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Basis Set Ventures invests in early-stage technology companies that fundamentally transform the way people work. We believe artificial intelligence delivers core value by improving productivity for all parts of the economy; from factories to offices.

Our fund is dedicated primarily to Seed and Series A startups.

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Workstream

Workstream's hiring platform uses automation, AI, and mobile workflows to provide a simpler, faster way to hire, on-board and maintain hourly workers.

workstream.is

Rasa

Rasa empowers product teams to build conversational AI in-house, shipping into open source libraries and providing tools to developers worldwide from startups to Fortune 500 companies.

rasa.com

Path Robotics

Path Robotics is producing autonomous welding robots based on proprietary artificial intelligence and computer vision algorithms.

path-robotics.com

FarmWise

FarmWise produces autonomous weeding robots that provide growers with a cost-efficient, scalable alternative to herbicides.

farmwise.io

Ike

Ike is building cutting edge automation technology to help improve the trucking industry.

ike.com

DataGrail

DataGrail is a privacy management platform that helps companies become compliant with privacy regulations like GDPR and CCPA quickly.

datagrail.io
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The 2008 financial crisis catalyzed the most ambitious real estate technology startups ever founded. Airbnb changed the way homeowners conceptualize home value, Opendoor simplified real estate transactions in a way the industry never thought possible and Compass redefined the role technology plays in agent workflows. As we wade deeper into the Covid crisis, we’ll see similar attempts at differentiated businesses models and novel financial products that help homeowners extract greater value, more conveniently, out of their largest assets.

In this conversation between Sheila Vashee, the VP of Growth and Marketing at OpenDoor, a real estate unicorn simplifying the process of buying and selling homes, and BSV investor John Mannes, we discuss how the real estate industry is being affected by Covid-19 and the important role technology will play in keeping transactions happening and keeping people in their homes coming out of the crisis.

Sheila Vashee:

COVID has slowed down real estate transactions. It's affected every type of business, every sector of the market.

John Mannes:

I'm John Mannes, an investor at Basis Set Ventures, an early stage venture capital fund investing in founders, transforming the way people work across all parts of the economy from factories to offices. This is episode four Future Proof. Today we're talking with Sheila Vashee, the VP of growth and marketing at Opendoor, a unicorn in the real estate space, simplifying the process of buying and selling homes.

John Mannes:

With real estate sales down more than 50% in some markets, the industry as a whole is trying to parse the short term symptoms of COVID from the longterm trends. It's consensus that real estate tech will see a boost in adoption as consumers develop new preferences for remote home buying, but what remains unclear is exactly how big this trend will be, and every day that COVID continues to spread, it grows more likely that we'll see even more extreme paradigm shifts in the way Americans conceptualize home ownership.

John Mannes:

Welcome Sheila, for people that haven't been following property technology over the last couple of years, can you just give folks a little bit of background on what the biggest innovations and problem spaces have been?

Sheila Vashee:

Absolutely. So I'll start by saying that real estate is, up until a few years ago, one of the biggest sectors of the economy, I mean literally multi-trillion dollar sector of the economy that was virtually untouched by technology. I mean I'm talking about very large financial transactions, and these are transactions that for consumers, for homeowners is typically the biggest transaction of their lives that were conducted over handshakes and paper documents and just archaic methods, and so all the innovation that you've seen over the past few years, and we'll talk a little bit about what that is, is really revolutionizing this industry and making it more efficient and breaking down some of the information silos that exist, both around the value of homes and then also how business gets done.

John Mannes:

We've seen a lot of companies in one of two buckets. We've seen folks that are effectively building software, most often SAS solutions for agents or brokers or various stakeholders across the real estate industry, and we've also seen companies that have taken more of a full stack approach like Opendoor. There are folks on the buy side, there are folks on the sell side, there are full stack brokerages. Can you give folks a little bit of a sense of the status quo of the market right now and what adoption looks like for folks on both sides of that paradigm?

Sheila Vashee:

You're absolutely right. The companies that have come up in the past few years are basically making bets on both sides of the market. The first side, which is the more vertically integrated players like Opendoor and others are essentially a new way to buy and sell homes. So you can an agent, you can use traditional methods with those companies, but you don't have to. You can sell your home to an eye buyer. They'll buy it, they'll do all the renovation, et cetera, and then resell it on their platform. Zillow has also recently entered this space. That's one bet, is that the entire transaction will be completely different, and then the other bet is what you were talking about, and Compass is probably the biggest player in this space, which is actually powering agents and giving them better technology to be more efficient, to drive more revenue, which is effectively reach more people more quickly, and then also drive more bottom line, which allows them to move forward with the transaction faster. Those are the biggest players on each side. The other trend is actually changing the way people own homes. So that's divi, zero down. That actually opens up home ownership to a whole new segment of people that may not have been able to afford a down payment or may not have qualified for a home loan previously, and so that's also a really interesting trend. There are many companies in the space.

