NYLP: Welcome to the New York Launch Pod, a podcast on new start-ups, businesses, and openings, New York City area. I’m Hal Coopersmith and in this episode, we’re talking real estate, and more specifically, real estate technology. We sat down with Zachary Aarons, the co-founder and partner at MetaProp to discuss the real estate technology scene here in New York. What is MetaProp? Here’s Zach describing the business.
Zach: MetaProp is the nexus for real estate technology, globally.
Zach: The nexus. And by that we mean we are the intersection of venture capital, technology entrepreneurship, and the real estate industry. We connect those three disciplines in a way that back in 2015, when we formed the company, we did not believe that enough spirit, enough energy, enough effort was being placed into connecting entrepreneurs looking to build technology for real estate companies. They were not connecting with each other.
NYLP: MetaProp is also an investor in our past guests, Radiator Labs, of Episode 25, and Flip in Episode 34. So, definitely check out those past guests. We talked to Zach about how he got to where he is, the real estate scene here in New York, and just how MetaProp grew to the place it is today.
Zach: We now have five partners, three businesses verticals, a handful of excellent employees, and after two years, we’re a real business, and is very exciting.
NYLP: No surprises here. This is a long episode, but absolutely fascinating, so without any further ado, let’s go to the interview.
Stepping onto the Launch Pod, we have Zachary Aarons. He’s the co-founder and partner of MetaProp. Welcome, Zach.
Zach: Thanks for having me Hal.
NYLP: So, let’s get this out of the way first. We know each other. We went to college together. I became a lawyer, you became a co-founder of a technology accelerator. I know how I got to where I am. How did you get to where you are?
Zach: Thanks for that question Hal, and it’s a pleasure having known you now for over a decade. I might add that Hal is too humble to admit this, but I’m sitting right next to a plaque showcasing his 3rd consecutive year of being selected for the New York Super Lawyers Rising Stars. So, I just wanted to put that out there. I’m not sure any of his guests have properly acknowledged that.
NYLP: Thanks for the props Zach.
Zach: Thank you. Well, I had no idea what I wanted to do when I left Brown University in 2005. So like any boy from New York City, I decided to try my hand at investment banking. I got a job doing mergers and acquisitions and restructuring work at a firm called Peter J. Solomon Company. We were primarily working with retail and apparel companies. And I found the work really interesting, but the culture and the time commitment a little much for me. So after a couple years of doing that I went off on my own. I was actually recruited by a close friend of mine from summer camp who actually went to high school with Hal Coopersmith, his name is Stuart Schultz. And Stuart and I had been friends for a long time and had shared a passion for traveling, and tour guides, and walking tours. And we had this shared vision of launching the first ever crowd-sourced audio walking tour company. And this was around 2007, it was right when the iPhone was about to launch, and we saw a potential opportunity with this new vertical.
So we launched this company called TravelGoat. We tried desperately to make it work, we went through a bunch of iterations, which ultimately led us to pivot that business into an in-person, online and offline walking tour company. So I got my tour guides license, I started leading tours around New York City. I still have my tour guides license, by the way.
NYLP: You were in on podcasts early, before they were even a thing, with these audio tours.
Zach: Yeah, we were recording audio walking tours of specific places and we were splicing them together. And originally, it was super wonky, because you didn’t have the iPhone app marketplace or anything. So you would have to download an audio file and then install it into your iTunes and then put that on your iPod. So it was just a little hard to get customers to really buy in. So that’s why in order to start making money to fund the technology development of the business we decided that I was going to become a guide. And I was going to staff up…and at the peak, I had a handful of guides working for us doing tours around the city. And we were doing pretty well, but only it wasn’t a scalable business.
What ended up happening…this is probably around 2010. I’d been running the business for a couple of years, and I started to see that other entrepreneurs and technology people were building mobile applications on the iPhone app marketplace that were very similar to applications that I actually wanted to build for my own business for TravelGoat. And the only difference was they were doing a really good job of it and I was doing a really bad job of it. So I decided that instead of plowing all this money into our own internal technology development we would start investing in other people’s similar technologies, and then we would try and help them scale their business because we had a lot of relationships with destination management coordinators, and hotel concierges, and tour operators, and things like that.
So without knowing anything about angel investing or the venture business or the technology business, I started aggressively pursuing entrepreneurs and asking if I could invest in their…for lack of a better word, local mobile walking tour apps. I did a handful of those deals and I kind of caught the bug. I used some money that I inherited from my parents…so I used some money that I inherited when my grandfather passed away and then some money I made from the walking tour business, and sort of plowed all of that into angel investments, without having any real strategy or any knowledge or anything. But I knew that it was really exciting, and I knew that I wanted to help entrepreneurs realize their vision and that there was potentially a way to make money doing this.
