The Exchanges

Q Can I ask, why has PropTech been on such a tear for the last 24 months?

A I think that's a simple one. Real estate is the largest industry in the US. It's really 13% of the US GDP. It has historically been one of the lowest spenders on IT, and just pick up the newspaper today, every real estate owner is now focused on adopting technology at enormous scale. I mean, the existence of Fifth Wall is a pure example of that. So, I think as the largest industry on earth, Continues to adopt technology. You're not just talking about opportunities in the billions of dollars with enormous total addressable markets. You're talking about opportunities in the trillions of dollars. So I think this is a trend that will go on for probably the next decade, frankly.

AI assessment note: “Real estate is the largest industry in the US. It's really 13% of the US GDP.”

Q Well, I would love to get the ball rolling, and for those that made the terrible sin of missing our first episode, how did you make the way into the wonderful world of Venture and come to found Fifth Wall?

A So, I had kind of a very unique background in the sense that my background was a hybrid of both Real estate and finance and then technology. So I started my career right after Princeton and worked at Goldman Sachs doing real estate investment banking. And then I worked at Blackstone in real estate, private equity, and then the financial crisis hit. So it seemed like a good time to get out of the real estate industry. I went to business school at Stanford and I caught the tech bug. So I started my first company with a classmate out of Stanford. We grew that for about three years, raised a bunch of venture capital, Sold that to Workday in 2013, and then in 2016, partnered up with my co-founder on Fifth Wall, and we decided to launch the first consortium-based model to innovation in real estate tech, and that's actually, I think, the last time we spoke.

AI assessment note: “in 2016, partnered up with my co-founder on Fifth Wall”

Q Well, I would love to get the ball rolling, and for those that made the terrible sin of missing our first episode, how did you make the way into the wonderful world of Venture and come to found Fifth Wall?

A So, I had kind of a very unique background in the sense that my background was a hybrid of both Real estate and finance and then technology. So I started my career right after Princeton and worked at Goldman Sachs doing real estate investment banking. And then I worked at Blackstone in real estate, private equity, and then the financial crisis hit. So it seemed like a good time to get out of the real estate industry. I went to business school at Stanford and I caught the tech bug. So I started my first company with a classmate out of Stanford. We grew that for about three years, raised a bunch of venture capital, Sold that to Workday in 2013, and then in 2016, partnered up with my co-founder on Fifth Wall, and we decided to launch the first consortium-based model to innovation in real estate tech, and that's actually, I think, the last time we spoke.

AI assessment note: “partnered up with my co-founder on Fifth Wall, and we decided to launch”

Q being in every single county, city that is in the country like maybe the past predecessors of kind of physical retail did have. Am I right to suggest it'll be these kind of single flagship stores in center locations, or do we think that they will actually follow the path of their predecessors in terms of mapping the country and the city, so to speak, with many physical retail stores?

A So I think it's somewhere in between. So what I would agree with you on, Harry, is I think The era of the thousand store brand is over, and I just don't think it's coming back. And I think what you're seeing today for new digitally native brands that are for the first time opening brick and mortar stores, what they're doing is kind of two things. One is they're looking at just the modality of the store. So are they opening in a high street location or are they opening in a mall? And actually what the typical pattern is, is that they start in high street locations and And eventually move to malls, but it is still concentrated, you're right, in the major cities. But the other dynamic that we are starting to see as well is that they're actually concentrating within cities. So one of our investments, a company called Foxtrot, which is kind of a digitally enabled convenience store that has a lot of omnichannel delivery elements to it. They have seven locations already just within Chicago because they're actually building that network effect At a local level. And what's interesting is that they're doing that complemented by their digital distribution. So not only building concentration within a particular market, but because their customers have the app installed on their phone, because they have a persistent relationship with the customers, they can actually visit multiple locations…

AI assessment note: “So I think it's somewhere in between.”

Q totally get that strategic positioning, Brandon, and super exciting to hear. But when one opens the papers today, they read the doom and gloom of the retail apocalypse and the hype that journalists love to build around the negativity around it. So for you at Fittwall, expanding into retail, what's really Going on, so to speak, and what's driving your optimism that maybe few in the public sphere really share?

