Transcription:
Spencer Lee: (
Good afternoon. My name is Spencer Lee, a reporter at National Mortgage News and your moderator for this next panel, which is the final panel of DIGMO 2021. Thank you for joining us this afternoon. And thank you for joining us for these past three days. We hope you found these panels, these discussions really informative, really entertaining.
Spencer Lee: (
This panel is titled Venture Capital's Favorite Dealmaking Ideas for 2022, a real relevant topic for this age, I think. We have four experienced veterans of the venture capital and fintech space with us for what I hope will be a fun discussion over the next 40 minutes or so. I'll let them introduce themselves in a moment, but first, I'd like to invite you in the audience to ask a few questions. We have a Q&A box to your right, and you're welcome to ask questions. Hopefully, we'll be able be able to get to a few of them within the next 40 minutes or so, if not all of them. Now,, to our panelists, the stars of this show, I'll allow them to introduce themselves and maybe, tell us a little bit about their companies, their background and some of the projects they've funded. So who'd like to start, don't be shy.
Dave Eisenberg: (
I'll go for it, right. Hi everybody. My name is Dave Eisenberg. I run a venture-capital firm called Zigg Capital, which is exclusively focused on backing technology companies in the real estate construction and retail space. I spent about 12 years in operating roles prior to starting the fund. We've been very active in the digital mortgage space of the last three year. I think we have six out of 30 companies that touch the segment. Snapdocs, Vesta, Staircase, Tomo ,Willow in the servicing space and spruce., Really excited to be here.
Liza Benson: (
Hi everyone. My name is Liza Benson, and I'm a partner at Moderne Ventures. We are a venture-capital fund focused on early-stage investing around real estate, home services and fintech and insuretech having to do with real estate. We recently raised a $200 million fund, and some of the deals that we have done over the past year include things like Xeal, which is an EV-charging company that doesn't require any connectivity Tailorbird, which helps multifamily value add cut the time that's needed to assess, put together RFPs. And I have been in the venture capital space for over 20 years.
Clelia Peters: (
I'm glad to follow Liza. My name is Clelia Peters. Like my colleagues here, I'm a specialist investor focused on the intersection of real estate and technology. I've worn a few different hats in that world. I was a cofounder of one of the early proptech focused funds, MetaProp. I was involved with my family's residential brokerage business, so I know the residential transaction as a practitioner. And I'm currently a venture partner at Bain Capital Ventures, where I focus on proptech across the platform, not just at Bain Capital Ventures actually, but with Bain Capital broadly. And in the context of Bain Capital Ventures, we have been involved in several deals adjacent to this space. We are investors in Ribbon. We recently made an investment in a company called Properly, which is a Canadian company, with a model similar to an iBuying model. And I, I'm pretty involved with the Inman conferences, where I have also been involved in a number of conversations around mortgage, and I would say, around the disruption of the financing of the residential transaction broadly, because I really think that's more what we're talking about this at this point than just mortgage
Jeremy Solomon : (
Last, but not least, I'm Jeremy Solomon. Hopefully. So, I'm a partner at NYCA Partners, which is a fintech focused fund. I personally cover credit and proptech businesses, so I'm not solely dedicated to proptech, but I found myself spending quite a bit of time around the space, giving the tremendous amount that's going on right now. At NYCA we've invested in several different proptech businesses over the eightyears of our fund's existence on the resi side, as well as commercial. So on the resi side, we're investors in Roofstock. We're investors with Bain in Ribbon. Renofi, which is a renovation-finance business. Polly, which focuses on mortgage-execution software for originators. Aven, which I was a cofounder of prior to joining, which is focused on the HELOC space. And then on the commercial side, Blooma, which is origination software. Skyline on the data side and Built, which is construction-lending software.
Spencer Lee: (
Great. Now I'll get started with the questions. In regards to real estate, particularly residential lending, which I think where a great deal of our audience is involved with, what are some of the services and ideas that you see emerging companies developing?, What solutions are they trying to bring to the table that might catch your attention now that would lead you to, pay attention and say, "Hey, this might be worth investing in." Who would like to start?
