Description: Innovation is rampant in real estate, one of the last redoubts of unreconstructed old-school business. Seid is a successful entrepreneur in real estate tech. He helped us assemble top companies bringing efficiency and fairness to this huge industry.

 

The following transcript has been lightly edited and condensed for ease of reading.

Speakers: Michelle Chen, Ofo | Adena Hefets, Divvy Homes | Eric Wu, Opendoor

Moderator: Jake Seid, Stone Bridge Ventures

Interviewer: David Kirkpatrick, Techonomy

(Transcription by RA Fisher Ink)

Kilpatrick: Jake Seid, who I’m going to talk to for a few minutes here is a friend who was a venture capitalist and decided to kind of put his lot into the real estate business and why don’t you first introduce your panel and then I’ll interview you for a couple minutes

Seid: Great. Well, starting with Eric Wu, Eric is the founder and CEO of Opendoor, the fastest growing online real estate marketplace. Prior to Opendoor, he spent many years at Trulia, previously sold his company to Trulia. Before that, Eric was actually a repeat entrepreneur, starting a company called Movity which was acquired by ApartmentList and he was E&Y Entrepreneur of the Year.

Adena Hefets, further down the row, is founder and CEO of Divvy Homes. Prior to Divvy, she was leading the fintech practice at DFJ and has actually a lot of experience in fintech being very early at Square and leading some of their early product teams.

And then Michelle Chen. Michelle brings a different perspective from the transportation industry companies like Ofo and Uber. If you haven’t heard of Ofo, they’ve raised over $2 billion in capital in China for bike sharing. And the reason why I invited Michelle onto the panel is because transportation is actually having and will continue to have a big impact on the real estate world, and Michelle will help us get a perspective on that. She also worked for many years in China and I think you give us a great international perspective as well.

Kirkpatrick: So that’s just a good way to understand who’s on stage and each of you will get plenty of chances to talk about what you’re up to. So Jake, what led you to get interested in the real estate industry as a tech opportunity in the first place?

Seid: Yes, you know, for me it’s funny. In 2000, I was working for Cisco and got recruited by Lightspeed Venture partners. I had a bunch of friends that were going to Google, and I thought, you know, I’m not an advertising person. This advertising industry isn’t for me. And what I didn’t get was if you’re taking a pillar of the economy and you’re the first person to bring it from offline to online, there’s going to be a special opportunity there. You know, in venture you talk about billion dollar TAMs and $10 billion dollar TAMs. Here, we’re talking about trillion dollar TAMs, advertising, or what Amazon did with retail. And so in 2011, you know as I learned this perspective being in the venture industry I thought, what pillar of the economy has really not made its first order transition full from offline to online? And real estate popped to the top of the list.

What I saw was companies like Zillow and Trulia were making early hay in the content side of that equation, but I always viewed there being two sides to the migration of offline to online. A content side and a commerce side. And often times they were different companies. You know, you do different things to be a great content company versus a great commerce company, a la Trip Advisor and Priceline—you know, here we are 20 years later and they barely compete.

And so my view was content companies are starting to make their way online. Where is the pop [ph 0:03:25.3] going? It’s going to go to commerce. So that’s why in 2011 I thought, okay, the opportunity for building an online commerce play in real estate, you know, could be the special opportunity to take advantage of this trillion dollar TAM.

Kirkpatrick: So, TAM being Total Addressable Market. I mean, trillions of dollars of something is going to happen. But what’s the company you got involved in and tell us the quick story of that.

Seid: Yes, so the company is Ten-X.com. We built an online marketplace for B2B real estate transactions so my view was, what does the internet do really well? It creates transparency, efficiency, it aligns interests of buyers and sellers—and that’s everything that the real estate industry was not, right? It’s just not a transparent, efficient marketplace. Interests are not aligned.

And so, I focused on the B2B segment because there was a great repeat buyer both residential investors, commercial investors, and I saw that as the low hanging fruit. And so we used the internet to make that process a much better process, a more efficient process, ultimately grew it to about $10 billion a year of transactions online.

Kirkpatrick: This is commercial real estate transactions.

Seid: B2B, both residential and commercial, so homes bought for investment purposes, not to live in, and then, of course, commercial properties bought for investment purposes. So about $10 billion a year in transactions all online.