At the same time, I got hired by my dad who runs a firm I work at, Millennium Partners, to help him with his development project in Hollywood, California. He wanted me to utilize tools that I had been using, like social media, which at the time social media marketing was not as prevalent as it is now, to try and engage with community members about the proposed development he was trying to do in Hollywood California. So we launched that program around 2011, 2012. We were successful at getting engagement through social media and content marketing. And then we took a step back after we had a successful run of it and we said, “What other areas of the real estate business can we imbue technology into that can help us or our colleagues and coworkers, do their job faster, better, cheaper?”
So at that time, I decided to switch entirely my angel investing practice from financing businesses that were closer to the walking tour space and going exclusively into real estate. I also was lucky enough…at the time, I was at Columbia Business School. I had a professor named Stu Elman, who is a venture capitalist and has been a venture capitalist. I was a student of his in a class on venture capital, and he asked us all to write about large problems that we saw in the market. And I decided I wanted to write about the issue of mobile distribution. If you have a consumer app, it’s really, really hard to get it downloaded because there are only two distributors. There’s Google with the Android marketplace and there’s Apple with the Apple marketplace. And he looked at the treatment I did and he said, “This is really stupid. No one cares about this. You’re a real estate guy, real estate tech is going to blow up over the next five years, and I want you to focus exclusively on real estate tech.”
So I took that advice and I wrote a paper for him, and that was sort of my first foray into real estate tech. And then I just got addicted to it and started very aggressively investing in it. Started learning from Stu, also from other venture capitalists. I was interning at the time for a firm called Eniac Ventures, learning the ins and outs of the venture capital business, and then ultimately, parlayed that into my own venture capital shop and advisory firm in 2015, which is MetaProp.
NYLP: I find it very interesting that you started angel investing on your own. And a lot of people think, “I want to be an angel investor and I want to invest in start-ups because I see how much money you can make.” But you can also lose money doing that. How were you able to choose companies to select to invest in and then be successful at it?
Zach: I would say that if you’re looking to become an angel investor right now you need to be very strategic and very specific about the types of deals you want to do, and you need to be highly specialized. There are probably between 5 and 10 angel investors in the United States of America that are successful as generalists, that back many different types of companies successfully, over and over again, they have really great networks.
The most important thing in angel investing is to get set up with a network. And by that, I don’t necessarily mean joining an angel group, a formal angel group. It can be more ad hoc and informal, but start sharing deals with people who have done it before, who you know and trust, who can see red flags that maybe you can’t see, who can recognize patterns that you’re unable to recognize first. And then make sure that that group wants you in all of the good deals because you bring something that they don’t. So what I was able to bring early on in my career angel investing was as I mentioned before, I was able to bring relationships with hotels, destination management coordinators, tour companies, and businesses in the travel and tourism sector that these companies value. So the entrepreneurs wanted me in the rounds, and the venture capitalists and angels who were co-investing in those rounds didn’t mind that I was in the rounds or maybe even wanted me in the rounds because I was providing value that other investors weren’t in a particular niche.
I took that same level of specialization and salesmanship of myself into the real estate sector. When I started in prop tech investing around 2011, unlike today when it’s matured quite a bit over the past six years, there was a real opportunity because most entrepreneurs didn’t know executives or anything really about how the real estate business worked, neither did venture capitalists. So, I was able to get into rounds that were very competitive, one, because I was investing really small amounts of money. So that’s key. If you’re investing small amounts of money and you’re flexible in your allocation, you can typically sneak into rounds in a way where a venture funder says, “Oh, I need to have between 5% to 10% ownership,” or “I need to have 20% ownership.” You have to do fewer deals because you’re not going to get that allocation every deal. If you’re flexible as an angel, you can kind of sneak in and not muscle anybody out. So that’s one point.
The other point was, you know, people wanted to work with me because I did a few of these and I actually helped with key introductions to landlords, developers, property managers, brokers etc., doing things that other people in their networks could not, and then it kind of snowballed positively from there. And when their friends who were starting businesses in the sector asked, “Well, who are some of your
most value-adding investors?” they would say me, so I started getting a lot of deal flow that way.
So, whatever your hook is, whatever your niche is, it doesn’t have to be sector specific, it can be…let’s say you’re a PR guru, you sell that. You say, “I’m a PR guru, I’m going to invest in your company, and I’m going to provide all of the media introductions you need.” You can be a lawyer and you can say, “I will look over all the work that your legal counsel is doing, just as a second pair of eyes.” That might be advantageous. So it doesn’t necessarily have to be, “Oh, I’m a specialist in real estate,” or “I’m a specialist in travel tourism.” You can be a specialist in a particular skill-set. You just have to be a specialist in something. You can’t just randomly break into the industry coming from nowhere without any specialization and expect to back successful deals.