Clelia Peters: (
I'm glad to kick it off, maybe with just some level setting around, I think, some of the really broad macro trends that are happening in the space. So first, I think that we are in a period where the residential transaction and what had historically been different silos — areas of revenue opportunity — are sort of collapsing into one. And by that, I mean, that it used to be that we thought that like brokerage commission sat here, and title commission sat here and mortgage commission sat here. But I think what's increasingly happening is that the entire residential transaction is really one big disruptable transaction, and that what we're seeing in terms of the direct-to-consumer businesses in this space is that it's less and less common for people to just be focused on one part, and more and more common for people to be thinking about how they can be involved in multiple aspects of the transaction simultaneously.
Clelia Peters: (
And I think we're really ultimately moving towards something that's more of, like an integrated platform model around the residential transaction. So I think that's just one important thing for people to be aware of as they think of the residential transaction. And I think the other thing, particularly vis a vis mortgage, that's important is that because of the way that technology changes our ability to predict the value of a mortgage that someone could qualify for, we're increasingly seeing financing being the first step of the journey for a serious buyer. And that's a really powerful change. It used to be that people started with search, but it was search that was sort of like, they didn't actually know how much they were going be able to afford until they engaged in the buying process and had an asset that they could bring to a bank and say, "Will you give me a mortgage to buy this home?"
Clelia Peters: (
But now, so many people can do real prequalification that I actually think what we're seeing is high-intent buyers are starting with financing. And if you think about the entire Zillow business is built on the idea that Zillow can bring high-intent buyers to people who want to engage in other parts of the transaction, if you actually have a shift, and you have mortgage being the first step in that process for high-intent buyers, that could really reshuffle a lot of aspects of the consumer business. So those are just two big trends I want to mention that I'm aware of. And then, you know — Dave in particular, may be better able to speak this becaue I think it's been a real investing interest for him, — but I think we are also increasingly seeing like the giant eye of venture capital turning to not just the consumer-facing aspects of mortgage, but kind of like where the sausage is made: origination, the secondary market. I believe that's going to be a major area of disruption in the next year or two,
Dave Eisenberg: (
I'll take the handoff. Yeah, so we believe that much of the innovation that happened in digital mortgage over the last decade was really about digitizing paper-based workflows. And we saw a lot of players get to some pretty impressive scale with truly digital processes from an end to end — from the start of searching for a mortgage provider to actually getting a mortgage originated. I think as we look to the 2020s, we see the attention of the space moving from volume to cost, and I think the backdrop of a rising-rate environment and lower volumes is that this is where the profit opportunity for much of the mortgage industry is going to be, which is going to be executing mortgages faster and with fewer people involved, fewer mistakes and just a more pleasant consumer experience overall,. This dovetails nicely with a lot of technological innovations in things like highly narrow forms of AI that allow us to do things that people have historically done.
Dave Eisenberg: (
Again, with a lot of loan officers retiring, a lot of generational shifts and a totally new generation of buyers — first-time homebuyers and Gen Z and millennials — folks who are truly digitally native, I think the time is right for the automation of the mortgage category. So a lot of the things that we've done fit into that camp. Snapdocs was a bet that we made several years ago that has really started to scale. Vesta is a very new bet for us in automating much of the workflows that touched the loan-origination system. It's a team from Blend that really has just unbelievable domain expertise in this area, and our newest bet on the mortgage servicing side is a very similar approach, which is to say anything that can be automated by a machine, where the performance is better than a person, will be automated. And the types of teams that are going after this opportunity have spent the last decade working in and around sort of the V1of digital mortgages. And now we're going to see some really exciting stuff in the sort of 2020 version.