Kirkpatrick: Well, I think that we should go from there into your panel, because you helped us organize this, which I’m very pleased about, and thank you all for joining. You’re the expert, so take it away and I’m eager to hear what happens.

Seid: Great. Thank you! So let’s just start by going down the row and then I’m going to talk to each of the panelists for a little bit about what their company does and what they see as interesting but I want to open it up to everybody in the audience at the end. Please think about questions as we get to that point. So just starting, Eric, tell us what does Opendoor do and why is it important?

Wu: Good question, broad question. Appreciate you having me. So, the mission behind Opendoor is to empower millions of people everywhere with the freedom to move. We want to solve the problem of helping people buy and sell real estate and making it a frictionless and over time free experience. So that’s really the centerpiece. There’s a couple of problems we’re solving for consumers today. One is selling houses and massive life disruption. It takes 90 days full of hassle, lots of steps, a lot of parties involved, and so we want to make selling a home a few clicks online. And the next chapter for us is how do we automate and make it really simple to buy a home, so lining up both sides of the transaction with supply and demand and making experience simple and instant. What was the second part of the question?

Seid: Why is it important?

Wu: Probably the same for a lot of the folks up here, we want to make the lives of our customers much better. And today, the transaction itself is full of uncertainty, it’s a pretty painful process, and the reason why it’s important is because we have the opportunity to make it a better process.

Seid: And for those that don’t know, can you share some of the stats about scale and traction that you’ve achieved to date?

Wu: Yes, we were just joking behind stage that Opendoor is still a startup. We’re about four and half years old, we’re just over 1,000 people, we’re live in 19 markets across the U.S., doing on a run rate basis just over $3.5 billion of real estate volume.

Seid: That’s great. Adena, same question. Tell the audience about Divvy and what problem you’re trying to solve.

Hefets: Sure. So Divvy is a fractional home ownership company. So, the way we work is rather than just buying or renting a home, you can rent a home and actually buy little bits of equity while you live in the house and you have a buyout right to be able to buy the entire house whenever you’re ready. So the problem that we saw was at around 2004–2006, the rate of home ownership kind of peaked.

And then we entered this massive recession and we saw that home ownership just slowly started to decline, which wasn’t unusual. Now the unusual thing was as the economy started to recover, the rate of homeownership continued to sink. So it went down to about from 69% of people owning homes in the U.S. to about 63% in 2016, which was kind of the low. And so what we saw was people aren’t able to access homeownership. Why aren’t they? And it’s because lending standards have tightened, home prices are rising so you need a bigger down payment to be able to buy a house, and we said, “How could we get people access to owning at least the part of a home if they can’t own the entire home?” So, that’s a little bit on the genesis of Divvy. I guess why it’s important is—

Seid: Yes, yes. Why do you feel like for the consumer this really makes a difference?

Hefets: So, to me homeownership is like one of the core values of being an American. I remember growing up, my dad had immigrated here. We actually couldn’t buy our first home with a mortgage. We had to get seller financing. And the urge to actually own a home made my family go through these very extreme measures to be able to purchase that house. We eventually did and we got a mortgage and refinanced it out and we actually bought a ton of rental properties. But to me, this was the American dream was building wealth through home ownership and having access to this asset class.

I think that that American dream has been shared kind of across the board and there are just certain buckets of populations, specifically those under 35, minorities, and women who haven’t been able to access this dream for the past decade and Divvy serves to offer them an alternative way to get there.

Seid: Great. Michelle, let’s start off with a little bit different question which is, you know, first give me people a sense—Ofo is not a household name, maybe in the U.S.—help people understand how big is Ofo and exactly what is the product, what is the offering?

Chen: Sure. So Ofo was the inventor for bike sharing business. We put about over 10 million bicycles in 21 countries, most of them in China. It’s a very simple concept that there is a smart lock at the back of the bike and you use the app to actually unlock the bike and then off you go. You can leave the bike anywhere you want and the next passenger can just pick it up. What’s amazing about what Ofo did is it’s really solving the last mile, last kilometer problem. You know, Uber and Lyft is really convenient. You know, a company like DiDi in China is very convenient. But when it comes down to the last kilometer, last mile, it’s actually not as convenient.

So by solving the last mile problem, we really were able to change many things that people are doing, including real estate which I’ll probably talk about briefly.