The other thing you need to do is you need to do a lot of deals. And you need to get lucky. You need to be lucky, good, and prolific. And that’s tough, you have to really work at it. It doesn’t work if you angel-invest in one or two deals per year as a fun side hobby. If you treat it as a fun side hobby and you’re comfortable losing all your money, that’s fine. More power to you if you get something out of it, whether it’s intellectual or spiritual, that’s great. If you want to do it as a quasi-side business, you have to really work at it and you have to do a lot of deals. And you have to put your hunting hat on and go out and seek the really, really good deals because the really, really, really good deals very rarely come to you, you have to go to them.
NYLP: So you took a lot of shots-on-goal. You got a lot of hits. And now, you’re no longer just an angel investor. We talked about this earlier. You’re a co-founder and partner in MetaProp. What is MetaProp?
Zach: MetaProp is the nexus for real estate technology globally.
Zach: The nexus. And by that we mean we are the intersection of venture capital, technology entrepreneurship, and the real estate industry. And we connect those three disciplines in a way that back in 2015, when we formed the company, we did not believe that enough spirit, enough energy, enough effort was being placed into connecting entrepreneurs looking to build technology for real estate companies. They were not connecting with each other. The real estate executives were not sharing their pain points with entrepreneurs, entrepreneurs were not interacting with real estate executives. And because of that, the products they were building were not quite right for the sector. And venture capitalists were running around funding companies that looked good on paper but actually didn’t have any practical applications because they were not talking to people within the sector before they made these investments.
So there was this disconnect, there was this hole in the industry, and we sought to plug that hole. And it’s now two years later. We have three business verticals, we have an accelerator program which takes some of the best and brightest prop tech entrepreneurs globally and puts them in a very intensive program focused on growth and distribution of their product. We have a venture capital fund, which to date has financed 32 very exciting companies in multiple different asset classes within real estate. And then we also have an advisory business which works with some of the largest real estate companies globally to help them navigate this exploding, complicated, and convoluted sector that is prop tech.
NYLP: So it seems like when you guys came onto the scene in 2015, it was like a bolt of lightning hit, and all of a sudden, something that everyone thought should be there was there. But for everyone who doesn’t believe in the immaculate conception of MetaProp, how did it actually come to be?
Zach: As I mentioned, around 2011 I’d pivoted my personal practice almost exclusively into prop tech. So I became very, very active. I started investing in a lot of companies. I started showing up to some conferences. I started meeting with a lot of entrepreneurs, and a lot of VCs, and a lot of real estate executives. I met through my travels a wonderful man named Ryan Malone, who is another…his family has been in the real estate business here in New York for multiple generations. And he and his brother Joe launched a very successful venture capital fund called Expansion VC. Around 2011 and 2012 we started doing deals together. A handful of those deals were in the real estate sector since we both came from it and thought we could add real value.
And I don’t know how he got introduced to Aaron Block, but Ryan Malone introduced me to Aaron Block, who became my partner. This was toward the end of 2014. Aaron had just sold his cross border B2B Russia, U.S. e-commerce business. He had to sell it because of the Crimea sanctions. I think they went from doing 40 million in revenue a year to doing close to nothing. So he was sort of rushing to sell it, and after he did sell it, found himself back on the East Coast for the first time in years, and without a job. And being an entrepreneur, he knew that he wanted to start something. And he had been a partner at Cushman and Wakefield for many years before he got involved in this e-commerce business, he was actually the youngest partner ever at Cushman and Wakefield. And so he had an inkling that there was this hole that I talked about earlier, and that an accelerator program was the way to plug the hole, get buy in from the whole industry.
So he approached me. I introduced him to every single prop tech founder VC I knew. He aggressively networked for two months. The original plan was he was going to become COO at one of these burgeoning companies. He came back to me after two months of that exercise and said, “You know what Zach? I don’t want to work for any of these guys. I want to start something with you. I want to start an accelerator program specifically for this sector, which has never been done before.” I said, “Okay, that sounds great. If you do all the work, I will bring you the companies. You do all the work setting up the infrastructure because I don’t have the stomach for that. If you set up the infrastructure for the program and do all the programming and make sure we have a company and all that, I will get the companies in for you.”
