retrofitting. Because it’s all the answers are different, but it’s at the magnitudes are quite different. So today, software, like as we think about software in the venture capital industry, it is important, I wouldn’t say it’s the only piece, I think what is critical is that investments are made into software, and kind of the intersection of software and industrial IoT, which we kind of call, you know, smart building technology. But also alternative energy at the building level, everything from solar to, you know, onsite batteries, to material stack, like actually just smart materials, or carbon sequestering materials. All of that requires capital. And actually, all of those sectors require capital to close that 50% gap that I referenced previously. With respect to new construction, we’re much closer to the outcomes we want of being able to build really carbon neutral assets. So it’s not there’s less imperative to do so it’s, there’s less of a Delta there. The other thing I would note is that, you know, most of us is commercial buildings are already built, they already exist, right? So you can’t just tear them down and rebuild them in a cost efficient, you know, energy efficient way, that’s just not practical. So what we are going to have to do is retrofit the vast majority of the buildings that are in the ground built operational in the us today. And one of the things that that aligns with very closely is the Biden administration’s plan to build that better and generate lots of jobs, it is going to require a lot of jobs. I think it’s a great thing for the economy, that so many buildings are going to require enormous investments of decarbonisation technology, like what a, you know, what a really virtuous alignment there. And so that’s why I think we are, we are at the beginning of a climate tech boom, that the real estate industry plays the leading role in right now and 2021.

34:18
So maybe you tipped your hand on this next question, I’m not sure but I’m gonna ask it anyway. You know, as I think about real estate, there’s the financial side on the front ends, and drammy, but there’s this whole financial side to real estate. There’s the construction side and AC side. There’s post construction in service opportunities and retrofits. For buildings, whether they be you know, residential, commercial, industrial, and what side of those are you spending the most time on? And where do you feel like is the biggest gap from a tech standpoint between current state and desired state?

34:57
That is such a hard question. It’s a great question. And I totally appreciate it, I guess my answer, I think is going to be underwhelming in the sense that there’s just so much opportunity across all of it. Right? The real estate industry in the construction industry, basically sat out two decades worth of innovation, right, it missed the internet, it missed all of mobile, it just, it was a Luddite, or one of yours. And it just kind of realized, actually, that there’s a better way to do things, actually, technology is increasingly important to our business. And so what that represents is like, a lot of work to do across all those sectors. I think what’s interesting is that what you do see in the real estate industry is that the emergent category winners across all those spaces that you referenced, the innovations are not as technically complicated. As you see in other categories of tech, meaning we are not investing in companies like deep mind right now, where there is like, technical questions as to whether it works or can be done, right. Like a lot of what we invest in is like, Hey, we did this enterprise process with pen and paper. And we used to do with Excel. And now we’re doing with enterprise software. Because Because the leap right from an ROI perspective, and from an efficiency standpoint, is so perfect honed over what exists today. Oftentimes, very technically simple. Companies can grow extremely fast. And honestly look at fifth was portfolio to see that in action. And we have companies that at the outset, were I wouldn’t say they were unimaginative. I think they were just obvious, right? It was obvious that there was a better way to do title insurance. It was obvious to anyone looking there was a better way to do home insurance. It was obvious that commercial real estate owners should be interfacing with their brokers through software, not through phone calls, not to VTS, right, there’s just there’s such a low hanging fruit. Lots of low hanging fruit is the best way of summarizing. So I’m struggling to answer it. And I’m sorry if that’s an unsatisfactory answer, just because there’s so much opportunity

37:10
now it’s good. I. I’d be curious to get your quick perspective on on the founder side. Are there common threads or common mistakes you see founders making in prop tech? Or do you think it’s, you know, just like any other category? When it comes to?

37:30
It’s probably a lot like other industries, I can’t, you know, we don’t look at too many other industries, it’s hard for me to comment on it, as well, but what I’d say is, the common traits of successful entrepreneurs and prop tech are entrepreneurs that come into their dialogues and their relationships and their, you know, sales meetings with the real estate industry with a commensurate amount of humility, or what exists today and why it exists today. It’s clear, and it’s obvious. And it’s intuitive that there are so many inefficiencies in the real estate industry. But I think what the great entrepreneurs do is they ask questions, and they kind of are able to incremental eyes adoption, and understand that real estate companies are a bit more slow moving than other other industries. And that, you know, not coming out of the gate swinging is sometimes the best strategy. There are instances where, and this kind of speaks to what I was talking about before where I think it’s part of the it’s almost an artifact of like the Silicon Valley echo chamber, which is there are companies that are come out there out of the gates and say, we’re disrupting this, we’re doing this an entirely new way, and the way the real estate industry is doing it is stupid, and we’ve reinvented. And I totally appreciate that from a VC marketing perspective. I don’t think it is as resonant with NorCal real estate owners to whom they need to sell. And we’ve seen a lot of those companies make grandiose claims about what they are going to do to a particular industry involved or for no other reason, then there are, as I was saying, before, reasons good and bad, why things are the way they are in the real estate industry. And if you don’t understand those reasons, you can’t change them. And you most certainly can’t change behavior. And you most certainly can’t incentivize a real estate owner to do something different if they don’t think that you appreciate why they’re doing things the way they are. And so that dichotomy, the kind of those who, those who can incremental eyes, and those who purport to disrupt, and kind of almost grandstanding type ways. There’s a stark difference. And if you look at people’s portfolio, you will see that right the entrepreneurs that we’ve invested in that have been most successful, have been those that really take the time to learn Understand the real estate industry is pain points, build relationships, the real estate industry is historically and will always be a relationship driven industry. And it’s really intimately connect to their customers in a way that sometimes Silicon Valley is less likely to do in other industries.