Seid: And just to clarify, for Ofo, was it purely peddle power, were they e-bikes, is it scooters? Is it everything these days?

Chen: Yes. Probably I’ll just go broadly beyond just Ofo. Just the industry. So the industry started station-free with bicycles and then companies including us, started exploring e-bike, or you called us electric assisted bike. And then nowadays, Lime and Bird in the U.S., or other companies around the world is also experimenting with e-scooters. But the genesis is the same that you no longer need to own it, you basically just pick up one parked on the street, in your neighborhood, you use this and then you leave it wherever and then the next passenger can pick it up.

Seid: And just to connect it to the theme of the panel, what impact did you see on how people thought about where to live or where to work with the rise of you know, this micro mobility category?

Chen: Sure. With the pain of the last mile problem, probably globally, right, people actually tend to live where it’s closer to a subway station, bus station, these public transportation. So in China, what we saw is properties that are pretty much one kilometer or one mile away from these stations, the prices were actually going up slightly.

Also, I read in the U.S., MetLife did research showing in San Francisco, properties that are very close to public transportation used to charge about 20% premium, the rent, and then they see the premium has come down probably to about 15% coinciding with the rise of Uber and Lyft. So, to me, 20% to 15% is actually a huge drop.

Seid: Yes. Adena, one of the things that we see in investing in startups and fintech and real estate tech you know, and even in some of the e-tailing categories, you ask yourself, is it really a technology business? When you look at your business, how do you think about it? How would you address the critics that might say, “Hey, isn’t this just the REIT? Shouldn’t it be valued as a REIT? Why would a value it as a technology company?”

Hefets: Yes, I’m happy to start that. I think I’ll ask Eric to jump in afterwards because you kind of invented this channel, so we’ll let you talk about it. So, from my view, there are two ways whether you can look at whether a company is a technology company versus a REIT or something like that.

I think you can look at the business model and what you kind of see is maybe CAPEX intensive, maybe see that very operationally intensive and you think, “Okay, well this kind of feels, looking at the financial statements, maybe a little bit more like one of these larger real estate companies.” I think the other layer that is actually probably a better lens to look at it is, what is the product and customer experience feel like and does this feel like a traditional tech company or does this feel like a traditional real estate company?

There to me, the experience at Divvy is seamless and simple. Our customers are able to logon in two seconds—well, not two seconds—but two minutes, get underwritten and be able to have a budget for a house. They go out shopping and that shopping experience is tech-enabled where each house, they know the exact way a for sale home breaks down into pricing on a monthly basis. Now do we tell you that the back end of this is extremely developed underwriting models? Credit underwriting models? No. Do we tell you that the pricing models and the level of details that we need to go into to be able to produce that number has a ton of technology? No, because to a customer it just looks like this seamless beautiful experience, but the tech behind it is actually tremendous and I think that really differentiates that from our legacy players.

Probably one other thing I would just say is like a small anecdote. So, the largest single-family REIT in the U.S. is Invitation Homes and I actually spoke to them and I said, “Why haven’t you ever done what Divvy has done?” And the guy on the other, the investor on the other side of the phone said, “You know Adena, it took us four years to figure out how to collect rent from our tenants. There was no way we were going to offer them fractional home ownership.” And I think that’s well, you know, an extreme anecdote, but just explains why what we’re doing is so complicated and needs technology.

Wu: Yes, I mean that’s a very thorough, good answer. I think investors really care about two things which is they conflate technology with these two other things which is, the first is, can you scale quickly? And it’s easy to wrap your head around how technology can scale quickly because you push some code live and that actually gets distributed globally, but really the first piece is can you scale really fast, and I think software has that characteristic.

The second piece is how defensible is the business and are there network effects and I think at Opendoor, we think a lot about how do we ensure that we’re investing in the infrastructure for the transaction to make it scalable and defensible over time.

Seid: And Eric, that also reminds me of there was an article about Opendoor last year in the New York Times titled “The Rise of the Fat Startup”. We all know about lean startup, lean startup theory. The characterization is a fat startup. Is that a fair characterization, is this a new trend that we should expect to see with real estate tech, fintech, and others? What’s your view on that?