Liza Benson: (
We've been focused a bit adjacent to mortgage, but sort of alternative financing to mortgages, right? So, we have an investment in the fund called EasyKnock, which allows an owner to sell their home and s we it back and then buy it back at the same price that it was sold at when they're ready to. The home is sort of the biggest asset that most people have, and it's very hard to monetize unless you sell it. So we're seeing a lot of different alternatives come out to say, "How can I get cash out of this home and still live there?" And as we know, HELOCs and other things are very hard to qualify for. So we see an opening for alternative financing solutions.
Jeremy Solomon: (
So in that realm, I definitely agree with Liza that there's a lot going on in that alternative financing area, as well as complements to the first-mortgage space. So, now that we've gone through this incredible refi boom, which may never be replicated, it is time to figure out other revenue centers for large participants in the market. So, we invest in a business, like I mentioned, called RenoFi, which is focused on large-dollar renovation projects, which actually take the home over, 100% LTV theoretically, but the post-renovation value comes back to that safe mortgage level. So figuring out financing solutions for situations like that, I think, is very valuable, as well as thinking differently about unlocking home equity, less on — for me personally — less on cash outlays to owners, but something like Aven, where in essence, it's a HELOC with, credit-card functionality. So allowing consumers to access their home equity up to quite a large amount at a very low cost of capital that I think you're going to see a lot of activity around that orientation of functionality.
Spencer Lee: (
Great. Now just drawing on Clelia's initial comment, do you think that the market favors emerging companies who are involved in multiple lines of businesses rather than focused — I guess diversified businesses — rather than mortgage only, or a very narrow niche? Is that what you see going forward?
Dave Eisenberg: (
I don't, I would not take that assertion. I think that in a world where it's as simple as switching what tab you're in rather than like going to a different branch, I actually think consumers are looking for the best user experience across every component of the ways to finance a home. I think what is better suited towards emerging businesses versus sort of the traditional mortgage industry is that as there are new ways to conceive of owning a home, be that in a fractional framework, be that in a tokenized framework, be that in partnership with a corporation — sort of the joint venturification of homes, which is where there's been a lot of venture activity over the last decade, I think the odds that a completely net new process will be built around financing those types of purchases are better from a net new company than someone who has to transform a lot of 70s-era systems to actually try to contort their business to these more novel forms. And so, I think if you believe that real estate is going to become more liquid, which is, I would say is a core focus of our fund, then it follows that the financing mechanics and the overall liquidity of the ownership interest in these homes is going to become a lot more complex, a lot more interesting and a lot more automated. And we think that that's a big pool of opportunity for startups.
Liza Benson: (
Yeah. But I think it, — go ahead, Clelia.
Clelia Peters: (
I was just going to say, I actually think that those trends do align. My personal opinion is that does align more with, like something of a platform play. I obviously have the supposition, but I think you'll both see incumbent players — I think in particular, you'll see players with an existing beachhead in brokerage in some way, starting to, I think universally, people will push their own title, mortgage, financing tools. I think another thing that's just important to acknowledge is bridge-financing tools like Ribbon, Homeward. Then, power buyers, like Orchard, FlyHomes, who are integrating bridge financing, the brokerage commission and mortgage and title into a single platform often with employed agents so that they can control the customer experience. And I really do think that that is more and more the trend that we will see.
Clelia Peters: (
And, I thought it was notable this year when Better Mortgage started their own brokerage business so that they can capture now at the front end. And while I totally agree with Dave that I think the customer experience and service will be one of the key factors that consumers use to make this decision, I also think just ease of use is going to be significant. And like, I think we are going to move towards a world where buying and selling homes are easier and easier because they're more and more financing options available. And because the transaction can actually happen in a way that's more frictionless,
Liza Benson: (
I think with all these different sort of fractionalized ownership models coming out, I think the question is how does the mortgage industry answer to that? And how do you finance something when you own one seventh or one eighth of it, whatever it might be? So I think that's a real opportunity in the fintech mortgage space for companies to find alternative financing solutions to traditional mortgages for these new types of ownership models.
