How The Hell Did This Company Just Raise $20 Million From Peter Thiel?


That must have been the question on some of your minds when the news broke last month that Breather had just raised a $20 million Series B led by Peter Thiel’s Valar Ventures.

It might seem odd at first glance that a company offering “private space on demand” would be taken seriously by one of Silicon Valley’s most legendary investors.  However, I would argue that Valar saw the same incredibly powerful thing in Breather that I saw when I invested in their seed round in 2013: companies like Breather are completely changing the way that “space” or “real estate” is consumed throughout the globe. 

In the past I have blogged extensively about the best way to start a real estate technology company.  In summary, I believe that you need to work with industry veterans to identify specific pain points and build technology to solve those pain points.  Well, some ideas just seem SO insane at the time of conception that it takes someone with very little knowledge of the space to come in and create an entire new paradigm.  Back in 2013, Julien Smith was that person, an unconventional professional author who just had a hunch that private space on demand needed to work.  Most people in the real estate industry almost immediately dismissed the idea as too batshit crazy to ever work in the real world.  Then again, founders like Julien don’t back down from a bunch of people telling them their idea won’t work; it just pushes them to work harder and prove everyone wrong.

I first came across Breather and Julien in 2013 on Angel List.  I don’t remember what initially drew me to the company’s profile page, but I do remember that it had a certain mystique.  There was very little information about the company available (I think it was just a photo of a sleeping dog) but I asked for an introduction and Julien was kind enough to respond.  We were able to schedule a call for an afternoon later that week. 

I decided to take the call in between meetings in the Union Square area of NYC.  I didn’t have an office nearby so I took the call from my cell phone.  I spent the entirety of the call walking around Union Square Park looking for a quiet place to take the call.  I remember saying to Julien, “You wouldn’t believe what I’m doing right now but I’m living the pain point your company is trying to solve right this instant!  I can’t find a quiet place to take this call!”

Julien laughed and explained to me that he came up with the idea for Breather working as a freelance author constantly traveling.  He was sick of working in random cafes with bad Wi-Fi and wanted something different.  He also mentioned that he was excited to chat with me because I was the first real estate person he had talked to about the concept and he wanted my help working with landlords so that he could obtain space.  At this point he had no proof of concept, no app, and no spaces; he just had an idea and a will to make it happen.

After the call Julien had not yet committed to inviting me into the funding round, so I knew that I would need to prove myself worthy, and do it quickly.  So, I decided to start reaching out to friends of mine in the real estate community to see what they thought about the concept, and if they would be willing to either co-invest with me, or lease some of their commercial space to Julien to open up one of his first ever Breathers.  I was not surprised when my enthusiasm for the Breather concept was met with quizzical looks from some, and outright derision from others.

In fact, I brought the Breather concept up in a meeting with one of the most innovative and creative real estate minds of all time.  This was one of the people who invented the concept of urban mixed-use buildings, something considered pretty radical at the time in the early 90’s when he first started building them.  He told me that Breather had no shot, and that’s when I knew I had to invest.  Nowadays, my father is pretty excited to have Breather in our portfolio!

There are a few of reasons why Breather is simultaneously so radical and so obvious.  As I have mentioned in the past, commercial real estate is a fundamentally inefficient asset.  Tenants only occupy office buildings during the day (investment banks excluded here) and hotels during the night.  Landlords however have to pay to operate these buildings all day long: they have to pay utilities, taxes, maintenance, and management expenses all day long.  The innovation of mixed-use buildings in the early 90’s, pioneered by our company, Millennium Partners, helped to defray some of these costs as a combination of residential, hotel, office, sports club, and retail uses ensured that some portion of the building was occupied 24 hours per day, 365 days per year.  

Nonetheless, Breather takes the mixed-use model even further, by creating flexible space modules that can be used 24 hours per day, 365 days per year for different purposes, matching tenant demand at any given time to landlord supply.  Breather effectively matches tenant demand with landlord supply in real time, and pushes the envelope even further with a dynamic pricing model.  Now, landlords are not only ensured to have commercial space occupied 100% of the time; they also will know how much each time of day is worth to tenants in a particular building.  For some buildings 2 PM is the most desirable hour of the day and for other buildings it’s 10 AM.  Prices can thus change dynamically to accommodate this phenomenon.