Wu: That’s a good a question. That was a fun article. So, I think a couple things. One is that we really want to build the transaction from the ground up and each component. And we want to kind of take this traditionally offline business that has seven to eight different parties involved and really try to automate it. So how do we make buying and selling real estate truly one click? And it’s not a simple task. It’s much easier to sell leads to that infrastructure, such as mortgage, title, escrow, realtors, and so on so forth, inspectors, contractors. That’s something that can be done with software, but the transaction itself, the pain points that customers feel, are actually in the offline world today.

So how do we build these traditionally ops-intensive, human capital-intensive businesses and make them automated. And I think that’s a difficult build, but in the end, the hope is that we make the transaction frictionless and eventually free. So, I think that requires patience, it requires a lot of time. I think the other thing we’re seeing today is by being a principal in the transaction, it kind of forces us to raise the amount of capital we’re talking about. So we’ve, to give everyone context, we’ve done just over a billion dollars of equity capital and over $2.5 billion of debt, right? So, the reason why we’re comfortable with that amount of capital in the businesses, one, we get to deliver the customer experience we really believe is what they want, right? So how do we make selling a house one click and be a principal in the transaction.

And the second component is that you know, I think the business model that we’ve built is lower risk than other asset classes to invest in. So right now a lot of these banks are trying to decide where to invest their capital right? Whether it’s a home builder or a rental company, and one of the unique characteristics about Opendoor, the reason why we’ve seen so much capital flow into the business is that it’s short duration. So the assets really only sit on our books for 90 days. That’s a very attractive product for lenders.

Seid: And for the critics out there, for your business, and maybe for yours, Adena, as well, they’d say, “Well, we’ve been in this fantastic low interest environment, everything has been going up.” What happens to your model, and Adena, you know, please comment after, when there’s a cycle and correction.

Wu: I’ll let you go first.

[LAUGHTER]

Hefets: Thank you. Thanks, Eric. I—yes, really throw me under the bus.

Wu: Where’s the crystal ball and tell us—

Seid: And when does it happen by the way?

Wu: I’ll just take notes. Yes.

Hefets: Yes. I kind of am under the impression that every industry has things you have to be aware of. And if you’re going to play poker, you kind of got to—you know, we’re starting companies. You have to be aware of what those risks are and know how to play to the offense. And so I think, both probably Eric and I, and I don’t to speak fully on your behalf, but we like we try to get long dated credit facilities, we try to keep a very close pulse on the market, we try to be reactive and be as offensive as possible.

For Divvy, I would say we are a rental business. And the benefit of that is, actually, I would say that this is probably where people can get access to homeownership. It’s actually, you know, one of the worst environments or harder environments it would be to start a rental business. And that actually, during times where it’s harder to seek homeownership, is when people look for alternative sources and maybe look for something like Divvy where it’s a rental business that kind of feels like alternative financing.

So, I actually think that it could be more beneficial for our company. Now that said, we own assets. A massive downturn would obviously be a risk, but I think that you structure away from that. And so that’s one of the things on the offensive side that we plan to do which is just how you hold your assets. You can adjust for some of this risk.

Wu: Yes. We do some of the same things. You know, I would say Opendoor today isn’t fully cycle tested, though we’ve demonstrated with data that Opendoor operates in flat-markets, can work well in up-markets, and can well in down-markets. The one thing that I wanted to add on top of that, outside of like the right structure, looking at the right indicators, ensuring that there’s kind of flow through the system, is that the value that we’re providing today to sellers is really twofold. It’s simplicity and certainty, or how do we make the transaction really simple and elegant and then how do we give you certainty of execution. And when there’s more volatility in the market, the desire, the need, the demand for those two things increases.

So our biggest toggle today is one, we’re expanding nationwide, which gives us geographic diversity, which limits the risk. The second thing is we can toggle the fee based on what we’re seeing in the market and we do that daily.

Seid: Well you know, we’re talking about business models, the robustness of business models. Michelle, in the ride sharing world, micro mobility world, there’s a ton of subsidizing going on. Tell us, what’s your view on the business models there and how robust and anti-fragile, or not, they are given the subsidizes we’re seeing in that environment.