A Well, you know, it's a great question, because it is true. When you open the paper, it appears that, quote, retail is dying. But I think that's actually inconsistent with just pure empirical data. I think Americans, at least in their shopping behavior, actually seem quite bullish on brick and mortar retail. And I'll just give you some stats around that. So one, at a high level, retail is just a massive opportunity. It's a six trillion dollar market. It's been growing for nearly a decade. Everyone can agree that retail is rapidly changing, and it's changing because of online and digital. The number of minutes spent on connected devices is up 40% in the last five years. E-commerce's share of total retail sales is up 70% in the past five years. And today, e-commerce accounts for about 15% of all US retail sales. But at the same time that this digital confluence has occurred, you're also seeing the growth of these new What we kind of prefer as digitally native brands. So brands that are born online initially distribute and market their products online direct to customers. But what they all seem to face is this dynamic where they grow to a certain point. And at a certain point, whether it's five million dollars or ten million dollars or twenty million dollars, they hit this asymptote. And at that asymptote, the cost of acquiring customers online starts to become inefficient. And so …

AI assessment note: “I think that's actually inconsistent with just pure empirical data.”

Q is Fifth Wall today. Now, we did have the schedule, Brendan, but I'm totally gonna flip it on its head, because, well, I can do it. It's my show. Um, and considering our discussion before the episode, So we discussed the new retail fund that is now part of the Fifth Wall platform. Tell me, why create a separate retail fund as segregated from the original Fifth Wall fund itself?

A So it's a great question, and I think it really is kind of underpinned by the core philosophy of Fifth Wall. Like, we started Fifth Wall with the intent of driving collaboration between large real estate incumbents, so the largest owners, operators, developers, Of real estate assets and technologies that depended on distribution to those owners. That was kind of the core philosophy is there was a gap there where no one was actually connecting the two well. And our first one, which we obviously talked at length about, we're able to do that around technologies for the physical plants of real estate. So building systems, technologies, energy efficiency, technologies, things that actually improve the operating of a real estate asset as a physical unit. But what we saw in engaging in fund one was that retail real estate owners had fairly idiosyncratic needs. What they were looking for was both technology for the plants, but they were actually looking to identify technologies that supported their engagement with brands, their tenants, and with customers, shoppers. And that was very, very specific to the retail industry. And what we saw was that they wanted to not only invest in kind of the technology ecosystem, but actually be occupants of space. And as we look more closely at that ecosystem, we saw that it was comprised of these new digitally native brands that I think we'll talk a …

AI assessment note: “what we saw in engaging in fund one was that retail real estate owners had fairly idiosyncratic needs”

Q totally get that strategic positioning, Brandon, and super exciting to hear. But when one opens the papers today, they read the doom and gloom of the retail apocalypse and the hype that journalists love to build around the negativity around it. So for you at Fittwall, expanding into retail, what's really Going on, so to speak, and what's driving your optimism that maybe few in the public sphere really share?

A Well, you know, it's a great question, because it is true. When you open the paper, it appears that, quote, retail is dying. But I think that's actually inconsistent with just pure empirical data. I think Americans, at least in their shopping behavior, actually seem quite bullish on brick and mortar retail. And I'll just give you some stats around that. So one, at a high level, retail is just a massive opportunity. It's a six trillion dollar market. It's been growing for nearly a decade. Everyone can agree that retail is rapidly changing, and it's changing because of online and digital. The number of minutes spent on connected devices is up 40% in the last five years. E-commerce's share of total retail sales is up 70% in the past five years. And today, e-commerce accounts for about 15% of all US retail sales. But at the same time that this digital confluence has occurred, you're also seeing the growth of these new What we kind of prefer as digitally native brands. So brands that are born online initially distribute and market their products online direct to customers. But what they all seem to face is this dynamic where they grow to a certain point. And at a certain point, whether it's five million dollars or ten million dollars or twenty million dollars, they hit this asymptote. And at that asymptote, the cost of acquiring customers online starts to become inefficient. And so …

AI assessment note: “I think that's actually inconsistent with just pure empirical data.”

Q being in every single county, city that is in the country like maybe the past predecessors of kind of physical retail did have. Am I right to suggest it'll be these kind of single flagship stores in center locations, or do we think that they will actually follow the path of their predecessors in terms of mapping the country and the city, so to speak, with many physical retail stores?

A So I think it's somewhere in between. So what I would agree with you on, Harry, is I think The era of the thousand store brand is over, and I just don't think it's coming back. And I think what you're seeing today for new digitally native brands that are for the first time opening brick and mortar stores, what they're doing is kind of two things. One is they're looking at just the modality of the store. So are they opening in a high street location or are they opening in a mall? And actually what the typical pattern is, is that they start in high street locations and And eventually move to malls, but it is still concentrated, you're right, in the major cities. But the other dynamic that we are starting to see as well is that they're actually concentrating within cities. So one of our investments, a company called Foxtrot, which is kind of a digitally enabled convenience store that has a lot of omnichannel delivery elements to it. They have seven locations already just within Chicago because they're actually building that network effect At a local level. And what's interesting is that they're doing that complemented by their digital distribution. So not only building concentration within a particular market, but because their customers have the app installed on their phone, because they have a persistent relationship with the customers, they can actually visit multiple locations…

AI assessment note: “So I think it's somewhere in between. So what I would agree with you on”

Q I want to finish on my favorite, which is the most recent publicly announced investment. And why did you get so excited?