Jeremy Solomon: (
Yeah, coming back to Clelia's point on the trends in the industry, I think with nearly every innovation category, you tend to see a very isolated, single-use case company coming out with a great solution and winning a specific function, but there tends to be a need to actually go from a fragmented market to more of a consolidated market very quickly. And we very well may be at the start of that in the mortgage space with not only getting into the brokerage space, but just the technology they've built in house, just shows the need to potentially own every feature, including your system of record,, in order to create the best experience for customers and for the capital markets that support it.
Dave Eisenberg: (
I might add one more thing, which is, if I have one guarantee to make, like over the next few years, I think we're going to see more consumer fintechs that have very large scale in terms of their user base get into the mortgage business than is currently understood. I think there are going to be a lot of new entrants to the mortgage business, because there are new pieces of infrastructure that enable of them effectively to offer mortgage in a box. Those are the types of companies that we tend to be investing in. But it's actually, if you think about like getting a mortgage from a Bank of America or Wells Fargo, you can't get a mortgage from a neobank today. Most of them are not in this line of business, but we expect that almost all of them will be in this line of business.
Clelia Peters: (
And then, that adds this really interesting layer of how do those people then, to your point, Dave, interact with some of the historical infrastructure the major capital providers in the space? The secondaries market. And I think that we are going to see more and more as a result of that evolution in kind of like the chain as a whole.
Clelia Peters: (
I really think that so far we've seen much more disruption — and this, I would say is almost always universally true in the way that innovation happens — like whatever touches consumers and the consumer experience and is visible to the naked eye happens first. I like to joke sometimes that the venture industry is like largely like dudes in Silicon Valley fixing the problems that touch dudes in Silicon Valley. So like a mortgage is an annoying process, but not that many people are really in the guts of some of the aspects o, the servicing, secondaries. But I do think that is one of the major areas of value surrounding mortgage and that that will be one of the biggest areas of disruption coming.
Spencer Lee: (
Thank you. That kind of segues into another question I had. Do you think the interest in funding — is your interest in funding companies, will that be more geared toward —, this is the industry as a whole, not necessarily you individually, but, within venture capital — toward more consumer-facing businesses or those focused on the guts, the software that power banks, the lenders and the real estate companies, or those that consumers might know and interact with?
Jeremy Solomon: (
Yeah. On the NYCA side, we believe in owning infrastructure in that it tends to be very scalable. We work in partnership with a number of banks. Banks are LPs as well. I actually neglected to say that we're also investors in Blend, which is obviously a big one this year with, their IPO. Nima would be very mad right now.
Jeremy Solomon: (
But, so, I think this is a good example of an infrastructure play that actually does have a consumer front end. It's just like through the banks. And the way that business has developed is it goes from front office to middle office and even getting into back-office services and ancillary services over time. But infrastructure — if you get it right — the opportunity is incredibly large, because it can be just very scalable. And the challenge on the consumer side is marketing and cap is just incredibly difficult at the beginning. And so, there's companies that are lucky and work their way through it with lots of money from us. But finding a solution that's applicable to as many people as possible, we find to be the most compelling proposition.
Liza Benson: (
Just kind of building on what Jeremy said, at Moderne, we're really a bit more focused on —I would say the B2B2C,, where we leverage businesses as a distribution channel, just because of the cost of reaching those consumers, especially in mortgages, is immensely high. So we're much more focused on things that leverage brokerages or existing banks or whatever it might be, as opposed to trying to go directly to the consumer with a fintech product.
Dave Eisenberg: (
So we do both. We're already relatively narrow in the venture world for just looking at proptech. I think it would be hard to further segment into consumer versus business. What I would say is that I actually don't believe this line is as stark as it once was. If you think about — so we have a new consumer play in a next gen originator called Tomo founded by the former president of Zillow. And if you look at where they're spending most of their dollars on IP, it's on infrastructure. It's on pieces of infrastructure that they don't have great solutions for from the rest of the market. We have a new business that announced their funding this week called Staircase, which is effectively an API for anyone who wants to build a novel partner mortgage experience.
