Nestio

How To Start A Real Estate Tech Company: Do’s and Don’ts (Part 1)

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Nearly every day I see at least one new real estate technology idea come across the transom.  So, I thought I would share some thoughts about best practices for starting a real estate technology company. 

Here is my list of do’s and don’ts…

Do: Talk to multiple people in the real estate industry about what their daily pain points are and try to solve them.

This may seem like an obvious thing to do, but you would be shocked at how many real estate tech entrepreneurs don’t bother to do this...even entrepreneurs who have worked in some aspect of real estate before starting a new venture. Because real estate technology is still so nascent, and real estate is still predominantly a “pen and paper” based business, there is a huge opportunity everywhere.  Nevertheless, you still need to be diligent about finding that pain point and making sure that the particular sub-market you are going after is large enough. 

Go and talk to as many people as you can about how they could use software to do their jobs better.  This will accomplish many things: it will help you better understand who your end customer is, how the sales cycle might transpire, and what areas of real estate are the most ripe for disruption. Three years ago, I might have told you that leasing management for commercial and residential landlords could have used a technology solution to make that process better. However, as VTS, Hightower, and Nestio have quickly gained market share, today I would most likely tell you to focus on another pain point of landlords, like energy management and utilities. 

For example, one of our jobs as commercial landlords is to bill back utilities to tenants who have “triple net” leases. There is a huge opportunity for software (and potentially connected devices) to help us manage this process more efficiently. An outsider to the industry, or even an industry insider who works in a different part of real estate, might not even understand that this is often a challenging and cumbersome process that could be potentially mitigated with a software solution. However, a quick conversation with a commercial landlord who handles this will provide you with a path worth exploring.  

Don’t: Take it upon yourself to build a real estate technology company because of a real estate problem that you have had personally.

Many technology entrepreneurs have heard that real estate is the new hot thing (it’s only been around for tens of thousands of years) and now they want to build a real estate technology business.  Many of these entrepreneurs have had personal issues with real estate that range from the benign (“my broker was late to show me an apartment”) to the also benign (“I had trouble finding an apartment once”).  I do sympathize with these problems and understand that there is a huge opportunity to fix them with software.  However, before building a tool that just makes it easier to find an apartment, please consult with professionals in the real estate space, ideally brokers and landlords, to understand how to make a product that will be truly differentiated in a very crowded landscape.  Don’t believe that just because you have an amazing technical team that you can build a real estate tech product.  You need to talk to people in the industry, even if it’s ultimately a consumer app that you are building.

Do: Create something that helps me make more money or save money.

It is very difficult to pitch new hardware and software solutions to landlords. We have short attention spans and we care a lot about saving money. The thought of paying you for your software every month out of our hard-earned rent roll makes us squirm.  So, in order to really get our attention, you need to build something that saves us more money monthly than we are paying you, or makes us more money monthly than we are paying you. Otherwise, we are not interested.  For example, last week I spoke to an entrepreneur who has developed an innovative new electric car charging station for garages.  I was definitely intrigued because it looked new and cool, but I was excited about the fact that it seemed like it could save us money on construction and operations costs.  

Don’t: Create something that a landlord or broker will just think is cool.

In the tech world, people sometimes purchase things because they look and feel cool.  In real estate, that almost never happens.  I often see teams developing sensors for commercial buildings.  Some of these teams lead with the pitch of, “wouldn’t it be cool to see heat maps of clustering of people in your buildings with these sensors?”  Other teams lead with “I can save you a lot of money by installing these sensors on your condenser unit”.  Of these two pitches, which one do you think will most make a landlord’s ears perk up? 

So, in summary: talk to landlords and brokers, figure out where the pain is and get a clear picture of what makes us tick.  Build something that can save us money.  If you do that, you will build a successful real estate tech venture.  Avoid us at your own peril.

Why Did We Start MetaProp NYC?

It’s clear that 2015 was the right time to launch a real estate technology accelerator in New York City. 

Steve Schlafman from RRE Ventures once asked if I thought 2012 would have been a better time to do it.  I pondered that question for a while and realized it probably would have been a financial windfall to work with the crop of high growth real estate tech start-ups that three years ago were just starting out (VTS, Hightower, Managed by Q, Compstak, Floored, Compass, Honest Buildings, SiteCompli, The Square Foot, Nestio, Reonomy, etc.).  All of these companies, and many more successful NYC based real estate tech companies, germinated at this time and we could have had the opportunity to accelerate a few of them.  Now, the best of those companies have gone on to raise substantial financing rounds and are building very successful businesses. 

After some reflection, I would argue that a world class real estate tech accelerator would not have been possible in 2012 and, furthermore, is only possible in 2015.  For a domain specific accelerator to work, you need a few things to coalesce.   First, you need technological talent.  Second, you need capital.  Third, you need mentors.  Fourth, your portfolio companies need customers and clients.  Finally, you need more mature start-ups in the ecosystem.

In 2012, one definitely could have put together the talent and capital but not a large base of clients and mentors.  The industry was simply too nascent.  Landlords worked with software for property management (Yardi, Timberline, and MRI, etc.) but used very little innovative software for leasing management, compliance, HVAC, marketing, or construction management. 

In 2015, not only do you have landlords learning more about software, they are clamoring for it.  Dave Eisenberg from Floored mentioned to me on a panel that a massive business breakthrough for him was initially suggested by a client.  The fact that a real estate professional is that in the weeds with a technology product is a massive shift for the industry.  This shift has been brought about by a meaningful dialogue for the first time commencing between software developers and clients in this industry. 

In 2015 you also have mentors who have been through that dialogue.  They now intimately know the dos and don’ts of selling software to landlords, marketing software, hiring, raising money, and many other critical business building concepts. 

We assembled an all star team of mentors and corporate partners (including Zillow Group, Warburg Realty, DLA Piper, EisnerAmper and The News Funnel) to launch MetaProp NYC because we thought that this was a unique opportunity in time to bring together new founders, old founders, clients, and financiers together to accelerate businesses.  While the industry has matured quite a bit in NYC from 2012-2015, we believe that the software disruption of real estate is just beginning and will continue to push forward into the next decade as technology changes the entire process of building, leasing, and operating a building from top to bottom.