So I expected him to disappear after that conversation and go on his merry way and do something else. He came back to me about two months later and he said, “Zach, I got everything set up, we’re ready to go. Let’s get the class together.” So, this was summer of 2015. We scrambled, we called in every favor we could, with everyone we knew in the network. And we launched with six companies. And those companies are still doing very well. They’ve been in the MetaProp family now for two years. And that was the start of the business.
And through the accelerator program, we were able to entice a lot of leading people in real estate who were enthusiasts about technology but didn’t really have a venue or an avenue to get exposure to it to start interacting with entrepreneurs. Once they start interacting with the entrepreneurs, they started to want to invest in the entrepreneurs. But they had no idea about angel investing or anything so they wanted us to run the money for them. So they approached us. So we had a lot of interest, so we raised our first fund on the back of that mentor network interest in actually putting money into these companies. So at that point…this is kind of the end of 2015, early 2016, we became a two-
pronged business – we became an accelerator business and a venture capital fund business.
Then around mid-2015, we started getting approached by larger real estate companies who were having a lot of issues navigating this new world. And so we decided to bring an old colleague of Aaron’s from Cushman days who was leaving CBRE, Phil Russo, to run that advisory business. A key component that also happened in 2015 was Aaron got introduced…I’m not sure how, to our 3rd founding partner, Clelia Peters. And Clelia, at the time, she had worked at BCG. She had been tinkering herself in the residential real estate technology sector. She was running her father’s brokerage business, Warburg Realty. It was supposed to be a three-month engagement to just come in and do sort of a BCG-type audit on trying to get Warburg’s technology infrastructure ahead of its competition. They were early to see this impending threat from tech enabled brokerages and things like that.
What was supposed to be a three-month engagement turned into an engagement in perpetuity. Clelia is now president of that company, and deeply, deeply involved. And she was invaluable in starting MetaProp because she sort of brought the residential…Aaron and I are fundamentally commercial real estate people, she brought the residential gravitas. She also brought the space and she brought a whole lot of connections with her. So it started, it was just the three of us then, we brought Phil in. And then I realized that if we really wanted to make a go of it in the venture business, we needed someone who had actually spent years and years working in the venture business for a larger fund. So I poached an old friend of mine from Columbia Business School, Zak Schwarzman, to come and run our venture practice. So we’re now five partners, three business verticals, a handful of excellent employees. And after two years, we’re kind of a real business. And it’s very exciting.
NYLP: Kind of a real business. Definitely a real business.
One of the things that I find very interesting in terms of a problem that you guys are solving is that real estate owners, stakeholders, are by nature very conservative. And you get new start-ups, new companies, entrepreneur coming up with new products. And it’s hard to say, “You know what? You have a multi-million dollar- asset here, you should go with this guy or girl who’s getting their start and put your money into this
product without any assurance of this company being there in the future.” How do you guys bridge that gap? And how have you been able to do that?
Zach: Well sometimes you don’t bridge it. And…
NYLP: But you bridge it more than other people?
Zach: That’s unfortunate. It depends who you’re selling to. The key is getting a sense of what people’s motivations actually are for engaging with technology. So, some real estate professionals want to engage with technology because they’re concerned with their bottom line, with their NOI. They will pilot anything that will potentially increase their NOI. And those people are pretty easy to sell to because if it doesn’t work or the company goes out of business they’ve just lost time. And…
NYLP: Unless they put in money.
Zach: Well, the most aggressive…and a lot of New York’s oldest real estate families have become the most active co-investors of ours. There are about six or seven families that are very active, very aggressive, shaping the landscape alongside of us. And they’re frequent co-investors of ours. And what they would tell you, some of them, is that they want to invest in the companies, yes because they want a venture capital type return, they want their 10x. But that’s really the icing on the cake. If they can get in early enough to a company, they can shape the company’s products in a way that makes it incredibly useful and efficient for their particular organization. So let’s say in a seed round they’re investing $250,000, right, which for some of these families is a small amount of money, if they can make back on NOI, 251,000 and the company goes under, they don’t view that as a loss. They view that as sort of a wash or maybe a learning experience. So you get them to pilot a lot of stuff because if they look at it like that or partially like that, where the investment return is really the icing on the cake and what they’re really caring about is efficiency, then you’re able to change the dialogue.
A traditional venture capital fund that has limited partners has a completely different set of return requirements, incentives, and so for them obviously they don’t care about NOI expansion, they care about multiples. Multiple on invested capital. They care about exits. So for them, they need the assurance that this is going to get mass adoption and it’s going to get mass adoption really quickly. And that remains a challenge in our industry. Not everybody is NOI focused. Some of the larger public REITs we deal with actually like the idea of engaging with technology using it as a culture building tool. So they’re able to tell the elusive potential millennial employee who’s graduating from business school X or college X and is a real hotshot, they believe that if they’re actively engaged with the technology sector, that they look better, they look more attractive to a potential employee or even a current employee than their competition. So it’s important to understand the incentives and the motivations of everybody involved.
