My background is in commercial real estate where I am currently an analyst for a bank doing commercial loans and debt capital market functions. The real estate has always lagged behind, but as someone who's kind of a tech nerd, I've noticed the last few years have really taken a turn in the real estate space. The residential real estate market has changed dynamically with zillow/redfin in the last few years and now the change is starting to happen with the commercial real estate space. Firms like JLL and Fifth Wall are recent tech related startups/VC funds that are looking to move the industry forward.
Being in the banking industry I'm a little familiar with the real estate private equity side, having interned at a fund in college. I'm not super familiar with development, but I understand the industry from an outsider's view.
Venture Capital on the other hand... I really have never dived deeper into learning about the industry. I'm early out in my career, so I'd like to start trying to network with people in the VC industry and learn what it entails to work in the space.
I want to try to absorb a lot of information in a short period of time so I don't sound like an idiot when speaking to someone in the space.
Are there whitepapers, powerpoint slide decks, industry papers/websites, books that you would recommend to learn more about the VC industry and specifically the real estate side of the industry?
No VC fund would ever be focussed on the real-estate industry. It would be tremendously difficult to raise money from LPs focussed just on such a small portion. The new age real estate companies like Zillow are digital companies so its pretty much same as any other digital company. Learn more about the digital economy, advertising (ad-tech) and maybe the new so called sharing economy.
The real estate industry is a multi-trillion dollar industry that affects everything from investment managers, financiers, municipal tax revenues, all the way to you finding a place to live. That sounds like an incredibly ignorant statement to make. The founder of Zillow Rich Barton created because he was so frustrated with the immense lack of data (or focus) on the residential real estate sector.
Its not a major investment sector in the VC industry. VCs try to be neutral on raising funds within an sector as it helps to raise more money. You can probably raise max USD200M fund focussed on RE tech. For a SaaS + Data focussed fund you could raise USD 5bn.
If you know RE... it doesn't really help in working in VC. You need to more about companies can be built and products can be made competitive .
I have raised a fund so I think I know what I am talking about. Thanks.
Ok, well this is wrong. Check out Fifth Wall
I feel like real estate is tangentially related to fintech - so maybe fintech funds would focus on real estate tech? This is niche as fuck. Having domain expertise is good, going too far is bad. I don't know if you'll find what you're looking for.
From mid-2016 to early 2017 VCs poured more money into real estate tech than ever before. The Simon Group re-launched their venture fund. A bunch of quiet real estate startups like Matterport started getting the serious attention they deserve. There's a ton more that are real estate/construction focused. Like ICOs/crypto right now, real estate was insanely hot for a bit. Everyone wanted a piece.
Right now, the partners at my firm believe the Redfin IPO will have an outsized effect on real estate tech's outlook for better or for worse. There's plenty of investment into the space but few great exits/outcomes so a lot of VCs are hoping Redfin doesn't pull a Blue Apron.
In terms of resources, I can't give you any of my firm's stuff, but I'd just search the real estate tags on TechCrunch and Crunchbase. Maybe do a real estate search through Fortune's Term Sheet. It's not like there's a ton of real estate specific info out there and to be honest I don't think you'll find what you are hoping for. It's not massively different from everything else VCs invest in. There are ERPs, CRMs, data plays, sharing economy companies, etc. like there are in any other vertical tech looks at.
Why do people keep adding modifiers in front of real estate? Real Estate IB and Real Estate PE is just real estate.
You are selling an asset, not really a business. You are trading.
Yea...cause the only thing people do in the real estate industry is sell buildings.
PrivateMarketplace You're coming across as remarkably combative. I have been fortunate enough to raise funds for more than one strategy. The thing I learned most quickly is that the classic 'YMMV' acronym holds very true: your mileage may vary.
For example, let's address individual elements of your post. Some are objectively incorrect and others are subjective.