A So we invested in, it's out of our retail fund. We invested in the Series A for Hay Day, which is a digitally enabled facial service studio. So what that means is The best way to describe that, I think I mentioned it before, is it's like a dry bar for facials, and one of the amazing things that they've done incredibly well is they've built out a network effect within New York, so they have density of stores within New York, and they have a persistent relationship with their customers, so they have reminders in how they engage with customers, they have products they're selling directly to customers, so it is both an online experience in how customers engage and actually book a But it's also purely a clearly very intimate offline experience that happens in the store. And I think they more so than many of the brands in the health and wellness space that we looked at have really nailed that kind of duality in their business. And so we're just really excited about them and their growth.

AI assessment note: “We invested in the Series A for Hay Day, which is a digitally enabled”

Q dive into the element of the LPs invested in you, I do want to take the amateur perspective from my side, just so I can understand this. I'm more of a software guy. How does the risk profile change when looking at real estate technology versus the traditional software, potentially SaaS, that we've been looking at In previous years, what's the differing risk, and what does it mean for that?

A So, it's a great question. I think it's something that makes real estate tech its own beast, its own kind of unique category to invest in. So, a lot of times in tech, right, you face technical risk. You face real important questions like, does the technology work? If it's adopted, will it have positive ROI? These big existential questions like, does what you're investing in actually work? I think what's different in real estate tech is that because the industry has been such a late adopting industry, and as a result, because there's so much low hanging fruit in the industry, meaning you and I can walk around an office building and look at how things are done and say, that's inefficient. That's inefficient. That's a service-based industry. You could do better with technology. There's so much opportunity that oftentimes the innovations themselves are fairly simple. It's like we take a ledger book and we put it in the cloud. That is actually real innovation in real estate. So what I mean to say by that is that the technical risk is oftentimes very low in real estate tech. Like the innovations are oftentimes fairly lightweight, but, and here's the catch, the go to market and distribution risk is enormous. And that's to say it's very hard to take a technology and sell it one by one to all these individual real estate owners. What you really have to do as an entrepreneur is find a wa…

AI assessment note: “the technical risk is oftentimes very low... but the go to market and distribution risk is enormous”

Q Can I ask, how do you think the generalist VCs of the world in Benchmark, Sequoia, Lightspeed will respond to such verticalization and strategic value add that you have?

A So, well, I think we actually have some, some proof points on that around how the generalist funds have reacted to this. I think obviously the big brand names out there, the benchmarks, the Sequoias, the Lightspeeds, I mean, they're going to get tremendous deal flow no matter what. But I think what they've realized is that real estate tech, let's just focus on our particular industry. Real estate tech is a massive opportunity. I think on whiteboards all across Sand Hill Road, real estate tech is written somewhere and Double underlined. It's obviously a big area of focus for them, but it has this unique risk profile, right? It has this question around, you can have a great technology, but if you can't find a big corporate partner, it's very hard to scale your business. So that's actually where fifth wall comes in is we oftentimes will go to generalist funds and say, Hey, we're looking at this company. We'd love to have you involved. And the converse of that is that we're now getting a lot of deal flow from the generalist funds. We're saying, Hey, Hey, we looked at this company. Seems pretty interesting. We're intrigued by the team. We're intrigued by the product. We'd love to see what CBRE thinks about this. We'd love to see what Host Hotels thinks about this. We'd love to see if Lowe's could carry this in their stores. And because of that, we get this ability to become partners…

AI assessment note: “we're now getting a lot of deal flow from the generalist funds”

Q We had Kirsten Green on the show. She said that Amazon does more to make the market than to destroy it for digital retailers. Would you agree?

A I think it depends on which retailers. Actually, if you look at kind of the top 200 digitally native brands, they're actually growing faster than Amazon, independently of Amazon, and many of them don't sell their products on Amazon. So I think you have a hard case making a point around Amazon helping them because the flip side of that, right, is Amazon is actually outspending them on Google AdWords, and one of the reasons why the costs of customer acquisition are rising. So I would actually say no for most of the brands that we invest in. I don't think Amazon is helping them. But at the same time, I don't think it's necessarily really hurting them. These brands are frankly outpacing Amazon's growth independently and direct to consumer. So I think it's just a complicated answer there.

AI assessment note: “I would actually say no for most of the brands that we invest in.”

Q Brendan, I'm intrigued from your perspective on the investor side. What have been some learnings for you given that?