Another key component to selling real estate software or real estate hardware and software solutions is often you have to make four completely different sales within one organization. And each person has a completely different motive for either purchasing or not purchasing the technology. So let me expand on that a little bit. So your key stakeholders typically are one, the building engineer. Building engineer does not care about NOI, does not care about profitability. Building engineer wants to be ensured that his or her employees are not going to be displaced by this technology, that their efficiency is going to go up, that they’re going to save time, and that it’s not going to be really difficult to the deploy. They want ease to deploy and they want efficiency.
NYLP: And that it’s not going to break.
Zach: And that it’s not going to break.
NYLP: The property or asset manager only cares about NOI. So if you’re an entrepreneur, you have to sell to the asset manager saying, “We’re going to make you more money,” or “We’re going to save you money.” And they have to believe it. The CIO, the chief information officer of the organization, neither cares about the building itself on an OPS perspective nor NOI. They care about security, encryption, accountability, and compliance. So, you need to convince that person that a Russian hacker cannot hack into that software, disable all the HVAC systems in a particular building, make the elevators go haywire or whatever it is. That is their number one concern. And then the people in the C suite, who are often involved in these decisions as well, they’re motivated by NOI to a certain extent, but to what I said earlier, they’re also highly motivated by culture. So they want to know, “Okay, how does adopting this product influence and enhance the culture of my organization?”
So what we do at MetaProp, a huge thing, part of our secret sauce is we’re able to help you as an entrepreneur pitch, and sell, and close deals with all of these different constituents within one organization. And then to further complicate things, depending on which organization it is, different ones of those four players have real power. So in some organizations, some big reaches, the chief information officer acts as someone who fixes things that are broken. They’re not innovation officers. They don’t really make outward decisions. But in some organizations, the chief information officer also doubles as a chief innovation officer and has the final decision for deployment of all technology. So you have to understand which organization you’re pitching and where the power structures lie within that organization. And if you’re a first time entrepreneur in the space, there’s no possible way you would know that.
And that’s one of the main reasons why entrepreneurs like to work with us, because we have been looking at these companies for the past many years. And while we don’t know the ins and outs going on in every corporate boardroom of every REIT across the country, we have a really good basic understanding of where the power structure in every major real estate organization lies. Almost globally.
NYLP: So you’re three years-old, how are you guys able to get this institutional knowledge about all these different types of companies that will help these entrepreneurs deploy their products?
Zach: So, it’s a combination of a bunch of different things. We go to a lot of conferences. First of all, we’re on the circuit, you can see me speaking and moderating in far too many panels, more than I can count.
NYLP: And this podcast.
Zach: And this podcast. This podcast is just going to transform our entire business. So that’s a big way. We also put on a lot of events. So through our partnership with Reed MIDEM, who runs the MIPIM Conferences, which is the largest commercial real estate conference globally, and they run a bunch of them across the globe, the largest one being in Cannes in March, we have been able to interact with so many different real estate executives globally. We’ve just spent the time…we don’t do it any better than anyone else in terms of interacting with these people, we just do more of it. We just institutionalized it. We just do it all the time. So we have all these connections because we spend all day making them. There’s no secret to really how we’ve done it. But I think the events, certainly putting on our own events has helped. And then the accelerator’s helped enormously. Because of the accelerator, we’re able to reach out to people in a non-threatening, non-transactional way, whereas if we were just maybe a venture fund or just an advisory business, they might not engage. But when you’re an accelerator and you’re looking for mentorship for the company, people are way more likely to engage with you. So that’s helped.
So I think it’s a combination potentially of the events, presence, getting out there, just pounding the pavement, and then having the accelerator program where we’re able to really bring people in in a non-threatening, non-transactional way.
NYLP: And based off of how you’ve had all these interactions, you’re industry specific, it’s obviously an advantage. Do you see that this is the way that accelerators and venture capital is going, that it has to be industry specific? And you mentioned that at the beginning of the podcast, but it’s more just, you know, you have to be more and more specialized.
Zach: You’re seeing increasingly more and more venture capital funds, accelerator programs, not just for the prop tech sector but for different verticals in general. In venture capital, people talk about the barbell effect. That there have been some very successful small, highly-specialized funds. And those funds don’t have to be sector specialized, they can be strategy-specialized, right? So we’re going to do post seed. Like Bullpen became very successful doing that. Or we’re going to do pre-seed. And Notation Capital, where I’m an LP, they’ve been very successful sort of putting a flag around saying, “We’re pre-seed.”
