Q&A: Investment Banking Analyst to Startup Co-Founder

To Marcus Halberstram:

1) I've saved a decent amount after my analyst stint in banking and have enough to support myself for at least another year. Launching the startup soon and the goal is to raise a Series A within a few months and take a salary.

2) My cofounder and I came up with the initial concept a while back after going through the apartment hunt ourselves. We realized that if we just had real listings, we don't need a broker to hold our hand and charge us 15% to open the door. It took some time to research and plan before we decided to pursue it full-time.

3) Good point. Zenly does actually require you to visit the apartment in person before you can submit an application. The videos serve the purpose of saving you the time of running around the city exploring everything. You can narrow down the listings to one or two that you like, visit in person, and submit an application in one day.

thebrofessor:

1. how do you make money in your startup?

2. are you just doing NYC or elsewhere in the country?

3. why'd you leave IB?

4. where'd the name come from?

5. any plans to do purchases instead of just rentals?

6. what's the endgame? sell to something like Zillow or IPO? continue business in perpetuity? do well for a few years, then fold it?

7. any outside investors in this or just personal/family capital?

best of luck to you, I admire your ambition!

1) Zenly charges a fee of 5% from the tenant upon lease signing. Due to our technology and that we do not use brokers, we are able to charge one third of what a broker would charge you. When we launch this summer, there will even be additional discounts.

2) We are launching in NYC but have plans to expand to other cities such as San Francisco, Boston, etc.

3) I did not find a favorable exit opportunity and was pursuing this in its early stages while still in IB. When we got enough traction and this seemed promising, I decided to pursue it full-time as it is nearly impossible to run any side project while still being in IB.

4) We are trying to make the process of apartment hunting more Zen (peaceful, easy, etc.). We wanted a name that was short and catchy and not tied to one vertical (i.e. ZenRentals).

5) Yes, we would like to expand into other verticals including subleasing (i.e. Airbnb), sales, etc.

6) All options are still on the table, we're very early stage right now.

7) We raised seed capital from a strategic investor in the real estate industry.

Thanks for the support!

duffmt6:

What's the difference between your product and Urban Compass?

Excited to see some technology startups entering the mess that is apartment rentals (not exclusive to NYC). Best of luck.

Urban Compass is a traditional brokerage firm like Century 21 or Douglas Elliman. You still need to work with their brokers and you pay a typical broker's fee. When they launched, they were paying their "neighborhood specialists" a salary instead of commissions, but they've reverted to a traditional brokerage model several months ago.

Zenly is different from all other companies out there in the three points listed on the site: 1) 100% real listings with video walkthroughs 2) Visit on your own schedule 3) Apply online without a broker

timpson:

Do you think your banking career has helped with your current business career (apart from the obvious fact that banking meant you were in NY)?

How did you sort funding out and what sort of ownership structure has the firm got (be as vague as needed)?

Also, not to be negative but this seems like quite a risky venture so what made you leave the security of you IB career?

Yes, banking certainly helped- see above answer.

Through a lot of networking and some luck, we found a strategic partner in real estate who invested seed capital. I cannot disclose the terms or ownership structure.

What makes you think IB is secure? ;-)

MJK:

Are you enjoying the start-up life? I'm sure there were ups and downs--how did you get through when it looked like you might not make it?

I'm enjoying the startup life now- working on my own project, my own hours, etc. However, there were certainly many moments of doubt, especially early on. The more progress we made, the easier it became. Ultimately though, we believe strongly in our vision and that's what keeps us going.

ActivistInvesting:

You touched upon this, but may you please tell us a bit more on how you pitched the company to prospective investors?

In other words, what convinced the individual you've networked with to risk his own capital by investing in your startup?

This particular individual had experience in residential brokerage, and instantly identified with our idea. Regarding pitching other investors who don't necessarily know real estate, we follow many of the guidelines that you can find online - i.e. identifying a problem, providing your solution, showing a big opportunity, analyzing competitive landscape, etc.

We created a thorough business plan and thought about every possible question and scenario. When investors say that they "believe in the team", it's not just the creds on paper, but how well they know their business.

NYMonkey371:

Good idea, I thought about this as well when going through the apartment hunt.

I think the most difficult part of this will be getting the building owners to post on your site because it is easier for them to use the traditional brokers (and they don't pay for it). I would also focus on making the process more efficient for them and make it clear they will get a higher price/rent (a portion of the saved broker fee). If you can build these relationships with different buildings the renters will definitely come.

You make a lot of good points. One of the biggest challenges certainly was building relationships with the property managers and getting them on board. We now have over a dozen of the large property management firms in NYC on board, and it's getting easier to add more.

In regards to your point about brokers- building managers actually do not like working with brokers as they receive many clients that don't apply or don't have the proper credit (brokers will try to lease to anyone). They also DO actually pay the broker sometimes (this is called offering an "OP" - owner pays) when their apartments aren't leasing as fast as they'd like.