Dave Eisenberg: (
Staircase looks like a pure B2B solution because they sell to the developer teams at a variety of companies, but they're also going to launch a handful of consumer apps that leverage their API just to show what is possible. Tomo is showing that you can close a mortgage in less than three weeks. Staircase is going to show you can generate a completely new mortgage product in a matter of days. And so, I think it's hard to define these companies as B2B or B2C. Spruce, which is a company that facilitates digital eCommerce transactions, sells to other businesses, but they touch consumers who are actually interacting with their product. Same thing with Snapdocs. So it's not a distinction that we think about too clearly. I think, in general, it's harder to build a consumer business in this category because you have to scale — to be relevant to venture — you have to scale to have millions or tens of millions of users. But I think on the B2B side, you have to have extraordinary domain expertise to know how to navigate this legacy landscape and where to build and, where to compete.
Spencer Lee: (
Great. Great. Now, I want to just remind the audience that Q&A is open. If you have any questions, feel free to pop them in, and we'll get to those. One thing I want to address maybe is the current market. Now, at least in residential mortgage, 2021 was a record year. Just some of the lenders I've spoken to have said they were planning for the worst, but it never came. Just volumes got better, but they projected for 2021 — 2022, excuse me, I forgot what year it is, — originations, they were over 4 trillion this year. I don't have the exact numbers, but next year they're estimated to be about 2.5 trillion. That's a big drop off. It's still very high, but does that influence, maybe venture capitalist, about where they steer their funding to?
Clelia Peters: (
So I would just say, I think the anomaly was actually, like the end of 2020 and 2021, right? You had this combination of factors. You had people stuck at home. You had markets that had been, in many cases, closed for a number of months, so you had a lot of pent-up demand. And then you had this incredible low-interest rate environment. So I think those factors together drove us into really like, for lack of a better word, a euphoric housing market, right?
Clelia Peters: (
And I don't think — I would be curious to hear from others on this panel — but I've effectively been discounting companies that play in this space or touch on the residential transaction in terms of their performance in 2021, because this has definitely been a like rising-tide-raises-all-ships market. Any company that touched the residential transaction in some way had an astounding record-breaking year in 2021.
Clelia Peters: (
But I think that what we'll return to is not like a desert with no opportunity, but just a more normal market environment, where people are transacting at levels similar to the past. And I think there are two, then question marks for us, around this market going forward. One is to Dave's point about real estate becoming a more liquid asset. Some people do have a hypothesis that as the chafing of the transaction minimizes, people will actually buy and sell homes more. And then, I think some people have a hypothesis that like the pandemic and more of a work-from-home lifestyle, we may be seeing the impacts of that in the way that people live and the way that they move and how they relate to home for a number of years to come before we return to a different normal. So I would personally say the question for me is not should I still invest in residential-transaction related companies, but more trying to get a sense of what the overall macro environment will be in steady state in this kind of new normal.
Jeremy Solomon : (
I think one thing that it might highlight is, — kind of pre refi boom, a lot of subscale mortgage originators were in potentially financial distress, and this market took them well out of it and made them make a lot of money. If we return to a more normal market, that might mean that margins, once again become incredibly tight. And so the cost side, where any type of automation efficiencies that can be seen — better execution, selling to Fannie and Freddie, whatever it may be — I think those types of solutions are going to be, do quite well in this, kind of more normalized market, And then, I definitely agree on the homeownership side — driving value for your existing home — renovation I think is going to be a huge thing. The HELOC market is still a mess, and I think a lot of banks want to ramp up that market considerably, but the product today is so clunky that there needs to be innovation in that area to drive efficiency, of the product and, enable just greater flows to come through there.
Dave Eisenberg: (
I think a market decline of a third, from four to two and a half. I think the historical average is like a trillion six a trillion seven or so, so it's still going to be a great year relative to historical averages. I think the only way you really feel that in the venture world of investing in mortgages is on multiples of companies and what you're paying effectively for run-rate revenues. Look, the public market has soured intensely on a lot of technology businesses over the last 30 days. The venture market adapts immediately. You see immediate repricing of these businesses. So what probably happened in hindsight was that a bunch of deals were overpriced over the last 12 months, and there will be a segment of those companies who overcome that because they're so good that they just grow out of it, and it's not really a problem.