A I mean, kind of Max touched on it. Like we just learned a lot Through investing. Like when we started fifth wall, we had this sector focused strategy. And the idea was we're going to get a bunch of corporate real estate investors. We're going to get them to partner with the best in class, early stage prop tech businesses. Right. And good things will happen. But I think from like everyone on this call, I just learned a lot from a soft. I learned for like extreme persistence. Like we hadn't even raised our fund. And the soft was like, you need to invest in our business. And I was like, I don't even have a fund yet. I don't know how I'm possibly going to do that. But ultimately we did. And we couldn't be happier too. I think from NEMA, just kind of a really measured approach to working with corporates. Working with corporates is really hard. That is something we mediate, we kind of arbitrate, we live and breathe it every day. And I think everyone on this call intimately knows what I'm talking about, but NEMA just has a very good corporate bedside manner that I think we've learned a lot from. And from Max, I think when we started Fifth Wall, we didn't recognize how synergistic the investments were. We were making as a consortium could be, meaning everyone on this call has businesses that are highly synergistic with one another, but Max really took it to even the next level, which i…

AI assessment note: “Max kind of showed me like, what is actually possible?”

Q Speaking of kind of great outcomes there, I'm always a big believer that the best investments aren't made once, but twice and three times on the reserve allocations element. I am interested, how do you guys think about reserve allocation in terms of especially the retail piece? And Does that differ to traditional software resource allocation in terms of follow on financing?

A I don't think it differs too much. I think it's highly state dependent. So obviously we think about our reserves ratios as a function of when we actually invest in the business. So we're, when we're investing at an earlier stage and we have higher ownership for the same amount of capital, we are reserving a higher amount of follow on capital because there's an implicit implication that we're going to take our pro ratas in future follow on rounds of which there'll be many. And where we think the prices may still be attractive. I think in retail, what we look at is kind of the same, but it's a little different in the sense that because some of the CEOs that we're investing in are not shooting for multi-billion dollar outcomes, the anticipation around the number of rounds that you're likely to go through as a business on that growth trajectory is just fewer. And so therefore your reserve ratio might be at the margin slightly lower. But it's still highly dependent on when you actually enter the business and how much ownership you have. But I think also as more brands are opening stores, there's a capital intensity to that. That also just changes the underlying unit economics of the business, because now you're not just looking at a unit margin on a particular product. You're actually looking at same store economics, which is what is the cost of opening a store? What is the cost of …

AI assessment note: “I don't think it differs too much. I think it's highly state dependent.”

Q caps upside than maybe traditional software companies, can I ask, given the capital intensity Is dilution a big concern for you? And at what point do you think one should maybe flip from the traditional venture financing model to maybe once you have everything proven out, Unitecon kind of programmatic in terms of its predictability, moving to almost a lending vehicle to finance the growth instead of a venture financing?

A I think it comes down to two things. I think one, it's what kind of outcome are you chasing, right? So if you're chasing a multi-billion dollar outcome, you are going to have to raise a lot of capital. To finance both online distribution, now complemented by an enormous fleet of physical stores, and a number of brands that we see in the market are doing this and taking this strategy, but I think you just have to accept that comes with dilution. What I absolutely agree with you on is that there are a number of brands for which I don't think the multi-billion dollar exit might be in the cards, and so instead they should look to more creative forms of finance, whether it's inventory finance, or frankly, when landlords are actually willing to give More flexible leases. That in itself is a form of financing to these brands they can actually look to, to fuel their growth. So I think it's both a function of what outcome you're looking for, and I think more and more what we're seeing is that new brands are pretty self-aware around the fact that I think we're not going to have the gaps and the banana republics and the major brands of the era previously replaced by five to 10 new brands, but instead they'll be replaced by hundreds of brands. And so Walmart Retail as a category is growing. Consumer choice is expanding. And so what it means is you're going to have a lot of intermediate out…

AI assessment note: “instead they should look to more creative forms of finance, whether it's inventory finance”

Q Can I ask, why has PropTech been on such a tear for the last 24 months?

A I think that's a simple one. Real estate is the largest industry in the US. It's really 13% of the US GDP. It has historically been one of the lowest spenders on IT, and just pick up the newspaper today, every real estate owner is now focused on adopting technology at enormous scale. I mean, the existence of Fifth Wall is a pure example of that. So, I think as the largest industry on earth, Continues to adopt technology. You're not just talking about opportunities in the billions of dollars with enormous total addressable markets. You're talking about opportunities in the trillions of dollars. So I think this is a trend that will go on for probably the next decade, frankly.

AI assessment note: “Real estate is the largest industry in the US. It's really 13% of the US GDP.”