That is demonstrably false. Last year was a banner year for real estate tech: (i) the sector reached a new high in deal count (235) (ii) dollar inflow also broke records ($2.6b, up 40%) with three mega-rounds over $150m (Homelink's $926m Series B, OpenDoor Labs' $210m Series D, and SMS Assist's $150m Series D) (iii) four companies joined the unicorn club (Compass, Homelink, SMS Assist, OpenDoor Labs) This has also been proven false. Brad and his cofounder raised $212 for their first fund at Fifth Wall, and they had further interest but declined it because a) they were getting further away from the start of the investment period and the mechanics of repeated additional closes further away from your start date get hairy, b) fundraising consumes an inordinate amount of time (as I'm sure you know from raising your own) that could be better spent on investing, and c) they're smart enough to know that saying "Sorry, we're full" on Fund I helps you get Fund II done that much quicker. This is entirely subjective. There are some people who raise as much as they absolutely can. There are others who scratch their head and wonder why someone would want the burden of trying to 3x a billion dollar fund. There are others who have an eye on the inverse correlation between fund size and performance and rigidly manage their AUM. There are others who prefer a certain lifestyle and don't have any interest in scaling their firm the way you often have to as AUM scales. This makes me really uncomfortable. I always wince when I hear investors demeaning sector expertise. Tren Griffin writes so well about this (and invokes Chris Dixon).You may counterclaim that you weren't speaking about expertise in founders but rather in investors, but the immediate answer would be that if someone is choosing to specialize as an investor, either through a industry-focused fund or just through self-direction within the context of a large fund, expertise is valuable in the same way.
Smart founders know this. The best will assemble different types of investors who offer different value when they close a round. Some investors are figureheads (they bring credibility). Others are fantastic generalists/operators (they help you build a sound business). Others are experts (they live and breathe a space and co-navigate it with and for you).
In short, a blanket statement like the first sentence of your first post ("No VC fund would ever be focussed on the real-estate industry.") is ill-advised, and in this case, unfounded.
To the OP (@Surfing Pirate"), here are some quick pointers:
(i) Put yourself on as many generic venture lists as you can manage. Good ones are Pro Rata (from Dan Primack, the don of tech newsletters), Term Sheet (what Dan spent six years editing at Fortune, now written by Erin Griffith after his departure), StrictlyVC, and Launch Ticker (from Jason Calcanis, arguably the most prominent angel, sort of this younger generation's Ron Conway).
You'll get daily emails (sometimes morning and night). If you read them thoroughly and start building any kind of tracking or bookmarking system of your own, this is 30-60 minutes daily that will keep you up to speed on what's happening. Over a couple years, you'll have an immediate grasp on useful things to know, like the rough intervals between certain hot companies' raising rounds, average round sizes in specific verticals, and updates on who is currently where (it's good to know when investors are changing shops).
(ii) Absorb as much quality long-form content as you can. At the beginning, the immediate value is that you simply know what some of the smartest minds in venture are thinking. Over the longer term, you will be able to critically evaluate someone's thesis in light of your own insight.
Top-notch ones to start with include the First Round Review, Benedict Evans' blog, Fred Wilson's blog (AVC), all of Paul Graham's essays, Bill Gurley's blog, Marc Andreessen / Ben Horowitz's (look at A16Z.com), and Stratechery.
(iii) Go talk to people. The best way to learn is from people doing what you want to do. VC operates religiously on warm intros, so figure out who in your immediate network can make an email introduction to someone at a fund where you'd have an interesting conversation. Make sure it's always a double opt-in, otherwise the person you're trying to reach will very likely file you away in the 'avoid please' box.
Ask smart questions. This means it's better to not ask for meetings or calls until you can participate meaningfully in a conversation. This is the difference between you asking "please tell me about your experience" and "I've enjoyed studying your portfolio, congrats on the Series B so-and-so raised; did you see any compression in SaaS unit economics as the company nailed down the model and enters the growth phase?"
For that latter one, you'd need to know a) what 'unit economics' means (for a quick primer, read this), b) what the current barometer for 'good' unit economics reads, and c) that a company raising a Series B is expected to have finalized its business model to the point that there aren't really unknown variables at play and an investor can expect X dollars to turn into Y revenue. (This is what "growth stage" refers to, in that the business has left the "early stage" (solving unknowns) and is now focused on market share capture.)
(i) and (ii) prepare you for (iii), and over time, (iii) starts informing how you view all that you learn in (i) and (ii); it becomes a self-reinforcing loop.
Good luck. Your goal is very doable, and if you work hard at getting smart, you shouldn't have trouble moving over. The problem I see from people trying to switch from finance to venture is that they remain stuck in the banking recruiting mindset. You can't grind your way through. Simply meeting a raw volume of people doesn't matter. You need to meet the right people and you need to interact with them in the right way.