40:20
Are those successful founders? Also industry insiders or domain experts? versus, you know, the, the tech folks that are brand new to an industry? Or is it a maxim,

40:32
we’ve seen both Actually, I wouldn’t say that’s a leading characteristic. I would say it’s more the personality and the demeanor and the EQ that I think is most deterministic in which companies succeed and fail. And honestly, that when we started fifth wall, that was the role that we wanted to play was, we knew that the real estate industry is super complicated, and also super big. So it’s super attractive to a lot of entrepreneurs that want to build big businesses 13% of the US economy, but what we knew is that we could kind of serve as an interface between what the industry wants the real estate industry, its pain points, its challenges, the opportunities for tech to transform the industry, we could translate that between what Silicon Valley was making and saying and doing and ambition to do, and what real estate owners would actually do. And I think if you talk to our entrepreneurs, that is exactly the role that they would say, fifth, well, that’s what we do, we kind of mediate, we facilitate that adoption, because we’re able to speak both languages, we’re able to speak the language of commercial real estate, and residential real estate owner operated developers. And we’re also able to speak the language of entrepreneurs and VCs. And honestly, there’s not a lot of people in either industry, that can be that diplomatic, candidly,

42:04
is there any risk of over designing a solution for one large, you know, elephant customer, and maybe over customizing? or, or, you know, in some cases, I’ve found founders running the risk of the tail wags the dog a little bit, they get a large customer early, and then they end up going down a path that’s, you know, they’ve addressed the key pain points, and then some, and their, you know, their ultimate product has less applicability and versatility with the rest of the market.

42:39
So it’s a great question. And I think that dynamic exists in any industry, including real estate and real estate technology. Here’s why I think it’s less. It less accentuated in real estate tech, which is lots of less so take an industry take like the CPG industry, the way those companies operate, and the way those companies market and the way they manufacture is very idiosyncratic, meaning there are some similarities between them. But they diverge quite a bit in terms of their operating structure and the kind of systems that they use. If you’re in the business of owning multifamily real estate in Chicago, or New York, if you have 10 buildings or 100 buildings. It’s not that different. So the variance in terms of the systems and the operations and the behaviors and the pain points between real estate firms varies less. So that’s one reason I think the the comment you made is less applicable to the real estate industry. The second reason is, because the real estate industry, again, is such a late adopting industry. What typically happens is the industry kind of looks sideways, and says what are my peers doing? And when one technology emerges as a category winner, they tend to just adopt that. So there’s a kind of herding behavior that happens. And honestly, we saw this and one of our portfolio companies VTS, you know, rapidly emerged, as, you know, the, the solution for commercial real estate owners and the office industry to interface with their with the brokerage community. And as they rolled out, they got some of the big logos, many of which were fifth wall, strategic LPs. And then the smaller firms, the more granular real estate owner operator developers followed suit. And once that happened, real network effects started to take place, the amount of data they were capturing started to become really valuable. So the real estate industry, I would say, is, in some sense, less entrepreneurial, and less likely to do something different than their peers, probably than peers in other industries. And by virtue of that, I think the model that we designed this kind of consortium model where we have the biggest names the Marriott’s, the Heinz, the British lands Mitsubishi estates, the world in our LP base is designed to capitalize on that to say, if we can predict the behaviors of Maryon, we’re very likely to predict what the behaviors will be technology adoption wise, of the long tail of the hotel industry. And that insight is, again very germane to the real estate industry and informed the architecture of how we built our firm. But,

45:23
Brendan, what do you know, you need to get better at,

45:26
I think I need to get better at learning from our portfolio companies, and using the insights from that to inform how we build fifth wall. And I’ll explain what I mean by that, which is, most venture capital firms spend, you know, their job is to invest in new emerging business models or, you know, kind of out there entrepreneurs that are reimagining industries, but then they go to their day jobs as a venture capitalist, and they don’t really imagine anything about their industry, their processes, their sourcing, their branding, you know, how they manage their capital, how they fundraise, they would all the same way. And I noticed this actually, when I was starting fifth wall, I was like, seemed odd to me that everyone in the industry would do things the exact same way. And so one of the things that I always actually put on my to do list and my new year’s resolutions is that we have the privilege of talking to some of those brilliant, creative, independent thinking entrepreneurs that are reinventing entire industries, industries, way bigger than venture capital, and they they do that daily. And so how can I take my exposure to them, not just the fact that we invest in them, but what I learned from them, basically, my relationships and inform how we build our firm, and how we can build our firm differently, because we are in competition, right? The venture capital industry using firms are in competition with one another. And I believe there are better ways to do things than how venture capital firms do things today. And I don’t want to suggest that fifth fifth wall has found the purrito efficient frontier of what that looks like we haven’t. But I think because we’re more innovative, and because we’re more open minded, and perhaps because we’re newer and younger and different. We are more receptive to it. But I always think you may be more receptive. And so I guess, I, as you know, the manager of fifth wall, want to learn from the creative minds that I have access to, to take their insights and reimagine my industry in my firm. And I think we can do that better.

47:34
Very good. And then finally, what’s the best way for listeners to connect with you and follow fifth wall

47:40
is to email me I am at Brandon, the ER e n di, N, at fifth wall, like f f, d, h wi Ll calm, that’s the best way to get in touch with us. And I would encourage entrepreneurs that have a great idea. And at the intersection of real estate and tech in the US are at the intersection of real estate in tech in Europe or in climate tech or a new retail concept. We just love to engage with them and offer our insights and and support them. Awesome.

48:12
Brendon Always a pleasure. You know, congrats on all the successes, all the outcomes, all the exits, and over a billion. Hmm, I mean, what what a journey and it’s inspiring to watch. So appreciate the time and thanks for the insights.

48:25
Nick, as always, I really appreciate it. And thank you for having me on.

48:29
Of course. Take care. Bye

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