Q said we spoke about kind of shooting for that five billion dollar outcome, the burning the boat style, that really we've both looked for and searched hard for over the last few years as kind of more traditional software investors. Is it challenging for you to almost transition your people assessment today with the retail fund, where that actually makes you a little uncomfortable, whereas before it was a necessity?

A Not so much. I mean, I think with both our real estate technology fund and with our retail fund, we are looking for entrepreneurs whose vision closely aligns with our understanding of what the value of their underlying product is, right? So a congruence and alignment there is just so critical for us. Now, out of our real estate technology fund, we've invested in companies like Lime, where there's a potentially massive consumer outcome because the market is enormous, the market is It's growing. It's a brand new concept, and we're still really learning the underlying unit economics of this space as we invest and as we actually go. In the case of retail, there's just far less variance, right? So you can have a better understanding of really what is it going to cost to grow online? What are CACs online, and how are they changing in this particular category? And by that same token, you have a clearer and better understanding of what does it cost to actually build out stores and how much goes into that and And how big a team do you need? And what kind of merchandising do you need? And should you actually put in place inventory finance lines to support that? And so because of that, I think you just have less variance in terms of how much risk you're taking operationally. I think it can vary depending on when you're investing in retail. So when you're investing at an angel stage and yo…

AI assessment note: “Not so much. I mean, I think with both our real estate technology fund”

Q I do want to kind of specialize in Particularly on one element, though, within your space that's interesting for me, and it's the effect of autonomous vehicles on real estate and infrastructure, obviously disrupting all facets of transportation industry. So I'm really intrigued to hear what fundamental problems that this could create, and is this the kind of issues that strategic investors with you think about?

A Absolutely. I think the real estate industry has come to recognize that it used to be, I'll kind of back up for a second, it used to be the real estate industry thought of itself as, look, we collect rent, You know, every month we're a traditional business. We don't have to worry about technology. And then a bunch of kind of big shocks like came to the industry. One, I think that's very recent and very topical is Airbnb, right? The hotel industry for a while kind of denied that Airbnb is really going to be a competitor. It's a different product. It's a different market. Well, it turns out that's wrong, right? We all can recognize now Airbnb is fundamentally competitive with the hotel industry. And so I think what's happened is that a lot of Real estate investors are looking at the advent of autonomous cars as the next meteor that's going to strike the real estate industry. I think what's unknown today is how does that change things? Like what are the shifts in asset values, in the importance of location, in the importance of logistics and infrastructure around assets that's going to be driven by autonomous cars? There's some probably pretty obvious points. So if you own airport parking, probably not a good idea to own airport parking. That's fairly intuitive, right? No one's going to park a car at an airport probably in 10 years, or very few people will. I think some of the mor…

AI assessment note: “real estate investors are looking at the advent of autonomous cars as the next meteor”

Q Can I ask a very blunt and brutal question then? With such value add from strategics as you position there, why have the traditionals? Surely, you know, I'm sure you could have raised the rest from strategics, adding more and more value. What was the purpose of adding the funder funds, endowment funds, pension funds to you?

A Yeah, it's a great question. I think there's two reasons why we didn't. Number one, in the real estate industry, sometimes these corporates can be somewhat competitive with each other. And so within, for example, the hotel industry, for example, in the mall industry, we wanted one corporate, right? So there wasn't this kind of ambiguity over who we're working with. If we had one big corporate, we knew that was kind of sufficient. I think the second thing was we just saw a really big financial opportunity in real estate tech. This is a category where two billion dollars went into real estate tech alone. Another billion and a half went into hospitality and travel tech. So we knew this space was kind of going to become quite large. And so we wanted to bring in just strong financial LPs that can be here for multiple funds. So it's kind of striking that, that balance, Harry, between we want the corporates, but corporates obviously are working with them is very different than working with a traditional LP, right? A lot of times venture funds will raise Money from their LPs, and they'll send them a quarterly letter, and they'll say, hey, here's where we put your money, right, once a quarter. In our case, it's a much more dynamic, interactive engagement. We're talking to them on a daily basis. We're flying out to see companies. We're piloting. In some cases, we're kind of finding kerne…

AI assessment note: “we wanted to bring in just strong financial LPs that can be here for multiple funds”

Q Can I ask, how do you think the generalist VCs of the world in Benchmark, Sequoia, Lightspeed will respond to such verticalization and strategic value add that you have?