John Mannes:

So you mentioned earlier in the conversation just how big the real estate space is. If I'm thinking from the perspective of a traditional agent in a city in the middle of America, let's say, what do you think the biggest impact has been on me, of all of this new technology in each of the spaces that you mentioned?

Sheila Vashee:

Taking all of this activity into account and all of these new players and eye buyers and Compass, et cetera, the percentage of transactions that are not conducted in the traditional way is still only around 10%. The massive majority of the market is still transacting in the traditional way. Now that doesn't include some of the digitally enabled brokerages, so that's kind of considered a traditional transaction, but the movement around eye buyer and even just for sale by owner is still at a very small percentage of the market. So there's still a huge opportunity to extend beyond what I'd almost called the early adopters.

John Mannes:

So perhaps it's best to parse apart each of those segments, just given how robust the property tech ecosystem is when we start to think about how COVID might affect real estate, and maybe we'll tackle the first one first. How has COVID been impacting the traditional buying and selling model for homes independent of technology?

Sheila Vashee:

COVID has slowed down real estate transactions. It's affected every type of business, every sector of the market, and the reason for that is especially with shelter in place, people can't go visit homes. So the means by which they do that is really they can go visit homes a single person at the time. There are no more open houses. Getting the transaction through is actually difficult because in some states they've actually shut down or put on hold some the regulatory bodies, and so real estate has dramatically slowed down because of COVID. Now that said, looking at other countries, especially China, the industry popped back up pretty quickly, and so there's an expectation that once shelter in place is ... and it's already in some states getting pulled back, once that starts to get reversed, all of the pent up demand will come roaring back, but then the impact of unemployment and the SMB environment will longterm likely have an impact on home buying and the real estate market.

Sheila Vashee:

Some of the other players ... so let's take eye buyers for example, similar thing in that there's just not as many real estate transactions happening right now. What's interesting is that this provides a really interesting opportunity for those companies to think about how to innovate on their model, rather than just offering a simple auction of buying or selling. There's a lot of work happening with frankly all the companies in the space around what else can they offer. Is there some kind of way to track your home, track the value of your home? Is there some other things that can allow them to continue adding value to customers and their patients in the meantime? Longterm, I actually think that the trends will be in the favor of the tech enabled or vertically integrated companies.

Sheila Vashee:

And the reason I say that is even simple things like search demand have dramatically changed over the past couple of months. So, for example, virtual home tours, virtual real estate are seeing anywhere from 50 to 90% increases in search volume. The expectation when the market comes back is that people will be able to transact in a digital way or be able to search and view homes through digital means, and the tech enabled players in the space will just be better set up to do that. I actually think that COVID will catalyze some of those trends in a way that would have actually taken decades, but will happen much more quickly now.

John Mannes:

So as you think about, and I'm sure many of your counterparts in growth at other real estate technology companies think about where to make product investments, how do you think about what is going to be a longterm trend here versus what might be short term? And I'm particularly thinking about what you mentioned around virtual home tours. I could imagine something like this being a really short term symptom of COVID. I could also see a reality where this sets in as a longer term trend, but ultimately from a product and from a growth perspective, it's important to think about which items fall in each of those buckets.

Sheila Vashee:

It's hard to predict, obviously perfectly. My expectation is that similar to a lot of the other spaces, like food delivery or even remote work, my expectation is that for a period of time everyone will be forced to do that, and then when everything comes back, some percentage of the population will decide that they like that better. They prefer the grocery delivery at home, they prefer working out of their house, and the same thing will happen with real estate. There'll be the segment of people who still want to transact the traditional way, and there are some trends that are countering that argument around people will need security, they'll need to feel comfortable with the decision given the environment. So that might actually require more handholding or in person discussions, but there'll be a portion of the population who actually prefers a digital transaction and they got used to it through this crisis. It's hard to pinpoint exactly how big that population will be, but it's worth investing in.