Chen: Yes, so early on when I had that email conversation with Jake, I actually think one of the biggest challenges for the industry is the fact that pretty much nobody has made money. I did read this morning that Uber said by having Uber Eats doing really well, maybe that part of the business can become profitable. So, with that said, I do think transportation itself is so important. I’ll quote someone, the founder of Zipcar, she actually said that transportation is the gateway to freedom—opportunity to freedom. So that’s something just incredibly important to us and I think homeownership is as well.

So in some ways, the companies in the industry are all proactively trying to figure out ways to actually become profitable. With that said, it’s going to be hard. I have read they are working with municipal governments, for example, I think it’s in New Jersey or somewhere the government was thinking about building a garage, a parking area, for a subway station, but they realized it’s probably better to subsidize people’s Uber rides instead of building, spending all that money actually building the parking garage.

So, there are ways companies are trying to do in order to find additional revenue streams but becoming profitable is actually hard. One thing is extremely important and it’s about increasing the utilization, right? So Uber, nowadays a whole office will use Uber Express POOL. The same thing. The more you pack into the car, the more frequently you use the bicycle, the e-scooters, then the better return for the companies.

Seid: And you know, as we talk about, you know, people see obviously ride sharing all around us, the micro mobility phenomenon is a new phenomenon, relatively speaking. Maybe even just generationally, it applies—you know, I haven’t done a ride on an electric scooter yet for fear of killing myself—but it’s really taken off. It’s really a thing and I was at a wedding recently. My younger cousin who’s in his 20s swore by being able to take the scooter around Santa Monica. And why has it become a thing? What nerve has it hit and why it is such a compelling consumer experience for those of us who maybe have never ridden on one of the scooters or bikes?

Chen: Yes. So, it’s extremely exciting because for those people who grew up using a scooter, right, to them—wow—all of a sudden they can actually pick up a scooter anywhere and then be able to probably ride for two, three miles on it versus requesting Uber and Lyft nowadays. I actually think it’s becoming harder and more expensive for the short distance. But with that said, it’s for me, I’m hugely concerned about safety. So, this may be something that the government is actually also concerned of.

Also, so I have actually started the Uber and now recently with Ofo and know a little bit about e-scooters. I’ve interacted with a little bit of the government in China, and I think it’s the same for the U.S. as well. When Uber started, the government was more reactive, didn’t know what to do with those disruptive transportation companies. Now they’ve become much more proactive. So, it’s a good thing and it’s a bad thing. Good thing—maybe we see the innovation slow down slightly for the startups, but the good thing, in some aspects, is that the safety aspect will probably be played more into. Versus if we leave it to the startups, sometimes we can be too aggressive, right? So, these are the things that I think is playing into both the rise of the e-scooter as well as the fact that maybe it hasn’t really taken off.

Seid: Well, hopefully you’ve been thinking about questions. I think we have some mics around in the audience and so—

Audience 1: I’m curious about—you talk about being tested, that we’ve had existing home sales down. I think each of the last nine months, lowest since November 2015, and I wonder if you guys see opportunity there, is there trepidation, and I wonder this sort of related, what you see the cause of that. Is it merely the change in the industry environment? Because I talked to a mortgage broker last week and he described it as a real disaster as we come into the winter and a typically slow season.

Wu: Okay. So what’s driving the slow growth in some of the costal markets? I will make the distinction which is right now we are seeing a slow growth in some of the coasts and it’s a combination of the price appreciation rising to the level where it doesn’t match the fundamentals. Now that’s been the case for some time but you know, it’s all about affordability. And when you have the combination of prices rising on the coastal cities plus interest rates rising which decreases affordability, we’ll see a weakening in demand. That’s what’s happening on the coast.

Actually, in a lot of our markets that opened, we still see strength. And again, we operate in Phoenix and Charlotte, and Nashville, and Dallas, and Las Vegas and some of these mid market cities. But those are the two big factors.

The second part of your question was is there opportunity, given the fact that we see a slowdown on the coasts. One way to look at it is, okay there’s going to be affordability issues and so how can companies like Divvy help individuals get into housing sooner? And there’s probably some fintech innovation happening now around some fractional ownership of people who really want to own but actually can’t afford, so some version of what you guys are doing but for the larger cities. But yeah, that’s what—our perspective is, okay, we’re monitoring the data. Not all cities are slowing, but in terms of the opportunity, I think companies like Divvy will be well positioned.

Seid: Yes.