So you don’t necessarily have to be sector-specific, but if you’re not going to be sector-specific, you have to be strategy-specific. There are always going to be the generalist, really successful funds with multi-decade track record, your sequoias, your benchmarks, etc., that are going to attract LP funding. I think if you want to attract LP funding now and you’re an emerging manager, it’s almost impossible to attract significant LP interest if you’re just randomly starting a series A or C generalist venture capital fund. Unless you have a major track record and you’re coming from a Benchmark or a a16z Sequoia, you’re not going to be able to raise capital. So I think if you want to be successful raising capital and deploying capital, I think you have to be sector-specific or strategy-specific. It’s definitely a trend. The trend is accelerating, it’s not abating anytime soon.
So if any listeners are thinking about starting a venture capital fund, don’t try and raise LP dollars as a generalist unless you have a very, very successful track record, either as an entrepreneur, you know, if you have a multi-billion-dollar exit as an entrepreneur, you could probably do it. Or you know, if you’ve been a partner at Benchmark for 10 years you can do it too. But if you’re scrappy like me, Aaron, and Clelia are and, you know, you’re coming from, “We’re part of the space,” you have to be super focused if you want to attract LP money.
What I would say though, I think one of the things that differentiates us from some of our competitors is that while we’re super focused on prop tech and architecture engineering construction tech, we’re extraordinarily diversified within that very narrow focus. So we view diversification in two ways. One is based on asset type. So if you look at our portfolio, we have technology servicing residential, multi-family industrial, parking, hotel, commercial office, retail mall, all the different sectors of real estate asset types. And then also all the different points on what we call the real estate value chain. So you’ll look at technology that helps landlords, brokers, property managers, developers, title agents, property and casualty insurers, surveyors, appraisers, construction workers, architects, you name it. So because we’re so narrow, we think actually diversification within that narrow field is even more important than if we were a generalist fund.
NYLP: And so what is the stuff that is appealing to you guys?
Zach: It changes. Every single day it changes. But we’re looking at a few different things right now. One, we think that autonomous construction vehicles at some point are going to become the norm on construction sites. We don’t know when that’s going to happen, we don’t want to be too early on that. But we are actively looking for an autonomous construction vehicle company. We also believe that there will be a time when high rise buildings, concrete buildings are able to be 3D printed. So we’re very actively looking for 3D printing start-ups that tackle really complex concrete 3D printing solution. We’re also looking, always have been, always will be looking at blockchain-based technology for real estate conveyance. We believe that a natural application of blockchain technology is real estate conveyance, we believe it will save the entire globe a ton of money if every single deed and property record globally is placed on the blockchain. We don’t know exactly what that looks like yet, we’re still biding our time and trying to figure it out.
We’re also looking for something in surveying, more specifically. So last year we were looking a lot at title and appraisal, and we found a couple great companies, Spruce in title and Bowery in appraisal, that we backed. We’re looking for something in surveying. So, one of the ways I hunt for deals is since I’m a real estate professional and I engage in real estate transactions closings, I can see all the things you need to satisfy purchase and sale agreements, and ultimately close a deal. You need an appraisal typically, you need a title report, you need maybe a bank financing, you also need an ALTA survey.
So what we found is that there’s been a huge amount of innovation through Lidar sensors and computer vision for surveyors when they go out in the fields, so they’ve been able to save immense amount of time in the field. The only issue is when they get back to their office they actually have to create the ALTA survey document that they send out to the real estate principles. And I’ve just waited on that document for far too long far too many times and I just believe that there has to be a purpose-built software solution for surveyors, and nothing exists yet. So we’re still hunting for that surveying solution. So we have stuff we hunt for, but look, I’m getting introduced to really talented entrepreneurs on a daily basis. And if I really hit it off with an entrepreneur, even if they’re not in the sub-sector of real estate that I’m particularly looking at, I’m probably going to do the deal.
We also have a strategy where we simultaneously look to disrupt and blow up the existing paradigm, and then we also look for companies that are making these existing paradigm do their work faster, better, cheaper. So we fundamentally believe that eventually every real estate professional will be replaced by an artificially intelligent robot. We believe we’re a few…
NYLP: Including you and including…
Zach: Including myself, including Hal, yeah. So we’re looking for companies that digitize everything, blow up the whole paradigm. But we’re cognizant of the fact that real estate is a really slow moving industry and that might not happen for a long time. So in order to hedge our bets, we also back companies that provide software to the existing paradigm, to make the existing paradigm more efficient. So I’ll give you an example of that. We wanted to put some money to work in the residential mortgage lending space. Obviously a huge market, it’s over a trillion-dollar market. And we looked at the idea of direct to consumer online mortgage lending, full stack. This currently represents 0.02% market share.