John Mannes:

Yeah, and I think one thing that's important for listeners to keep in mind, as you mentioned in the beginning of this discussion, is just the sheer size of the real estate space. Even 1 or 2% of folks deciding to transact virtually would be a massive difference in the industry, and Opendoor obviously has achieved a very high valuation on the back of only controlling a very small number of transactions in the real estate space, but doubling that or tripling that target market is absolutely massive and opens the door for a number of new companies.

Sheila Vashee:

Absolutely.

John Mannes:

Let's spend a little bit more time on the technology side of this. We spent a bit of time talking about eye buyers. I'd like to dive into a couple of the other trends that we've seen that you've touched on and just think a little bit about how their value propositions might need to evolve post COVID. One of the things that we've spent a lot of time looking at at basis set is this idea of security deposit or rental guarantees in the rental space, folks like Jetty. I can imagine that in the time of COVID, there are a lot of folks that are struggling to put down money for security deposits. Most Americans don't have necessarily money for savings for large upfront payments like that. Do you think that that market is going to be fundamentally changed by COVID in a way that requires even more companies thinking about how to guarantee rent or help renters come up with money for security deposits?

Sheila Vashee:

I think there'll be more openness to that on the consumer side. I would put that in the bucket of financial engineering, whether it's security deposit or rental guarantees for owners or renters, or even fractional ownership, which effectively lets you rent back your home, and the challenge I've seen with those businesses, they're innovative and interesting, and as I said earlier, it can open up a new segment of the market. The challenge that I've seen is that people are suspicious. It sounds too good to be true in many cases. In some ways it's reminiscent of the 2008 real estate crisis. That's not to say that they won't gain traction, and I think they will over time, but they're harder for people to understand and I think it'll take some time for them to get traction. The current situation could help encourage people to check them out, but my experience with some of those, and even kind of in customer research with some of those is that it's a bigger hurdle to cross because it sounds like financial engineering.

John Mannes:

And I guess that's interesting. We can be somewhat arbitrary about where we draw the line for financial engineering, but another model, one that might be a little bit more timely in terms of fundraising, is this idea of giving homeowners faster or easier access to their home equity. I know [inaudible 00:11:43] raised a pretty sizable round and there are a couple of other companies in that space. Have you seen similar challenges there around conveying that value proposition in a way that doesn't come as gimmicky or do you think that that is ultimately something that will be bolstered by COVID?

Sheila Vashee:

I think that there will likely be more demand for things like that. Of course people will need the immediate cash. I think there will still be questions about the business. Anytime there's a new business like that, will they be around, will they make it through the crisis, et cetera? And so probably less so than some of the other companies, but I still think the same basic questions remain.

John Mannes:

So the last two I want to touch on are definitely the two gorillas in the room you talked about in the beginning, Compass and Opendoors. Thinking about the eye buyer model more fundamentally and the digital brokerage model, what is your sense for how these folks are going to need to be proactive and respond to COVID in a way that will ensure additional market share a year or two from now as we come out of this crisis?

Sheila Vashee:

All of the companies have taken drastic action to cut costs and I think that's the right thing to do, because the most important thing is sustain through the next several months. There are varying opinions on whether the downturn or the recession can last a few months or it'll last a couple of years, and so the first thing is how do they reduce burn in such a way that they're able to actually last? The second thing is how do they start innovating? And I actually think that that is where the situation presents a really unique opportunity, because the resources from the entire company can be devoted to thinking about new models, new products, and how do they actually innovate beyond their own core products. What you'll see out of both, either the vertically integrated eye buyers or the digital brokerages like Compass is a lot of innovation and thinking around how do they actually move forward to take advantage of the market when it comes back.

Sheila Vashee:

Because when it does come back, as I said, people will be seeking out these digital transactions and virtual experiences in a way that would have taken years to get to before. Whoever makes it through the crisis will be very well set up to take advantage of secular trends once the market returns. On the Opendoor side, it's really around, as I said, what are other ways to serve customers and what are other products that they can offer that for people who are coming to transact on their home, what are all the other options that they could pursue? And there's a lot of stuff there that is being explored that I probably can't get into the details on.

Sheila Vashee:

On the Compass side, what's really interesting is that ... and I've been hearing this actually from a number of folks in the industry, technology adoption by brokers has been a challenge because each broker runs their own business and has their way of transacting and their way of doing business that they've done for years, and so disrupting that business and introducing a new technology or new process is difficult and typically hard to do, and what I've heard anecdotally from folks in the industry is that that whole paradigm has changed. Agents are now much, much more open to things like virtual home tours and even digital notaries and ways to transact online because they have to, and that will actually make them much more competitive when things come back, and so both sides will be pushed more into technology than they would have otherwise. It'll be interesting to see how each develops.