A So, well, I think we actually have some, some proof points on that around how the generalist funds have reacted to this. I think obviously the big brand names out there, the benchmarks, the Sequoias, the Lightspeeds, I mean, they're going to get tremendous deal flow no matter what. But I think what they've realized is that real estate tech, let's just focus on our particular industry. Real estate tech is a massive opportunity. I think on whiteboards all across Sand Hill Road, real estate tech is written somewhere and Double underlined. It's obviously a big area of focus for them, but it has this unique risk profile, right? It has this question around, you can have a great technology, but if you can't find a big corporate partner, it's very hard to scale your business. So that's actually where fifth wall comes in is we oftentimes will go to generalist funds and say, Hey, we're looking at this company. We'd love to have you involved. And the converse of that is that we're now getting a lot of deal flow from the generalist funds. We're saying, Hey, Hey, we looked at this company. Seems pretty interesting. We're intrigued by the team. We're intrigued by the product. We'd love to see what CBRE thinks about this. We'd love to see what Host Hotels thinks about this. We'd love to see if Lowe's could carry this in their stores. And because of that, we get this ability to become partners…

AI assessment note: “we get this ability to become partners with them. So it's almost like we're the specialists.”

Q dive into the element of the LPs invested in you, I do want to take the amateur perspective from my side, just so I can understand this. I'm more of a software guy. How does the risk profile change when looking at real estate technology versus the traditional software, potentially SaaS, that we've been looking at In previous years, what's the differing risk, and what does it mean for that?

A So, it's a great question. I think it's something that makes real estate tech its own beast, its own kind of unique category to invest in. So, a lot of times in tech, right, you face technical risk. You face real important questions like, does the technology work? If it's adopted, will it have positive ROI? These big existential questions like, does what you're investing in actually work? I think what's different in real estate tech is that because the industry has been such a late adopting industry, and as a result, because there's so much low hanging fruit in the industry, meaning you and I can walk around an office building and look at how things are done and say, that's inefficient. That's inefficient. That's a service-based industry. You could do better with technology. There's so much opportunity that oftentimes the innovations themselves are fairly simple. It's like we take a ledger book and we put it in the cloud. That is actually real innovation in real estate. So what I mean to say by that is that the technical risk is oftentimes very low in real estate tech. Like the innovations are oftentimes fairly lightweight, but, and here's the catch, the go to market and distribution risk is enormous. And that's to say it's very hard to take a technology and sell it one by one to all these individual real estate owners. What you really have to do as an entrepreneur is find a wa…

AI assessment note: “technical risk is oftentimes very low... the go to market and distribution risk is enormous.”

Q I do want to kind of specialize in Particularly on one element, though, within your space that's interesting for me, and it's the effect of autonomous vehicles on real estate and infrastructure, obviously disrupting all facets of transportation industry. So I'm really intrigued to hear what fundamental problems that this could create, and is this the kind of issues that strategic investors with you think about?

A Absolutely. I think the real estate industry has come to recognize that it used to be, I'll kind of back up for a second, it used to be the real estate industry thought of itself as, look, we collect rent, You know, every month we're a traditional business. We don't have to worry about technology. And then a bunch of kind of big shocks like came to the industry. One, I think that's very recent and very topical is Airbnb, right? The hotel industry for a while kind of denied that Airbnb is really going to be a competitor. It's a different product. It's a different market. Well, it turns out that's wrong, right? We all can recognize now Airbnb is fundamentally competitive with the hotel industry. And so I think what's happened is that a lot of Real estate investors are looking at the advent of autonomous cars as the next meteor that's going to strike the real estate industry. I think what's unknown today is how does that change things? Like what are the shifts in asset values, in the importance of location, in the importance of logistics and infrastructure around assets that's going to be driven by autonomous cars? There's some probably pretty obvious points. So if you own airport parking, probably not a good idea to own airport parking. That's fairly intuitive, right? No one's going to park a car at an airport probably in 10 years, or very few people will. I think some of the mor…

AI assessment note: “Real estate investors are looking at the advent of autonomous cars as the next meteor”

Q Can I ask a very blunt and brutal question then? With such value add from strategics as you position there, why have the traditionals? Surely, you know, I'm sure you could have raised the rest from strategics, adding more and more value. What was the purpose of adding the funder funds, endowment funds, pension funds to you?