Once demand and supply are perfectly matched, and price elasticity becomes transparent, landlords know exactly how much their space is actually worth.  They will make more informed decisions about their buildings because of this additional knowledge.  Also, since the spaces will always be occupied, landlords can afford to charge tenants less on a per hour basis because they know that the space will be more valuable on a per square foot basis than had they leased the space under a traditional ten year commercial lease.  Everybody wins: landlords charge less and make more money and tenants pay less and only use the space when they actually need it.

As more and more people move into cities across the globe, urban real estate becomes ever more precious.  54% of people globally now lives in cities and population growth in cities is expected to accelerate over the next ten years.  I believe that concepts like Breather will be essential as space becomes scarce and citizens require greater efficiency of space within their cities.  Eventually, real estate developers will begin to build completely flexible modular commercial spaces within their buildings, satisfying more types of use than a current Breather location can handle.  What will buildings look like when there are Breather conference rooms, Breather kitchens, Breather bedrooms, Breather dining rooms, and Breather bathrooms?  People will conceive of how they live completely differently.  They will only pay to use their bathroom when they actually use it.   They will only pay to use their dining room during dinnertime.  They will only pay to use their conference room during a meeting, and so on.  This way of living will drastically reduce costs for urban residents because they won’t ever pay for space they don’t actually use.  Landlords will be happy because all their space will be occupied and leased 100% of the time.

Thus, Breather is the future of conceptual commercial real estate, and that’s why Peter Thiel just gave them $20 million.  Now, the company that was dismissed a few years ago by our industry as a gimmick that would never work could just be the company that completely disrupts our industry and improves urban quality of life around the globe.  I am thrilled to be along for the ride! 

Jordan Nof, Head of Investments at Tusk Ventures

The Innovation Conversation is a series of Q&A sessions between the real estate technology industry's top leaders and MetaProp NYC Co-Founder and Managing Director Aaron Block.  Topics include thoughts on the future of property and technology, corporate innovation activities,  and executive development in the real estate technology space.

Jordan Nof, Head of Investments at Tusk Ventures


What are your day-to-day responsibilities in your organization?

As the Head of Investments at Tusk Ventures, I am responsible for overseeing all aspects of the firm's venture practice and investment strategy. My day-to-day responsibilities include sourcing, evaluating and recommending companies that satisfy our investment mandate and are positioned for Tusk Ventures to add significant strategic value in our sweet spot of solving complex problems in highly regulated marketplaces.

We have reached the point where cash has become the least valuable asset that an investor should bring to the table. Along with funding, entrepreneurs need to look for a trustworthy partner who provides the relevant experience as well as access to people and distribution channels that they would not have otherwise. I focus on identifying the right startups (10-12 annually) where we are best positioned to foster these types of partnerships by helping them navigate the regulatory hurdles, incumbent players, and public perception to become the next generation of great companies.

Describe how you became interested in real estate technology and innovation.

I became interested in real estate technology while working as a Director at Blackstone within the Innovations group. My role was primarily focused on the firm's corporate venture capital portfolio, identifying companies that could help accelerate either the firm’s operations or those of our portfolio companies. Given Blackstone's global footprint in real estate, I felt that it was an area where we could really help tip the scales for a company in the vertical.

From this unique position at the nexus of real estate entrepreneurs, investors, and end-users, I led the firm's first real estate technology investment in VTS. Since then, the CRE technology space has experienced explosive growth in terms of dollars raised and number of startups in the space.

How is today’s real estate technology different from when you started your career?