John Mannes:

And it plays into a couple of the narratives that I think have surrounded both of those business models for the last couple of years. I mean on the Compass side, we can think about this idea of business in a box and we've seen a lot of roll-ups on the brokerage side in a number of different industries, not even just real estate, but this notion that it makes sense coming out of a recession for agents to align themselves with someone like Compass that can back them up with additional technology and resources and capital and pieces to be able to run their business, and it sounds like you're in agreement that that actually is a thesis that could end up playing out in their favor. Is that a fair assessment?

Sheila Vashee:

I think that's very reasonable.

John Mannes:

And on the eye buyer side, one narrative that I think has been particularly pervasive is this notion that folks in a downturn will seek liquidity on their properties and that coming out of a recession there will actually be increased demand in the eye buyer segment. Is that a thesis that you think still holds water?

Sheila Vashee:

Absolutely. What will be interesting to see is in a downturn, exactly as you said, people will be seeking liquidity and they'll need it quickly, and no one is better set up, no company is better set up to deliver that than an eye buyer, and Opendoor as an example. I think we'll see that once people are able to transact easily again.

John Mannes:

And by that you mean the bottleneck being just visiting properties, even in person?

Sheila Vashee:

Yeah, exactly, the actual shelter in place that really prevent ... I mean because even on the eye buyer side, there needs to be a home inspection before you can buy the home. There's some limited home interaction that needs to happen.

John Mannes:

So pivoting away from some of these experimental real estate models, I'd like to talk a little bit more about some fundamentals in the real estate space, traditional fundamentals that might inform new businesses being created coming out of the crisis. Obviously one of the most important ingredients in the overall real estate sector is access to capital, and markets right now are in a very interesting place. So maybe for folks who haven't been following, can you just give folks a sense of what is happening right now in mortgage markets and what your expectations are for the next year to the extent that you can actually predict that out?

Sheila Vashee:

If I could predict that I would be able to make a lot of money, but yeah, I think just more generally, the markets have been all over the place. Interest rates are very low, and the reason for that is obviously the fed wants to jumpstart the market. Mortgage rates have actually been bouncing around a little bit, and the reason for that is there's just been a massive increase in demand. 175% increase in interest around mortgage queries. What I've heard from lenders is that there's actually almost for the first time a strain on supply, and that's actually causing rates to bounce up and down a little bit, tons of interest in refi, et cetera. There's a huge opportunity there to continue to automate refi, loan origination, but it's a really interesting time in this market for that because there's just all of a sudden massive demand that could continue or could actually disappear if rates increase.

John Mannes:

Given that it's our job on the venture side to think through which of these trends are going to be long lasting enough to sustain a venture backable business, I want to talk a little bit about the longer lasting trends in real estate. We all know that Airbnb was arguably one of the greatest real estate technology companies founded, and it was founded directly in the wake of the 2008 recession, primarily as a way to get homeowners access to capital that they desperately needed by monetizing an asset that they already owned. Do you think that we're likely to see the continuation of this trend in the real estate space?

Sheila Vashee:

It will be interesting to think about what happens there, because on one hand you can imagine that with unemployment and decline of SMB retail, et cetera, people will actually need to share more assets to generate revenue, or you could imagine actually that people don't want to have the frequency of contact of those interactions and actually shy away from it. We'll probably -

John Mannes:

Or we've just reached peak sharing.

Sheila Vashee:

Yeah, I think that's fair. A couple of trends that were just starting up pre-COVID that could be interesting around the monetization of the homes as an asset is the monetization of your backyard, and there was a rash of company as I would say over the past nine months that have done this. Rent the Backyard is one, Abodu is another. There are several other, really companies that do small prefab homes that you can put somewhere on your property. That could be interesting and then another way to monetize a space that's not actually your home. There is a ton of regulation around this by county, and so that could actually stall some of the adoption of that trend.

John Mannes:

And it also requires capital investment from the homeowner to put that in a backyard, I assume?

Sheila Vashee:

It's low. It's very low, actually.

John Mannes:

Interesting.

Sheila Vashee:

Yeah. The bigger challenge there actually is that county by county, there are a ton of restrictions. I met a company that was able to get permits for San Jose, but not for San Mateo. That's actually the harder piece there.