Hefets: I’d probably piggyback off of that. We operate in Cleveland and Atlanta and Memphis. In Cleveland, we saw home sales for last month up 5%, year over year 5–6% and in Atlanta 10% year over year, so it’s definitely focused or concentrated more on the coast than it is middle of America. And then secondly, I do think a lot of it is driven by rising interest rates. And I had dinner with Fannie Mae and what they are seeing actually is a switch from refis out to new home purchases, but overall volume is declining as a result of that. But I do think that it does create opportunity.

I think that with Opendoor in these environments where there might be some market fluctuations, even though I’m sure the coasts aren’t exactly where you operate. But there’s opportunities then I think for sellers who do want to sell quick and want to take advantage of doing so and Opendoor is the right platform for that. And then at least for Divvy, I think that alternative financing comes into play more during this situation where, you know, housing does become slightly less affordable with rising interest rates.

Banks: Hello. Clayton Banks from Silicon Harlem. Well actually first, Happy Veterans’ Day. And second, Stan Lee just passed so all of us who are comic book nuts, our great hero has passed today, so that is unfortunate.

I just wanted to ask a real estate question. Are any of you focused on the infrastructure of the real estate that you represent like the connectivity, the broadband, the access? I’m curious how much investment you are all putting into that—even with bikes. What type of connectivity can bikes actually add to a city, you know, from a smart city perspective? Just curious if any of you are working in that space.

Wu: I’m happy to start. So, we do do a lot around—if you’re thinking about how do we automate the entire transaction end to end from selling to trading to buying, we believe that search is mostly solved. There’s a lot of great companies working on helping you search for home online, and this is kind of the Trulia, Redfin, Zillow realtor companies. But one of the things we’ve invested in is how do we make the offline experience self-service on demand? So we do retro fit every single one of our homes with hardware that speaks to smart locks and motion sensors and so we’ve enabled for our homes today and we’re working homes outside of our network.

How do we enable a self-service on demand touring app? And so, we have to connect all of our homes and one of the things that has been obvious to us, as consumers use this system, is actually they want that for their house themselves. And so, I’m not sure if Opendoor is going to be the one providing that service, but this notion that every home should be retrofitted with a connected device that allows access is something that consumers want as well.

Chen: Yes. And then for transportation for these bikes, of course we want to put them where people want it, right? So during the morning, it’s usually between your home to the public transportation stations. And then at night, it’s between the office and the public transportation places. So, we do whatever possible, operational wise, to actually move the bicycle to be more convenient for users.

Lopez-Ibor: Thank you. My name is Vicente Lopez-Ibor, founder of Lightsource. I think one of the key elements of today’s huge economical reformation is the new dial up between sectors. Real estate talks with energy, with mobility, with digital. So, my point is, to what extent do you consider this clean energy, a transformation in your business model, and to what extent is being involved on it? Thank you.

Hefets: I don’t think, at least within Divvy’s model, we’re Series A, we’re probably about a year old, so we’re still kind of early. So, we haven’t really gotten to the point of starting to think about retro fitting homes or towards clean energy, whether it be solar or something else. I think for middle America, the struggle is not how we focus homes on clean energy, it’s honestly just getting a home. Most of these families are finding it really hard to even buy their first home and I think once they do have a home we enable them to change out the home however they want. So if they actually did want to install some sort of clean energy or some sort of digitization even of the home, they are completely allowed to change and put together a house any way they want, but it’s probably not a core focus at least for Divvy for now.

Wu: Yes, and I would just say, for Opendoor, we have about 5% market share in a handful of cities and that’s roughly doubling every year. You know, we’ll be servicing the vast majority of real estate in these cities. There’s two aspects. One is it is our responsibility to inform consumers of their options. So, the dream would be there’s an app you can do personalization. You can add to cart something like a Nest or connected home or an energy efficient option for those who see it fit for them.

So, one is, as a company, we do feel we have the obligation to educate consumers. And the second piece is can we build an elegant experience that makes sense for them financially which is what a lot of people are working on. So, we know that we have the mindshare and the customer at the point of sale and then how do we build the right experience for them so they choose to upgrade their home.

Chen: When it comes down to energy, I would say that the bike sharing is a good player. In China, we saw the data that after the bike sharing started, the fuel consumption actually went down in those cities. So that’s something we’re pretty proud of.

Seid: David?