Zenly is a more efficient solution for property managers because our team comes in for 5 minutes to video the apartment, and then we only drive interested tenants to the property. If someone doesn't like what they saw in the video walkthrough, they will not come to visit in person. Property managers also acknowledge, as you point out, that due to our lower fee, they can collect a higher rent.

notaspammer:

Just out of curiosity, which one of you is the licensed broker in the company? From what it sounds like, you take a 5% fee on listings that are direct from management, so you're still finding tenants and placing them in buildings, similar to a typical rental broker, just undercutting the fees.

I had an idea for a tech startup, but I haven't worked in the industry long enough to be eligible for a broker's license. How did you tackle this legal hurdle?

Really hope you're successful with this, by the way. NYC apartment hunters are begging for someone to find a way to undercut the brokers.

You are correct, we are undercutting the traditional broker fee and we are placing tenants in apartments. However, we are providing the first do-it-yourself model for the tenant, by giving them the accurate listings online and having the platform for them to complete the process on their own without an agent. You can say we are effectively an online brokerage. We have more than one license in the firm, including mine.

JohnTheFinancier:

I know someone who runs a tech start-up called Urban Compass in NY doing pretty much the exact same thing.

I assume you mean Urban Compass is doing pretty much the exact same thing as Century 21, Citi Habitat, Douglas Elliman, or any other brokerage firm. They don't have real listings or videos, and you have to work with a broker and pay the standard commission.

There are over 30,000 new rentals annually in Manhattan alone (based off Douglas Elliman reports). The addressable market is much greater of course when you include Brooklyn, Queens, Jersey City, etc.

Brokers definitely take the lion’s share of these leases. Our surveys indicate that very few people are able to go direct to landlord, including experienced New Yorkers. The reason being that there is no accurate source of listings out there, and majority of people still default to Craigslist which is filled with broker spam.

The average Manhattan rent is now close to $4k (median is around $3200). That means that on a $4,000 apartment, a user saves $4,800 in broker fees by using Zenly.

Uruz:

Zenly sounds like a fascinating idea. But how does scheduling work? I remember scheduling showings as a broker and just arranging access with supers and management companies was a big pain and often unsuccessful.

Building managers get an email to confirm the appointment when a user requests it. When they confirm, the user gets the specific address of where to go and who to meet. Similar to how you get a confirmation from seamless when the restaurant receives your order. If the building manager doesn't respond for some reason, we follow up by phone on the back end to confirm the appointment.

Quaneaser:

My friend actually showed me Zenly a month or so ago independently, so congrats on working the hype machine well.

How do you plan to scale the business with regards to the video service? Right now with not as many listings perhaps the founders can video, but what about when there gets to be hundreds/thousands of listings?

Nice, thanks. Curious how your friend found it and/or why he showed it to you?

We have a team doing the videos. It will scale well - the more inventory we get, the more we can focus certain videographers on certain neighborhoods, so they can be more familiar with the buildings, be in and out faster, and spend less time traveling in between buildings.

RGE:

How does your company compare with onradpad.com? Radpad helps users find apartments, condo's and houses for rent. Best of luck.

See my points above- Zenly is not just a listing website like all the rest. Real listings with videos, and a do-it-yourself platform.

The Tesla vs. dealership fiasco comes racing to mind...

notahipster:

I hope you have $$$ for lawyers. Extant protectionist industries don't take well to easy to use cost-saving competitors, especially in NYC. See Uber. If you take off (let's hope!) and start stepping on brokers' toes you, there will be progressive concern about the safety of your product... for the good of the consumer of course.

I'm counting on it. We'll know we're doing something right when we start facing lawsuits and regulation issues.

Lester Burnham Lambert:

I am curious about how you spend your time. Are you the salesman or have you hired a rep?What are some of the biggest challenges you have faced to date?

Congratulations on taking the plunge. Sounds like an exiting opportunity. Best of luck.

I'm the salesman, the HR rep, the operations manager, the accountant, and the janitor. Such is the nature of a startup.

The biggest challenge is trying to introduce a new way of doing things to an industry that hasn't changed in a hundred years. I've found that the people who are open minded instantly see the value of our business. The ones who don't want to hear it will not be convinced any which way.

The other challenge is trying to juggle so many responsibilities and managing my time efficiently. Setting specific tasks for each day and trying to stick to weekly timelines helps.

iamfromcanada:

In addition to Urban Compass, how does this differ from RentHop (other than perhaps a video, which can easily be added)? Seems like it's the broker vs. no broker model. If that's the case, how will you scale if this thing takes off (having to pre-vet each and every apartment)?

What are your barriers to entry? Seems like a decent number of people with some coding resources and real estate experience could easily enter the same market.

Urban Compass and RentHop are two fundamentally different businesses. One is a traditional brokerage firm, the other is a listing website where brokers post garbage listings. See above or our website for how Zenly is different.

In terms of scaling, we have an efficient operation that will improve as we grow, but I cannot disclose specifics. Our barriers are a combination of tech, operational efficiencies, relationships, and branding, not to mention first mover advantage.

You could say the same thing about Seamless - anyone with some coding resources and restaurant experience could easily enter the same market...not that simple in reality.

madmax20:

The bottom line is getting access to inventory. You can have a great low cost model, but if you only have a small number of crappy apartments, fee or no fee, potential renters will still go through the traditional routes. How do you plan on getting property managers to list with you and divorce from their long standing broker relationships?