Thanks for the really well researched reply. I appreciate it. I would say that yes my reply was flippant and probably arrogant but I think you just proved my points.
1) RE tech is not a major VC investment sector: I think overall VC investment in 2016 was about USD130bn. 2.6bn out of that is a meager 2% ( or the definition of not being a major investment sector). If you would wanna go by deal count, I think overall there were about 13k VC deals so 235 in one sector would be about the same 2%. Thanks for researching and proving my point, mate! I dont know why people would argue anything being major or minor with dollar amounts instead of percents.
2) I know about Fifth Wall. One fund raising only 212M when I said "you could probably raise 200M max" is nitpicking at best and at worst it proves my point that there aren't many RE focussed funds and focus on single sector isn't usual. One fund out of thousands is rather an anomaly than the trend, don't you agree.
3) Having non-sector focussed funds is better, always has been. It provides flexibility, diversification and statistically generates higher returns (look it up!). Subjective, maybe, to a point but not really. And I agree with your analysis that the fund size is to each his own. But if you know anything about how funds work and LP GP relationships works, you need atleast a USD200M fund to be worth the time, effort and money (carry) given atleast 3 GPs in my opinion. What do you think?
4) I have been doing this for a while and you don't need specific skills to do job per se. You only need to be smart and have passion about this. But getting in to a strong VC is a different story. Anyway, I don't have time or interest to write a 1000 word treatise on it.
Thanks for pointing out that my previous comments were arrogant and flippant. I do agree but you did prove my points while trying to prove yours, so thanks for that too.
Hope you had a good weekend.
I appreciate how rare it is for someone to respond with maturity when someone else mentions their attitude. I also love conversations like these when people can contribute civilly with different viewpoints about a nuanced topic, so I want to reply to your points for the benefit of everyone else reading.
1) We are both right. You are right when looking at this in relative terms. I am right in absolute terms, which is to say that anyone thinking about whether a background in real estate could be useful as a venture investor has both a resounding 'yes' today and continually improving odds for tomorrow.
VC is such a momentum game; the simple fact that WeWork, Redfin, Ten-X (the revamped Auction.com), OpenDoor, Compass, etc. are enjoying the success they are means it's now easier for founders to raise venture money for real estate deals.
If I'm a seed stage founder looking for a $2m check, I am in no way whatsoever discouraged at seeing "only" 2% of venture dollars going into real estate tech deals: I'm ecstatic seeing the $2.6b figure.
2) I do agree, it is nitpicky and an exception. I wanted to illustrate with the additional color I provided that the number they wound up with was not a function of market appetite but rather of circumstance and GP decision.
3) You're completely correct (on generalist funds' outperformance), I never stated anything to the opposite effect.
On the fund calculus, the ultimate determining factor on whether the math will work is how many partners are involved. I know a guy in New York who is on his fourth vehicle and has not yet failed to deliver 8x or better, and Vehicle IV is ... $15m.
How does this work? He writes $500k checks (big enough to be an entire angel/F&F round [and get outsized ownership] or fill out a big seed round after a First Round or GC or somebody writes a $2m check) and does about five deals a year. His dealflow is excellent (multiple exits as a founder, so people come to him for advice all the time), the value he adds is noticeable and impactful, and his personal liquidity means he doesn't need management fee income.
That ties to the penultimate factor in fund calculus, which is what your LP base is. The standard model is to pursue institutional investors for your fund for all the benefits they bring: a seal of approval that helps you attract future investors, sticky capital that rolls with you across funds, an advisory or oversight committee with people with a wealth of experience, etc.
There are some funds, however, with zero institutional investors, all family/HNW money. Factors for this could be:
(i) an inability to attract institutional capital (I know one husband and wife team in Europe with good performance that could not raise institutional capital thanks to key man risk) (ii) no desire for the administrative burden that institutional investors require (iii) a strategy that requires lower AUM (perhaps a focus on a market vertical that's smaller [like real estate, haha], or going so early stage that a larger war chest is unnecessary, or a deal count low enough that your fund can be smaller than people would think) (iv) a focus on discretion (where you want to avoid being trafficked the way GPs and their performance or personal info is within the LP universe)
These are the ones I've seen make things work below that $200m threshold. Often they're in a regional city and have a light team. Not to say that either model (institutional capital or not) is better, just to comment on how I've seen it work.
Take care.
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