Kirkpatrick: I might have more than one but I wanted to ask Adena about Divvy and how it actually works in a little more detail. Because I’m a little confused in my mind between what you’re doing and just offering someone a mortgage. So, could you just go through what exactly you do? And my apologies for making it, but since a lot of people came in a little bit late because we had a lunch delay, it might actually help them understand who they’re listening to, too.

Hefets: Sure. Yes, that’s a phenomenal question. So, the way Divvy works is our customers pick out a house. We buy it on their behalf. They put 2% down at the start and then every month they make one monthly payment. Let’s say that payment is $1,000 dollars a month. Something like 25% of their payment, or $250 will go towards actually buying a little bit of equity in that house every single month. So, they’re 2% ownership goes to 2.1, to 2.2, to 2.3 and grows over time.

They have a buyout right so at any point in time they can decide to buyout the house and they’ll only have to buyout the portion that they don’t own. So that’s at a high level how Divvy works today.

Kirkpatrick: Could I just ask—

Hefets: Yes.

Kirkpatrick: So that’s basically saying you can essentially buy a house or have the path to buying a house with almost no capital to start out. It’s more or less no money down long-term home ownership trajectory. Is that a way to think of it?

Hefets: The way to think about it is it’s a more flexible form of financing. So, whether it’s because—you know, there’s a multitude of reasons, but either one, you don’t have the money to put down at the get-go, maybe two you’ve had a credit hiccup and so you fall right outside of the Fannie Mae box or the FHA box. Or maybe it’s something like you’re not sure if you want to live in this neighborhood, but you want to buy into the house, you want the benefit of appreciation, and so you want to try it out over the next three years but not feel like you have to take on a 30-year mortgage to do so.

Kirkpatrick: Okay, the part of that then that I’m confused about, and I don’t want to dwell on this endlessly, but at investor—you, in effect, as an agent for your investors—you’re basically making your purchase decision of a piece of real estate contingent on the decision of the consumer which strikes me as a kind of odd sort of risk, especially if you’re going to let them move out shortly.

Hefets: Yes, so we actually—that’s a great point. We actually think it’s probably the reverse. So, the way we think about it is, we hone in on specific markets where we have a really good investment thesis on it. So for example, Cleveland. The average home price there is about $145,000. The rent yield, so the portion of rent that we’re getting on the home actually provides a pretty good return for our investors while still not overcharging the customer for the amount of rent relative to where the market is. Even during the worst year during the recession, home prices declined 3% a year, so it’s a more stable market for our customers.

The value of home ownership, actually owning a home, is really important to newly forming families. So, people want to actually buy a house and settle down. And so what we do is we isolate the market and within that market our customers actually go out and they shop for the best possible home. And so, the point I’m making here is that for me to pick out the home that I want to buy through technology, while it’s doable, I can’t tell things like the next door neighbor has ten pit bulls, so the resale value of this home is actually going to be low. But our customers are on the ground and they’re looking at those homes and they’re actually diligencing them a ton. And so they end up picking out better homes as a result.

Kirkpatrick: So, compared to Jake’s old business in a sense, there’s less risk you’d say because where he was facilitating purchasing residential products for investment purposes.

Hefets: I’m not going to throw Jake under the bus.

Kirkpatrick: I know, it’s interesting.

Hefets: Yes.

Kirkpatrick: And forgive me for being a little—I don’t know how many other hands there were. If there are tons, I don’t want to—were there a lot of other hands? Because I wanted to ask two other things.

Hefets: Yes.

Kirkpatrick: I wanted to ask Michelle to talk about Ofo’s work in the U.S. and what we really should expect the future of this extraordinarily highly-capitalized, but as you say, not really even a business, global enterprise set of companies that have arisen with all sorts of bicycles and scooters, etcetera. But I also, if you wouldn’t mind, and this is the last thing I’m going to say, I’d like both of the two real estate entrepreneurs to talk about this, and maybe you, too, Jake, the future of technologically-intermediated real estate as an industry and how—because what you’re doing is extremely innovative, you’re using all kinds of new tools for assessing credit and for doing transactions and assessing neighborhood risk and all that stuff. But what’s the long-term of how much the real estate market, especially for consumers, is going to get changed?