NYLP: Like a Rocket Mortgage.
Zach: Well, Rocket Mortgage is a great marketing company. Push Button, Get Mortgage is really push button, get a call from a loan officer, but the idea yes, behind Rocket Mortgage where there’s direct online underwriting.
So we knew we wanted to back something in that space, and we’re like, “Okay, well that space is like really, really tiny relative to the overall mortgage market, but let’s say it grows over the next 5 years, 10% market share.” That’s $100 billion dollars, 10% of a trillion. So we know we want to expose that space, so we look long and hard for the best team we could find in that particular space. We found a company called EVE, which was backed by Bessemer Venture Partners, one of the top FinTech investors in the country. And the entrepreneur, Jack, had a pre-existing relationship with my partner Clelia, so there was that added going for them. So we backed them, and they’re a very interesting company. But then we said, “Okay well, even if this grows explosively, let’s say it grows to 10% market share. There’s still 90% of mortgage transactions being done the old fashioned way, through a human mortgage broker, a human loan officer at a bank. So how do we instead of trying to blow that process up like EVE is doing, how do we enable that process, make it faster, better, cheaper, through technology?” So we decided okay, we’re going to try and back a tech-enabled mortgage broker or a technology that mortgage brokers and loan officers can use.
So we searched long and hard for the best company, the best team in that space, and we backed a company called Morty. We co-invested in that with Thrive Capital, which is one of the largest venture funds in New York, one of the most active historically, in the prop-tech sector. And so we now have these two investments in the mortgage space. One is the enabler, one is the disruptor. And we hope that both of them are going to be wildly successful. But that’s kind of how we approach every single sub-vertical within prop-tech, is backing the disruptor and backing the enabler simultaneously.
NYLP: And when you are looking for these companies, you mentioned that you have an idea and then you look for the solution, you go out there and think of what you want and then try to find entrepreneurs? Or throughout all your meetings you say, “You know what? I like what these entrepreneurs are doing” and then come up with the strategy that way?
Zach: Yeah, I’m a big believer in karma and in the idea of putting good vibes out into the universe and having them come back. And so every
time, if I talk about what I’m looking for…all the time. Every time I’m at a conference…
NYLP: You did it here.
Zach: …every time I’m on a podcast. If I talk about what I’m looking for, I’ve been lucky enough and blessed enough over my career where eventually I get introduced to a kick ass entrepreneur who’s building that very business. And that’s why the surveying thing is bugging me so much, because now it’s been almost two years of looking for something in surveying and the universe hasn’t rewarded me like it has in these other sub sectors. So it’s a lot about just being out there and just mentioning it to everybody that you meet. I mean, I’m not going to go out with friends and like start randomly talking about it…
NYLP: But about surveying.
Zach: Yeah, but everyone I meet who’s remotely in real estate or prop tech or VC, I do mention what I’m looking for because I think it’s important, and I’m intellectually interested in it, and I’d like to find those companies. So it’s a combination of that, and then just dumb luck. Again, there’s nothing I do on the hunting front that is any different. I don’t have a proprietary algorithm that helps me hunt for these companies better like some venture funds claim they have. I’m just out there talking about it a lot. And when you talk about stuff a lot, people hear you and they say, “Oh, you know.” And then they sit down. This has happened to me so many times. They’ll sit down a week later for lunch with a friend of theirs, they’re catching up, maybe they haven’t seen each other in a few years. Their friend just left their job at big company X and says, “You know what? I’m looking to start a surveying technology company.” And then bulb goes off in their head and they say, “Oh, you know, I just had a VC that I’m friends with tell me that that’s a really good opportunity. Why don’t I link you guys up?”
And that sounds ridiculous and impossible, and like there’s no way that works, but you’d be shocked at how many deals I’ve funded…not just like been introduced to but how many deals have crossed the transom and then I’ve actually closed deals on that were introduced to me because I was just out there talking about it and then someone just remembered that I was always talking about it and randomly introduced me. If you put out this type of energy, you will get something back. I promise, if there’s any burgeoning venture capitalists or angel investors listening, it’s a surprisingly successful way to get deals.
NYLP: Can you imagine doing this any place other than New York City?