A Yeah, it's a great question. I think there's two reasons why we didn't. Number one, in the real estate industry, sometimes these corporates can be somewhat competitive with each other. And so within, for example, the hotel industry, for example, in the mall industry, we wanted one corporate, right? So there wasn't this kind of ambiguity over who we're working with. If we had one big corporate, we knew that was kind of sufficient. I think the second thing was we just saw a really big financial opportunity in real estate tech. This is a category where two billion dollars went into real estate tech alone. Another billion and a half went into hospitality and travel tech. So we knew this space was kind of going to become quite large. And so we wanted to bring in just strong financial LPs that can be here for multiple funds. So it's kind of striking that, that balance, Harry, between we want the corporates, but corporates obviously are working with them is very different than working with a traditional LP, right? A lot of times venture funds will raise Money from their LPs, and they'll send them a quarterly letter, and they'll say, hey, here's where we put your money, right, once a quarter. In our case, it's a much more dynamic, interactive engagement. We're talking to them on a daily basis. We're flying out to see companies. We're piloting. In some cases, we're kind of finding kerne…

AI assessment note: “we wanted to bring in just strong financial LPs that can be here for multiple funds”

Q said we spoke about kind of shooting for that five billion dollar outcome, the burning the boat style, that really we've both looked for and searched hard for over the last few years as kind of more traditional software investors. Is it challenging for you to almost transition your people assessment today with the retail fund, where that actually makes you a little uncomfortable, whereas before it was a necessity?

A Not so much. I mean, I think with both our real estate technology fund and with our retail fund, we are looking for entrepreneurs whose vision closely aligns with our understanding of what the value of their underlying product is, right? So a congruence and alignment there is just so critical for us. Now, out of our real estate technology fund, we've invested in companies like Lime, where there's a potentially massive consumer outcome because the market is enormous, the market is It's growing. It's a brand new concept, and we're still really learning the underlying unit economics of this space as we invest and as we actually go. In the case of retail, there's just far less variance, right? So you can have a better understanding of really what is it going to cost to grow online? What are CACs online, and how are they changing in this particular category? And by that same token, you have a clearer and better understanding of what does it cost to actually build out stores and how much goes into that and And how big a team do you need? And what kind of merchandising do you need? And should you actually put in place inventory finance lines to support that? And so because of that, I think you just have less variance in terms of how much risk you're taking operationally. I think it can vary depending on when you're investing in retail. So when you're investing at an angel stage and yo…

AI assessment note: “Not so much. I mean, I think with both our real estate technology fund”

Q caps upside than maybe traditional software companies, can I ask, given the capital intensity Is dilution a big concern for you? And at what point do you think one should maybe flip from the traditional venture financing model to maybe once you have everything proven out, Unitecon kind of programmatic in terms of its predictability, moving to almost a lending vehicle to finance the growth instead of a venture financing?

A I think it comes down to two things. I think one, it's what kind of outcome are you chasing, right? So if you're chasing a multi-billion dollar outcome, you are going to have to raise a lot of capital. To finance both online distribution, now complemented by an enormous fleet of physical stores, and a number of brands that we see in the market are doing this and taking this strategy, but I think you just have to accept that comes with dilution. What I absolutely agree with you on is that there are a number of brands for which I don't think the multi-billion dollar exit might be in the cards, and so instead they should look to more creative forms of finance, whether it's inventory finance, or frankly, when landlords are actually willing to give More flexible leases. That in itself is a form of financing to these brands they can actually look to, to fuel their growth. So I think it's both a function of what outcome you're looking for, and I think more and more what we're seeing is that new brands are pretty self-aware around the fact that I think we're not going to have the gaps and the banana republics and the major brands of the era previously replaced by five to 10 new brands, but instead they'll be replaced by hundreds of brands. And so Walmart Retail as a category is growing. Consumer choice is expanding. And so what it means is you're going to have a lot of intermediate out…

AI assessment note: “instead they should look to more creative forms of finance, whether it's inventory finance”

Q Can I ask, I'm, I'm super bullish on the expansion of kind of CBDs and, uh, suburbanization, uh, outwards. Provide a case that answers the contraction element of kind of, uh, urban environments contracting with autonomous cars. What is that argument?

A Yeah, so that's an argument, right, that people have been saying for a while, which is you're seeing this shift of millennials, right? They, they want to live in cities, and there's been this Kind of re-urbanization of a lot of areas. Our generation, I assume our generation, the millennial generation, is the first generation to earn less than our parents, and as a result of that, the affordability has gotten worse in these major cities, so a lot more people are renting for longer in life. They're not buying homes in the suburbs as much, and actually, you've seen the rise of next-gen living concepts, whether it's like micro-apartments or co-living, these kind of like shared communal living facilities that actually are Quite becoming quite large in real estate tech, and so you're seeing almost like this sociological and just demographic push inward, and so I think there's an inherent tension there, which is when it becomes easier to commute, do you just want to live someplace further afield that's prettier, or are these poles towards kind of the urban core, are they tighter? I mean, you look at what's happened even in San Francisco. I think there used to be a lot more tech companies that were based in the peninsula and outside of San Francisco, and what's happened is that Because these companies want to attract millennials and younger workers. They've relocated to the urban core,…

AI assessment note: “you're seeing almost like this sociological and just demographic push inward”

Q What was the most challenging element of the fundraise and how did you overcome it?