Chen: Sure. So, I actually left Ofo recently, so in some ways, I can’t talk. I won’t talk too much about Ofo, but still probably more about the industry. The industry, first of all, so I’ve actually worked in Europe, and then you know China, and then in Singapore. And the one thing being a product person I realize is, it’s really important to actually evaluate the product for the country. Any company shouldn’t be arrogant enough to think, “Oh, we have a successful product in one country and it can translate to everywhere else.” That’s why e-scooter is something booming in the U.S. and maybe has a potential in Europe. I’m not sure about China where none of us grow up with a scooter, but still when we’re talking about these micro mobilities, right, as I mentioned earlier, it really comes down to efficiency.

So, some of the companies including Ofo actually had a different strategy in the U.S. right now, but I’m no longer part of this, so I could be outdated. So many companies who got started earlier probably in China, last year was really about expansion and this year the strategy, most of them have changed to be efficiency. So hence, we’ve seen Ofo and other companies stop operating in certain places that they think it’s kind of hard to reach a certain efficiency level in the short term and they’ve moved to areas that’s actually more efficient, such as universities and then campuses. There’s just a much higher utilization. So, these are kind of the trends that we are seeing. Overall, I think any company right, like Amazon early days, we care less about Amazon’s profitability but now, you know, people start caring about these things.

So that’s the trend that startups or companies need to go through expansion, and then you figure out how to actually make money and how to be more efficient. Yes, so that’s happening in the industry as well.

Seid: And I think the other question was about how innovation is going to continue to impact this industry over the long term. You know, my two cents is you look at every component of the real estate experience. You know, there’s buying and selling, there’s getting your mortgage, there’s the title insurance piece, there’s what the communities look like themselves, you know, given the rise of autonomous vehicles and micro mobility, and so I think we’re at the start of a multi-decade opportunity where similar to e-commerce, Amazon started, what 20-25 years ago? And every year it seems like you have billion or multi-billion dollar exit of a company doing something new.

So, in trillion and multi-trillion dollar markets, I think you have, you know, the first couple innings of what’s going to be a lot of innovation around all the areas that are full of friction today.

Chen: One thing if I can add is that at the beginning, we all got excited about AV and nowadays the flying car is probably getting a little bit of attention. And I actually think flying car may happen sooner than AV and that’s probably impacting us in tremendous ways that we can’t even imagine, including real estate. Back to what Jake is saying, it’s the industry that’s actually changing, so that’s what’s exciting about innovation disruption.

Wu: I’m also excited about flying cars. It’s a much easier problem to solve when you have four options to avoid hitting something—up, down, left, right—as opposed to, when you’re on the road, it’s a really, really complex problem to solve. Well, to answer your question concretely, everyone is talking about how real estate is too expensive and it’s a lot of hassle. And there’s going to be fee compression at some point. Why do relators make the 5.4% which is the national average is kind of the question.

I do think that it’s one of these things where we know that the transaction is too expensive and it’s painful today and hopefully companies like Opendoor can start to automate a lot of the steps, to remove the cost from the system and create that fee compression that should exist. But I do think that real estate is different in that it’s a highly infrequent transaction. If you look at things that get disrupted, it’s really about frequency of use. Like e-commerce you can use every day, so it’s easier to kind of iterate, learn from customers than actually shift products that are innovative. Real estate is just once every five to seven years, so it’s difficult to get the feedback quickly.

But the thing that we’re seeing today at Opendoor is this notion of self-service does resonate. I think the vast majority of consumers entering the market want a product that’s simple and transparent so they can do something themselves. And so that’s one of the focal points of the organization. From a product standpoint it is self-service.

Hefets: I would just reiterate—I think that there are two things you look at. Size of market. I mean real estate is the largest asset class just looking at breakdown of GDP. And then the second thing is acuity of the pain point. And I think even in this room, even though we may all be living in San Francisco or elsewhere, but we find it painful to buy a house today. I can’t imagine how the rest of the world feels in middle America, right? And so, I think that those two things explain why I think it’s being disrupted today and I think the future is going to look like a much more clear, transparent, simple, beautiful experience. Whether you’re financing a house, whether you’re listing and selling a house, whether you’re even just getting homeowners’ insurance on your home, it’s going to be a better experience.

Seid: Great. Well, I think that does it for our panel. Please help, give me a hand and thank our panelists. Great discussion.

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