John Mannes:

I see. A lot of times when we think about enterprise value propositions, we think about revenue generation versus cost cutting. Obviously in the context of recession, cost cutting is a particularly convincing value proposition for most enterprise software. On the consumer side, when we think about something like Airbnb, that's still primarily a revenue generation value proposition. Something more like a refi product is on the cost cutting side. Do you buy us in one direction or the other as to where you think more valuable be created coming out of COVID?

Sheila Vashee:

I'll give my answer for the homeowner perspective and then for real estate at large, because I think they're slightly different. From the homeowner perspective, there's not a ton of places where they can do cost cutting. One area is preventative care and there have been some companies that have done this over the past couple of years, and that's really when you prevent something from happening to your home by staying on top of upkeep and maintenance schedules, et cetera, and dashboarding in a way to actually monitor what's happening in your home. So that's interesting and can effectively be cost cutting. It's hard to imagine other than refinancing, as you said, or getting cash out of your home what cost cutting could look like. More broadly for the industry, cost cutting and efficiency will be huge, because there are still really large portions of the value chain, as I said earlier, that are manual and paper-based, and all of those pieces, especially now, are a huge opportunity.

John Mannes:

One thing that's particularly unique about COVID, at least with respect to the 2008 recession, is that COVID is so different based on your geography. We in San Francisco, we're in a very fortunate place with respect to other cities around the country. How do you think about the impact that that has on both traditional real estate players and also the adoption of real estate technology? I would imagine that that would make someone like Opendoor think very critically about what markets it might want to operate in or what countries make sense from an international expansion perspective in the event that we ended up in a situation where there are some cities that are doing significantly better than others or some countries that are doing significantly better than others?

Sheila Vashee:

Absolutely. That will be taken into account I'm sure, whether it's the real estate brokerage side or the Opendoor vertically integrated player side. As I think about expansion, that will absolutely be taken into account, because the region or the area or the city will just be less attractive because of the economic drivers.

John Mannes:

Do you think that drives international adoption of a lot of this technology that we haven't seen before?

Sheila Vashee:

Yeah, international adoption is interesting. The real estate industry is so different country by country, and regulations are so different, and the way that they do business is so different. In some markets like Mexico, almost nothing is online. There is no MLS. It's just a completely different scene and there's actually not been a lot of international traction for any of these companies. That will be an interesting trend to see, and it's likely several months out, would be my guess, if not years.

John Mannes:

Fair enough. So I want to end on one last question here. This will be our shoot for the stars closing question. If this does end up lasting for longer than a year and we end up in a depression like situation, what do you think the biggest possible paradigm shift is that could ultimately end up happening to the real estate industry as a whole?

Sheila Vashee:

The recession is one piece of it. I actually think the shift to remote work for such a large percentage of the population is another huge driver of what will happen in real estate, because once people have experienced it, not only people, but also companies, either how feasible or not feasible remote work is, people will realize that they don't actually need to live in a certain place to have a job anymore, and so what we'll likely see is more of a migration of people from urban centers to more rural areas, because they can still do their work from really anywhere, and that will obviously also be catalyzed by a desire for cheaper real estate. Regardless of how long the recession lasts, that will likely be a trend that we start to see.

John Mannes:

Well, thank you so much Sheila. I hope we're able to get there in as short of a recession as possible.

Sheila Vashee:

Absolutely. Thank you so much. It was a pleasure.

John Mannes:

The 2008 financial crisis catalyzed the most ambitious real estate technology startups ever founded. Airbnb changed the way homeowners conceptualize home value. Opendoor's simplified real estate transactions in a way the industry never thought possible, and Compass redefined the role technology plays in agent workflows. As we wade deeper into the COVID crisis, we'll see similar attempts at differentiated business models and novel financial products that help homeowners extract greater value more conveniently out of their largest assets, and for agents and brokers, we're likely to see even greater adoption of technology coming out of COVID. New companies will be forged, even if only a small percentage of home sales transition to virtual. That, after all, is what drives so many ambitious founders to take their chances building companies in the massive real estate space in the first place. I hope you enjoyed today's episode of Future Proof. We'll be posting episodes on Spotify, iTunes, and SoundCloud. So watch for our next episode. Check out Basis Set's full research on real estate from our own Reid Callaway at basisset.ventures/research, and if you want to chat about any of the themes from this episode, drop me a note at john@basisset.ventures.

For more information on this topic, check out BSV's research:
Real Estate