A The most challenging element of our fundraise was kind of relates to my last question. It was building something differentiated. I think we believe that real estate tech was going to be big. I think at the time, maybe that was a newer point of view, but it was becoming consensus. I think now it's kind of fully consensus. Mm-hmm. But it's really not enough just to say, this is going to be big. We want to go invest in it. What we really struggled with was how do we find a way to engineer an edge? How can we really help our portfolio companies by virtue of having strategics? And also, how do you pick the right strategics, right? How do you pick the companies that are most committed to technology as being a fundamental part of their future? And that was really hard. You know, literally, we kissed a lot of frogs. We had a lot of meetings with pretty much Everyone in the real estate industry. So that was really hard. That, that kind of first step raising that first, as I said, a hundred and ten million from strategics was, was very challenging.

AI assessment note: “We had a lot of meetings with pretty much Everyone in the real estate industry.”

Q Can I ask, do you think the thing preventing the fundamental shift is the mechanical, um, risk, or do you think it's the educational risk on the side of the consumer?

A So I think it's really three drivers that will dictate the future of autonomous vehicles. I think one is a technology risk. Like, when will we actually have the capability of having fully autonomous cars? We have partial solutions today, and you can debate that at length. But I actually think that's the easiest risk to condition. Like we are going to figure that out. There is a future where we will be able to produce cars that are fully capable of driving themselves in all conditions, in all circumstances, on roads with human drivers or car or mechanical drivers around them. The second question, which I think is interesting to look at Tesla around is price point, right? If only the wealthy can afford these autonomous cars, it doesn't really matter. You're not going to have mass adoption of it. So The price point of these fully autonomous cars has to drop to a point where you can have mass adoption. That I don't know. I think it'll be interesting to see, with Tesla's new model, how that fares. Um, I think the third question is regulatory. There's all sorts of complications around our existing road infrastructure, even big ethical implications, like what do you program a car to do in a definite accident scenario, that we haven't really wrestled with, where Liability lies in an accident. No one has really wrestled with that. I actually think that is the biggest unknown. So it's re…

AI assessment note: “So I think it's really three drivers that will dictate the future of autonomous vehicles.”

Q Can you ask, does that change your strategy, then? Because if you have this awakening within the corporate subset, shit, you can build, like, highly specific, verticalized Product offerings for each different type, and actually with the wave of capital that they would bring, be almost needed unless you had a mega fund, like mega, mega fund. How do you think about how their awakening changes your strategy?

A I mean, we've never seen corporates take a more forward posture on tech, in tech adoption. I think everyone gets, this is now an existential question, and this is true of every subsector of real estate, from like self-storage, data centers, to multifamily, to home building. It's Everywhere. You're right. I think one of the things that is just surprising about, you know, we brought this up earlier. People thought prop tech wasn't a thing or real estate tech wasn't a thing. Now, sixty four billion dollars has gone into the category in just the last five years. So it's a thing. And sixty four billion dollars is a lot of money. And even though fifth wall is the largest real estate tech fund, what we're increasingly seeing is a stratification of what that means. So when you start looking at FinTech, everyone represented on this call. And then you start looking at smart buildings and climate tech. These are all fundamentally different things. And the applications To the real estate industry in different subsectors are very different. Everyone on this call sells into home builders, which is largely like a manufacturing business and is considered real estate. And that is so foreign from like self-storage, which is also a massive industry. One of the largest publicly traded REITs is public storage. I mean, literally that company is sheds with lights. So the difference in the needs and t…

AI assessment note: “what we're increasingly seeing is a stratification of what that means”

Q What are the trends that we should predict? Uh, how do you want to finish it with that, mate? What should we expect? How do you think about it? What are you most excited for? Help me out.

A Look, I think VCs should have two characteristics. One, they should be truthful, and two, they should be really supportive and promotional in their portfolio company. So I'll answer it, but I'll make it very applicable to everyone on this phone. Like I said, there's billions of dollars of enterprise value on this phone in terms of prop tech that have been created in the last four years. And prop tech has grown five X last four years. I think you're on the phone right now with over a hundred or hundreds of billions of dollars of enterprise value right now between hippo state's title and blend. And I highlight that just to make the point that prop tech is 10 to 20 X from here. And everyone on this call, I think is going to be a big beneficiary of that. And so in some ways, I think this is allegorical of like where the future is headed in this space. This is The largest industry in the United States that is getting disrupted with technology. Hundreds of billions of dollars of enterprise value is going to be created, and it already has, and more is to come.

AI assessment note: “prop tech is 10 to 20 X from here”