Zach: Not really. I think New York is definitely the center of this sector. I think there are strong opportunities in London, Chicago, Texas, California, Mumbai, Singapore. This is a global industry. At this point, New York is still the center of it. This is where the bulk of real estate money is. This is more importantly, you know, the big REITs are kind of scattered across the United States in various sectors. I think a huge advantage New York has, which I alluded to earlier, is we have these multigenerational families who are not encumbered by corporate boards and shareholders and can make decisions very quickly if they want to put 250k, 500,000 into a prop-tech company. So, in New York, we’re able to move and fund these businesses so much quicker and deploy them so much quicker than in other places where you don’t have the same tradition of entrepreneurial real estate wealth. So that’s a big plus.
What’s interesting about the market right now in San Francisco is that while San Francisco is the tech-center no doubt, it’s the landlords in that part of the country are way slower to move and adopt stuff than the landlords here. But that’s changing. We’re getting a lot of interest from California landlords right now for the first time. But in 2015 even, when we started MetaProp, other than maybe London, New York was really it for people willing to take a chance and experiment with some of this stuff.
NYLP: So we mentioned the marketplace is more competitive. How are you and MetaProp differentiating yourself from other funds that are out there?
Zach: So there are a number of ways that we attempt to differentiate ourselves. The first is just being sector-specific. So saying to an entrepreneur or a potential co-investor that we can open doors. Not only can we make the introductions for you but we can also train you on how to close those deals after you’ve made those introductions. Now, that was a very successful strategy in 2015 when we were kind of the only players around. Now it seems like every week there’s another prop-tech focused venture fund popping up, and so we have to continue to innovate, continue to offer our portfolio CEOs added value, whether it’s in terms of the exposure and training in the accelerator. One thing we started doing, we saw some venture funds were friendly with slow ventures out in California. Really, really successful early stage generalist fund. They started offering free therapy sessions for their portfolio CEOs, which I thought was really interesting.
And I personally, over the last few months have become very interested in sound healing and sound therapy. Therapy with Tibetan gongs and tuning forks that are tuned to different tones that correspond to your chakras, if you believe in all that stuff. And so I decided to do an experiment a couple months ago, where I invited a handful of portfolio CEOs to do a sound healing session with my sound healing guru, who’s out of Greenpoint. We rented a Breather space, and we brought in yoga mats. He brought in his gong and his tuning forks which are tuned to the frequency of the golden ratio, if any of you listeners are familiar with the golden ratio, the Fibonacci sequence. And we did an hour and a half session with the tuning forks and the gongs in order to promote clarity, harmony with the universe, whatever you want to call it, calmness in your bio field. And the CEOs just loved it. They walked out of there just feeling totally blissed out, totally relaxed, ready to tackle the week, thinking about things in a different way, definitely reaching sort of a higher plane. And I decided that “Okay, this is something.” So I invited the next group of CEOs for another session. We did another session at Golden Bridge yoga studio down in Chinatown, and that was also very well received by my portfolio CEOs.
So now we’ve internalized that at MetaProp. If you take our money, you officially become part of the sound healing sound therapy universe, and we offer these monthly “tune-up sessions” where you can engage with Jared, our sound therapy guru, and really explore the space. So we’re pretty pumped about that. We believe this is not necessarily related to real estate, but we believe that through the power of sound it can unlock some tremendous potential, not just in entrepreneurs, but in human beings in general. So we’re really excited about getting a little hippied out and really enjoying that.
NYLP: Well Zach, we have covered a lot of ground. I did not think we would get the sound healing. And it seems like it could be on the next season of “Silicon Valley” on HBO. But it sounds wonderful.
How do people find out more about you and MetaProp?
Zach: Just go to our website, it’s metaprop.org. You can email me, I’m email@example.com. You can find me on LinkedIn or Angel List. Message me. I get a lot of spam though, so it’s best if you want to reach out, you have a good idea, something you want to run by me, best to email me directly. I also started teaching a course at Columbia at the Graduate School for Architecture, Planning and Preservation. So I’m up there on Wednesdays now, teaching that course, which has been a great joy for me. Yeah, I’m not going to tell you my phone number or where I live, so that’s probably [inaudible 00:50:27].
NYLP: There are lots of ways to reach you.
Zach: Yeah, that’s probably the best way to get in touch with me, is via email or social media.
NYLP: Well, Zachary Aarons, MetaProp co-founder, partner, Brown University alumni, and classmate of mine, thank you for stepping on to the New York Launch Pod and sharing your time with us.
Zach: Thank you Hal.
NYLP: And if you want to learn more about the New York Launch Pod, you can go to nylaunchpod.com, which includes transcripts of every episode, including this very long episode that you were just listening to. And if you enjoyed this episode, please leave a review on iTunes. It does help people discover the show and it is greatly appreciated. You can also follow us on social media @nylaunchpod, and we look forward to hearing from you.