Dave Eisenberg: (
And then, there's going to be a set of companies who probably have a challenge of getting back to whatever valuation was set upon them. And that may be where you see sort of another wave of SPACs that sort of restructure some of these businesses. But ultimately, to be a public business, you actually have to be quite good at being able to forecast what your future looks like. You have to be profitable often, and you need to be a business that is resilient to these downturns as they come.
Dave Eisenberg: (
In our case, I think it just changes a little bit where we focus. Again, as I mentioned, like a big thesis for us is on a decline in volumes, the attention of the whole industry moves to profit per transaction rather than just gross number of transactions, and that's a focus on cost. That hasn't really been the MO of most operators this year. Most people have been focused on revenue, So our hope is that we catch that tailwind a little bit, as people seek to reduce costs and processing.
Dave Eisenberg: (
The other thing that happens is that other markets grow. So for instance, one of our newest investments, which hasn't been announced yet is in the investor mortgage space, so basically mortgages at the point of sale for folks that are investing, but not using homes for themselves. And that segment is just on a secular growth curve because, of the growth of the SFR industry. And so I think, venture investors, for better or worse, you know, iterate pretty quickly in terms of what they want to invest in and what not. And I don't think you're going to see, companies valued as richly as they were at the start of the year, and that's fine.
Spencer Lee: (
Thanks for that scoop about what you just said. But one other thing I was wondering that, given the current economy,, do you think there will be more of a focus on new companies or early rounds, or more mature companies? Does anyone have any thoughts about that?
Jeremy Solomon : (
Yeah, I think, I, I think there's a dead spot in the market right now in the pregrowth phase. So, I think early stage is always going to be a thing. There's always going to be new companies coming up, and that's where value is in the market. There's going to be some pain point that they're trying to address, and those will continue to be interesting opportunities. On the growth phase — where there are companies that derisk quite a bit and have practical solutions that can scale — those are going to be readily investible, assuming that the equity markets remain somewhat open. In that in-between phase where you have some degree of product market fit, but you haven't scaled. I think that's where companies could get caught in this market of having — to David's point — raise a little bit too high previously,, and, having not proved out, everything that they need to get to that growth phase.
Dave Eisenberg: (
I think it's always going to be the case that the dollars that plow into fast-growing growth-equity businesses are much larger than the early stage in the businesses. But I do think if your question is more about where's the energy going to be. In venture, I think the energy is going to be around net new company formation in mortgage. And part of it is that we're really at the beginning of what I would call sort of the API economy of real estate, which is to say, if you want to offer mortgage, but you don't actually want to build a lot of plumbing yourself, having a set of companies that you can plug into to offer a newly branded mortgage product, especially if there is a twist to the ownership model or to some criteria of the underwriting that is novel, there's going to be an ecosystem of companies that you can build on top of that hasn't really existed before. And as a result, I think a lot of entrepreneurs are flowing in.
Dave Eisenberg: (
And then, the second thing that's happening is that you have to pay attention to what's happen in the sort of Web3 and crypto space. And you have to imagine that there's going to be a little bit of the attention of that space that moves into the real estate asset class. And given how freely tradeable and how liquid a lot of the instruments are that are being built there, or at least the financial primitives that are being built, some of that is going to touch this ecosystem,, and that's just going to be wildly creative. It's going to be a very difficult force, I think, for traditional players to to respond to, given how much new technology is involved there. And I think it's going to be a very fertile area for venture groups to invest in.
Liza Benson: (
Yeah, just building on that, when you look at, when you can, tokenize a piece of real estate and you can trade it, and all these different things that are happening, I think are going to be pretty transformative for how financing happens for certain projects when you have this ability sort of to tokenize the financing of it, and then, be able to trade it later on.