When I first started analyzing the CRE Tech space, there were no more than a handful of companies in the vertical. Most of the real estate startups were focused on the residential market, chasing the footsteps of Zillow and Trulia. Since then, there have been tremendous opportunities exposed that could bring increased transparency to this once opaque market. Examples of disruptors include:

- Leasing & Asset Management Workflow (VTS)

- Shared/Flexible Office Space (LiquidSpace, Breather)

- Crowdsourced Data (CompStak)

- P2P Lending (RealtyMogul)

- Mortgage Refinancing (Lenda)

- Crowdfunding (RealtyShares, Fundrise)

- 3D Visualization (Floored)

- Smart Access Building Control (Latch)

- Office Cleaning & Management (Managed By Q)

There are even companies now that can provide owners with ancillary revenues for their unused parking spaces (ValetAnywhere, Zirx)

What is the most important innovation and technology-driven initiative in your organization today?

Given that I work in venture, my sole focus is to foster and accelerate entrepreneur driven innovation by providing both intellectual and financial capital.

Tusk Ventures is focused on selectively partnering with startups to solve complex problems in highly regulated marketplaces. Our team develops an underlying strategy and executes full scale multi-jurisdictional campaigns to eliminate regulatory hurdles, achieve policy goals and shape public perceptions. Where possible, we collaborate with governments and incumbent organizations to pursue aligned goals. Where necessary, we challenge regulatory regimes and assemble coalitions to change the status quo. Our mission is to serve as a catalyst, providing sustainable growth for the next generation of great companies.

What do you do to stay on top of cutting edge trends and developments in real estate technology?

Taking a similar approach to learning about any new new industry, I have found that speaking to everyone I can in the RE Tech ecosystem is the best way to get a variety of perspectives about the newest technologies and meet high caliber founders. I utilize every aspect of my network to stay on top of the latest trends and developments, including:

- Entrepreneurs

- Real Estate Asset Managers

- Other Venture Capitalists

- Angel investors

- Lawyers

- Investment Bankers

- Accelerators and Incubators

- University Entrepreneurship Programs

In addition, my team and I use private company market data to conduct analyses and ensure that nothing has gone under our radar.

As a mentor, what is the #1 value you bring to a high-growth real estate tech start-up?

Deep real estate tech experience - which allows me to share a first-hand understanding of:

- What investors are looking for in early stage RE tech companies

- What potential enterprise customers will require prior to implementing your software into their businesses

- The hurdles you can expect from large incumbent players and other early stage competitors (and how to overcome them)

- Operating advice on how to build a high-growth business

- How to efficiently raise capital from both strategic investors and traditional VCs by focusing your deliverables on what matters most to them

Who have been your most important mentors and why?

Bill Murphy (CTO of Blackstone and former Co-Founder of Capital IQ) is a mentor that had a tremendous impact on me and helped shape my career path into venture capital. The only thing better than learning from your mistakes is learning from the mistakes of others, and he gave me the opportunity to do that by sharing the invaluable insights he learned while sitting on the other side of the table as an entrepreneur at Capital IQ. By running his department like a standalone business, he gave me instrumental exposure into being a successful operator.

Finally, his management style was one that really resonated well with me. Tenacity, grit and drive are all imperative to success, and his career is proof of that.

What is your favorite business book?

I am going to skip From Good to Great and The Art of War and hopefully go a bit off the beaten path here with When Genius Failed by Roger Lowenstein. The book illustrates several extremely important themes in navigating markets and building a sustainable business.

First, no matter how successful you have been in the past, you must continue to push yourself to always strive and learn more. In addition, it is imperative that your business strategy remains nimble. Thanks to Innovation, the world is rapidly evolving. However, that also means that what once was a profitable business model can become obsolete very quickly - always stay on your toes.

The book begins a chapter with one of my favorite quotes - "Markets can remain irrational longer than you can remain solvent", by John Maynard Keynes. Nobody is insulated from rapid changes in market dynamics – every VC could be banging down your door today, but not return your phone calls tomorrow. Founders should always remember that.

What is one interesting thing about you that most people don’t already know?

Although I am originally from Florida, my favorite thing to do (outside of investing in startups) is back-country skiing.

Why is Airbnb Worth $24 Billion and What Does it Mean?