Yes, you are correct that getting access to inventory is a key factor. We're already working with many of the large property management firms and have access to high quality listings. We get them on board by offering value - a more efficient process to fill vacancies that does not interfere with what they do today, and the cost savings for them and for the tenant.

In terms of "broker relationships" you mention - most large firms do not have exclusive brokers. They operate with an open listings model, and don't particularly like working with brokers anyway as I mentioned above. We believe the few managers that have exclusive broker relationships will divorce them over time when they realize Zenly is a cheaper and more effective solution, and some have already discussed this with us.

madmax20:

The bottom line is getting access to inventory. You can have a great low cost model, but if you only have a small number of crappy apartments, fee or no fee, potential renters will still go through the traditional routes. How do you plan on getting property managers to list with you and divorce from their long standing broker relationships?

Yekrut:

Very inspiring story. I know you've alluded to some of these above, but was wondering what you found were the three most valuable skills you took with you from IB? Also curious to learn how you stay focused and dedicated to you idea? Are there any days where you feel like quitting the startup grind? How does it feel to be working for yourself?

1) Politics / dealing with difficult people - IB teaches you how companies are run and who are the decision makers. This is valuable when pitching business to new companies and trying to get through to the right people who are often busy. 2) General work experience and attention to detail - anything from setting up a conference call to attaching a PDF of an executive summary is useful experience and not trivial. I certainly would not be able to run this business in the same manner if I did it right out of college. 3) Work product - creating company profiles, pitch books, financial models have all been relevant and will be more relevant when we go for Series A.

There are definitely days of frustration, but those have become fewer and fewer the more progress we make. What keeps me on the path is the potential to earn real wealth. You'll never achieve wealth by collecting a salary. I would also feel extreme regret forever if I didn't pursue this opportunity. You hear it all the time that you should take a risk when you're young, try things out, etc. - so that's what I'm doing.

Am I sometimes envious of my friends in PE with a nice paycheck? Of course. But I could actually not fathom going back to working for someone else on pitch books and being glued to a blackberry hoping that it won't ring on the weekend.

LongandShortofit:

Did you consider going to Kickstarter for funding? Why or why not?

We did not want to reveal our business model publicly. It also didn't make sense for us, as we weren't manufacturing a gadget to sell. We wanted a strategic partner who could provide more than just cash.

Lloyd_Blankfein:

Do you charge a 5% on no fee apartments? If so, how do you prevent customers from scoping out the listing on your site and going directly to the no fee management company?

This is a common misconception - there is no such thing as a "fee" or "no fee" apartment. Apartments don't charge fees, brokers do. If a broker ever shows you a "no fee" apartment, it means he is collecting his fee from the management company.

We only provide the specific address of the unit after the user schedules an appointment through Zenly. By doing so, the user legally agrees to pay us the fee for any unit visited through our site. We also have the cooperation of the management company in collecting our fee for clients that come through us.

wdb:

well done. SB. good luck!

1. were you confident analyst position was not too early to leave? would you stay if you had exit opportunities on higher levels, would you prefer career (say IB to buyside, etc.) or would you end up in this (or any other) startup anyways?

2. I understand what it is like running a startup and your doing lots of different stuff yourself but still curious what's your average day like?

3. how many people are there in Zenly's team now?

4. how many co-founders are there in Zenly – it's only you and your brother or more people?

5. hope this never happens and you'll manage to get the funds, scale, etc., but what are the alternatives – you coming back to IB or you launching another startup? or any other thing?

6. how exactly did you come up with the idea of this, how did you manage to combine IB analyst position with preparing to launch a startup (did they overlap?)?

7. any other possibilites of monetization going forward beyond the one you mentioned?

1) The circumstance I was in (not satisfied in IB and not getting an exit opp I liked), combined with the timing and progress we had with Zenly gave me the push to pursue it full time. If I got an offer from KKR it would definitely be harder to give that up. I'm glad I'm pursuing this now in my career rather than later. Can always go back to a salaried finance job if this doesn't work out.

2) Average day has really varied every month as the focus shifts. A month ago I was very focused on sales, marketing events, and hiring. Now I'm more focused on sales and operations. Each day is different really.

3) The team is very lean (less than a dozen).

4) Just two cofounders.

5) Tough question but one thing I'm considering if this doesn't pan out is getting into real estate finance given my banking background. Would not have much interest pursuing another startup after this.

6) Been through the apartment search myself and saw the inefficiencies. Gradually came up with the full business plan as we did more research. Quit banking before things got really busy with the startup.

7) Too early to say.

Asia_i_Banker:

Congratulations to you! I also left my IB analyst job to launch a start-up. It was extremely tough, although a valuable life experience. After about a year, I closed down and went back into IB. I feel much more comfortable in my life now, psychologically, after having at least tried to start my own business.

I hope you guys do well.

Thanks, props to taking the risk as well. Curious how you got back into banking after leaving for a startup. Did you come back as an analyst where you left off, or had to go back to school, etc.?