Clelia Peters: (
Spencer, can I just make one other comment, which is not about proptech or fintech, but just about venture broadly, which is that I think it's really important to recognize that venture itself is in a moment of euphoria.
Clelia Peters: (
And we have just an extraordinary amount of capital being deployed into venture capital by a whole variety of different investors. And you know, in this question about early stage and growth stage, I think it's also important to acknowledge that there's a whole new class of investor, who's participating primarily at the growth stage coming off and down from the public markets — really operating with a hypothesis that tech is fundamentally transforming the public markets and that it is cheaper for them to get exposure to companies while they're still private than it is to buy the stock in the public markets. So because of that, they may be less price sensitive than the historical venture investors have been.
Clelia Peters: (
And I think just the fact that there is so much capital sloshing around in venture writ large is generating more and more innovation. And there has been a lot of discussion around are we moving towards — are we in a bubble of some sort with venture? And there are people who feel like we are or that it's been a period of valuations keep getting higher. They seem increasingly decoupled from certain historical performance metrics. And then there are people who feel like tech is so fundamentally transforming the economy that many of the valuations can be justified. And so, we really don't know what's happening, but I think it is real that there is so much money in the system already that we are going to continue to see an enormous amount of venture-related activity, and that we're going to see it at times at inflated valuations, because the market is so competitive because there's so many players involved. It is a slightly different look for venture as an asset class from what we've seen in the past, and I don't think any of us on the panel know exactly what that is going to mean or how that is going to end.
Clelia Peters: (
Or if any of us do, please let me know. I will...
Dave Eisenberg: (
I do. I feel like I know this. I take the point of view that I think within the venture industry, we can sort of talk about euphoria and bubbles relative to historical norms, but if you look outside of the venture industry and you see how small the venture industry relative to the credit industry or relative to like global equities or global real estate, I think the idea that it would be anything other than this massive growth trend for the next decade or two is particularly improbable. I think there's only one direction where capital is flowing, and it's into growth and it's into technology. And even in a macroeconomic shock, I don't see that capital being turned off. And it's simply because in a world of inflation or otherwise, in a world of automation, there's a desire for, for risk assets and for high-growth assets.
Dave Eisenberg: (
And so I think there's a lot more capital coming into early-stage technology, and it's just going to continue until every single business has been as impacted by technology as it can be. I think about like one of our LPs, who's a massive national sovereign wealth fund, they've just decided to double their overall allocation to technology writ large. The scale of that single decision is going to meaningfully impact how much money flows into these businesses, so, I think there's more to come is the short answer.
Jeremy Solomon : (
Yeah, I think the implications that is if there's money flowing in the way it is today, that means that investors have reset heir return expectations. That return expectations are actually lower than they were historically, which means that either there's a lower level of perceived risk, or there's a lower return that's tolerated. So only time we'll tell whether those investors are right or not, but either risk has come down considerably because of the pace of technology innovation, or it's being underpriced today due to lack of other available interesting investment options.
Spencer Lee: (
Thanks. And I'll remind our audience, our audience out there that Q&A is open, so if you have any questions, please feel free to pop them into, into the Q&A box. I received a question earlier though. I'd like to — that I thought was interesting. In the LOS and servicing software space, you have $12 billion firms like BK and ICE Mortgage Technology. Are there other firms in those areas that you think have that kind of potential?
Dave Eisenberg: (
We think, yes. Well, we think that a lot of the challenges that folks have building in mortgage today have to do with the inflexibility of a lot of the traditional vendors. They're not designed to be customized. They're not designed to be extended. They are as closed source of systems as you can find, and so, as a result, our bet has been on the more open alternatives to some of these systems. A recent bet that we've made in the LOS space. as I mentioned, a company called Vesta. This is one that I would definitely keep everyone's eyes in terms of the quality of the team, the pace of execution and what will be made possible as a result.