The recent announcement that Airbnb was raising a new round of financing at a $24 billion valuation left many people outside the start-up and technology communities scratching their heads.  In fact, some of my friends in the real estate and hospitality communities emailed me when the news broke thinking that the press must have made a mistake and missed a decimal place somewhere.  They just couldn’t wrap their heads around the idea that a real estate company with no tangible real estate assets could command that kind of valuation from investors.  How does a platform for sharing real estate demand a much higher revenue multiple than a company that owns real estate?

I am not going to bother opining on the exact revenue multiple that Airbnb should have.  I am certainly happy that they are worth $24 billion (two of my investments, Localmind and Fondu, were both acquired early on by Airbnb).  However, I will let the far more sophisticated growth equity investors doing the deal set the valuation for me.  I am happy to be along for the ride. 

Nonetheless, I can say this with certainty: the fact that experienced, late-stage investors are willing to place such a growth premium on Airbnb shows that we are in the midst of a tectonic paradigm shift in the real estate industry.  Moreover, I believe that we are only in the third inning of a nine inning ball game.  The crux of this paradigm shift exists in how people conceive and inhabit physical space, and how people are able to maximize the efficiency and financial opportunity of that space, driving prices down for “tenants” while simultaneously creating more profit for “landlords.” 

This may seem like a contradiction but it’s not: when space is used more frequently and more efficiently, landlords can earn more money while charging less money to tenants.  This is the “holy grail” solution that exists when you merge collaborative consumption, on-demand services, and the shared economy with real estate.  This is the genius of Airbnb and it has galvanized an entire industry in its wake.  People can take unused real estate and turn it into occupied real estate.

In the olden days, the perception of space was rather rigid.  People lived in houses, tenements, or apartments, and they worked in office buildings, factories, or stores.  When they traveled, they would stay in hotels or hostels.  Airbnb was the first company to flip the script on this model, and more change is coming.  Because of technology, social networking, on-demand services, and collaborative consumption, all of these spaces can be used by people when they need them

Imagine a world where you can use a specific type of space only when you need it and you can pay for it by the hour or by the day?  This was the major innovation of Airbnb.  People thought to themselves: “I am going away for the weekend and no one is going to be in my apartment.  Why don’t I earn some money and rent it out?”

Now, this type of thinking is getting applied to other asset classes within the real estate spectrum.  For example, if you are only in an office for a few hours a week, why not book a Breather instead of getting standard lease on an office space? (Full disclosure: Breather is a portfolio company) Schools are vacant from 5 PM-6 AM.  Why not have dinner parties and other events in schools provided people are respectful and responsible?  Why can’t a hotel turn into an office building during the day, and vice versa?  When no one is in our conference room at work why can’t I rent it to others for an hour to have a meeting (i.e. using LiquidSpace)?  I only use my vacuum twice per week.  What good is it doing sitting in my closet when it can be cleaning someone else’s home or office and potentially earning me some money?  The list goes on and on.

An old saying in the real estate business is that land is a great investment because they aren’t making any more of it.  Today, this rings more true than ever with real estate prices skyrocketing and people getting priced out of places where they have lived for years.  However, although the earth isn’t making more land, people are beginning to think about how they use physical space in different ways.  Instead of conceiving of space as an owned or leased quantity, they are beginning to think of it as a shared quantity.  This shift will ultimately prove the most financially viable solution to solving the affordable housing crisis, ensuring that people have reasonably priced places to start small businesses, and providing people with the ability to travel and expand their cultural views on a shoestring budget.

So, in summary, I don’t have any idea what Airbnb should be worth.  What I do know is that the investors who are valuing it at $24 billion, whether consciously or not, are recognizing Airbnb as the initial catalyst for the largest disruption in the history of the real estate industry since the invention of the skyscraper in Chicago at the end of the 19th Century.  At MetaProp NYC, it is part of our job to educate the entrenched real estate industry about this seismic shift and show them that they don’t have to resist it.  We can also educate the technologists and startup community about how to approach people in the real estate community and explain the new ecosystem in relevant, appropriate terms.  No one has to go into hand-to-hand combat.  In fact, if done correctly, everyone can create additional economic and social value in this new ecosystem.  It doesn’t have to be a zero-sum game.