Riding Unicorns: Venture Capital | Entrepreneurship | Technology
00:10:51 · Dan Lifshits
[00:10:51] S1: As with all kind of a bit of a hypothesis, but that do have certain proofs in the pudding, I think it's like five, seven years away that is just starting. And I think that that's what we're gonna experience in the next... Until 2030, at least, if not even longer than that. Because there's fundamental value being created. And whenever it's created, then kind of it's a big categories that can be reshaped and redefined. So hence, I believe it's with us for long term, honestly speaking. But talking about 2023, a short answer, it was rough. A bit of a longer story, It was the only meaningful way how to reshape that specific industry, because exactly of having an experience of building a tech enabled letting agents already once, we learned the hard way that acquisition of landlords, and this is effectively your two sided marketplace, you have a tenant, you have a landlord, and you are kind of a service company acting on behalf of both to some extent. But it's not about finding the tenants. This is all this business is about. Finding tenant is comparatively easy peasy. You just post the property on the likes of Zoopla that you guys, both of you know really well, and kind of other classifieds. And obviously, kind of this distribution problem has been solved by lots of other smart people like Alex Chesterman and many more. But it's all the question about how to acquire the landlord. And growing landlord organically is hard because effectively, the structural reason of the market that the landlord switch between agents is very, very rare. And that's what we learned the hard way in the previous business, that effectively, the only meaningful way to grow is not an organic growth. And then when we regrouped and started thinking other ways to overcome the limitation of organic growth, then that's where we came across such a beautiful world called... Known as roll up that, honestly, I didn't know until end of twenty twenty three, kind of no joke. And that's where we had an idea that why not we try to merge the best of the two worlds.
00:12:36 · Dan Lifshits, Hector Mason
We like building tech first business, but growing as effectively just customer acquisition cost, because the way you can look at it is tactical go to market where rather than acquiring customers one by one, it's buying customers in a bulk by buying the existing incumbents and effectively preserving their customer base and highly recurring managed subscription books of customers that they have. As simple as that. And we thought it's brilliant. VCs didn't exactly think this way. You guys know it better than anyone else. I think both Red Bus and Episode one passed on us and not just once, on a bunch of occasions. And you're not alone. Think that we got rejected by close to... We only thought [00:13:12] S2: that we would have loved to invest in it. It's the balance sheet stuff that was the issue for us. I... Not true, but... You guys are...
00:13:12 · Hector Mason, Dan Lifshits
[00:13:12] S2: that we would have loved to invest in it. It's the balance sheet stuff that was the issue for us. I... Not true, but... You guys are... [00:13:18] S1: I mean, not kind of keeping any any hard kind of truth on that. I think that as earlier stage investor, you obviously need to be sure that later on investors would kind of back it up as a story. Because obviously, if you're the last investor investing at venture style valuations, where the next round would come at fundamentals of the business, then effectively, it's not going to work for you. Right? So effectively, it's about kind of in a way believing to the story that story would continue growing. And I think that whenever you don't see the proof of the later stage investors already doing this sort of strategy, you have no other way rather than either just like in a way saying we're the smartest and we see that this wave is going to come. So let us jump on the ship right now and hope that it's gonna happen or just stay away. So I mean, it's just how the world works, and this is fine. I mean, don't keep anything bad to that. But you
00:14:05 · James Pringle
[00:14:05] S0: guys... There's also something in that way. You've almost turned what was potentially your biggest weakness from fundraising into probably your biggest strength by all of the VCs who weren't quite sure if the roll up model would be the right thing. And maybe some had LPAs that don't allow them to invest in that type of model and things like that. You've now gone well, actually this is, you know, you that whole narrative is exactly why you are doing well is because it is your biggest strength. It's like, no, this is the only way this is gonna succeed because anyone who's invested in any prop tech business that targets landlords, pretty much everyone's failed because they are the hardest customer profile to get to. They are private. They're behind shell companies. They're they're they're literally the hardest people to target. So you've turned you've turned your biggest weakness into your biggest strength. And I think that's a great lesson for any founder listening who's getting any sort of pushback is to try and think about why am I doing it like this? Why why is this the model that's right?
00:15:10 · Dan Lifshits
[00:15:10] S1: I think you're right. And I would share two learnings, observations here. I think that number one, the only thing that keep you afloat whenever you're hearing 200 rejections of VCs, like 50 rejections of PEs, is just your personal conviction into the thesis. Because I think that we had a bit of unfair advantage of having seen in practice how this business model works already once on the real business that made us 100% confident that this is working. It's just a question of execution, but this is gonna work. And that degree of conviction we had was to the way that, as you know, kind of the first acquisition we've made was based up north in Howell, where we relocated, where we're building out the business for more than a year. So effectively, yeah, was very conviction driven, but on our side. And I think whenever you know that it's gonna work, you just... Whatever. All the things that you hear, like, I don't believe it, or no, kind of you guys didn't convince me, it's a helpful feedback for you to keep the firepower to keep iterating, but that doesn't slow you and stop you from continue executing. And I think that you're just sure that there will be a moment of time where there will be enough data points to prove that this is really working. I think this is number one. But equally number two, I probably would be a bit more conservative on the fact that it's us that turned it into the strength, etcetera, etcetera. I think that as much as obviously whenever something is not working out for you as easy, you obviously start investing much more resource into that. And that naturally becomes much pickier where you focus for sure. But I think that we experienced a crazy kind of tailwinds of things just becoming in a way, more accepted from the investor standpoint, just the financial thesis overall, because I feel that there were a lot of changes on the VC side that were driving that change. And I think that coming down to a bit of a slowdown of an era of your typical b to b SaaS investments is one kind of factor that contributed to that appearance of AI that I think naturally pushes everyone to rethink some of the existing distribution models is number two.
00:17:12 · Dan Lifshits
So hence, I think a lot of investors become more open to not just building yet another AI native kind of B2B SaaS, because you understand that as much value as now can generate, potentially will not be adopted because of the lack of like effective acceptance to change within the businesses. And that's where you start rethinking in like volunteer FD style, why don't we go full stack and why don't we start owning the businesses in the first place? I think another factor that kind of contributed to that big time is that obviously, especially on the VC front and growth, that growth side, I think that everyone knows that there is crazy extent of capital consolidation within the few large kind of investors. I think that the statistics is that largest 20 funds raise more than 80% of all VC capital in the world. And obviously, whenever you have a big capital pool, yes, you're targeting not typical kind of fee style, in a way, management fees game, but you're still targeting in the same kind of three, four x return on your fund. Right? And that makes you potentially to go after a bit higher conviction, smaller amount, but bigger check investments, where roll ups is also falling as the category very well, because you can deploy a lot of capital within one company. So I think that fairly speaking, probably there are some things that would help to kind of create this wave for sure with proof in the putting of execution. But I wouldn't shy away from the fact that I think it's just overall the kind of evolution investment that we're just changing, where you have Internet 1.0 mobiles, after that you have mobile marketplaces, after that you have enterprise B2B SaaS. And I think we're just approaching the completely new wave of investing of AI kind of native services, roll ups in the services, etcetera, etcetera, that out of our control. So I think that as much as we navigated it, we've equally just been lucky for the kind of things to change into our favor. And I think it's important all the time to just remember the fundamentals, just not to kind of start being lost track to reality.