Dave Eisenberg: (
We have a team of former Snapdocs engineers, which is also, it was sort of an in inside-portfolio trade. But they started a next-gen servicing-software business, and they are going after more complex workflows initially ,focusing on interim servicing, and they will broaden their focus over time. But again, everything is, uh, extensible. Everything is open, uh, and is designed to be flexible.
Jeremy Solomon : (
I think the adoption curve is actually,the biggest question, in my mind, on the servicing side. So, you've seen a lot of MSR holders using next-gen servicing solutions, which I think makes a lot of sense, especially if they have better consumer-facing features and can enhance portfolio value. We're still waiting for the large adoption from major institutions. So if a major bank dumps Black Knight and starts turning to one of these players, that's a watershed event, and then, Black Knight's tremendous revenues are all up for grabs. But that hasn't happened yet., and it'll be interesting to see what the catalyst is that that starts penetration of traditional originations space.
Dave Eisenberg: (
I should also mention, so we have one investment that is starting to get real institutional adoption on the MSR side, which is a company called Valon that has raised some pretty serious sums in terms of venture industry. And I think it's on the back of some extremely impressive artificial intelligence to actually be able to deliver high-quality servicing at a fraction of, of the existing costs. And I think, again, to sort of sum everything I've set up, it's going to be about cost reduction and quality improvement. That's going to be the theme over the next few years in this category, and there's going to be some B2C solutions like Valon, and there's going to be some B2B solutions as well.
Spencer Lee: (
You said — the other company you mentioned, Vesta and Valon?Those are the two?
Dave Eisenberg: (
Valon's on the B2C side,.Willow and Vesta are on the B2B side.
Spencer Lee: (
Okay. You heard it here. You heard it here. We just have a few just about three minutes left. Maybe I'll close it out by asking you all to — if you saw anything that happened noteworthy in 2021 that might really set the stage rolling into 2022 within the venture capital space? It can be in mortgage in fintecg or in the greater tech space as well.
Liza Benson: (
Just kind of building on what Clelia said earlier. There was absolutely record fundraising and record allocations into the venture-capital space, and it shows really no signs of slowing down. So I think that is going to give a pretty good tailwind for 2022. Valuations.— TBD, in terms of if they continue on this path where you regularly see a hundred times current revenue.
Clelia Peters: (
One thing that isn't purely a venture trend, but Dave alluded to a little bit, but we didn't go into detail that I just think people should be tuned into is the institutionalization of SFR as an asset class. And I think that's going to be a really significant trend, both in the real estate and in the venture space. We're seeing a lot of venture activity around this space because it's somewhat de novo right now. I think a lot of the rails of the way that happens are going to be next-generation rails. And we're going to see a lot of institutions deploying capital via these next-generation platforms. I sit on a company of a board called — sorry, I sit on the board of a company called Mynd, which came to market as a property management business — and at this point, is partnering so far with Invesco to really deploy capital at a major scale in helping them acquire and then manage SFR. I think we're going to see more and more of that. The penetration is still so small compared to multifamily, so there's a lot of room to grow.
Spencer Lee: (
Okay. I have a minute left, but Dave, Jeremy? Do either of you have any thoughts?
Jeremy Solomon : (
Just quickly adding on to Clelia's point. Yeah, I think when you look at the institutional fixed-income market, their appetite for resi is infinite, and there's very, very limited options to get into the space today. So I think SFR is a truly unique approach, , and I think it's — even with all the hype that we've seen around it, I think it has a long way to go.
Spencer Lee: (
Dave, quickly, if you have anything.
Dave Eisenberg: (
I I'll yield my time. I think
Spencer Lee: (
That's great. Okay. Well that does it for our session today. And I guess that does it for DIGMO 2021. I want to thank our panelists, Dave Eisenberg, Jeremy Solomon, Clelia Peters — I hope I got that right — and Liza Benson, Great discussion, fun discussion. I'm glad you could all be here ,and thank you everyone for attending this,panel and for attending DIGMO 2021.
Speaker 4: (
Thank you. Thank you.