What will tech VCs fund this year?

Editor's Notes

• #2: Venture capital is very drawn to disruptive innovation due to it’s inherent potential high reward.
• #3: ‘What is disruption?’ and ‘Who are disrupters?’ are tough to initially define and identify, but we know it when we see it. A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leaders and alliances.
• #4: An investment thesis we have at Moderne Ventures is that the significant disrupters to the real estate industry will come from outside of it. In fact, we believe the term ‘real estate technology’ is a bit misleading – new technologies that are applicable to the real estate industry almost always originate from outside of it. Alternatively stated: New technologies in the real estate space are already established in other industries. They’re just now making their way into the real estate technology landscape.
• #5: Disrupters aren’t always readily apparent. Portco examples: Docusign- Efficiency, lowers cost. Disrupts aspects of transaction management. Urbanbound- RELO services for SMB’s. Subjective local insight, access to service providers at a lower cost. Disrupts part of a real estate professionals traditional value chain. Zaarly- Platform that vets high quality home service providers. Increases efficiency, lower cost. Disrupts part of a real estate professionals traditional value chain. In the near future, we’re attracted to products and companies that portend to further disrupt the nonlinear process of a real estate transaction; those applications that continue to foster operational efficiencies with more accuracy and less cost.
• #6: 2017 looks to be a big year for AI applications, most significantly in deciphering the “lingua Franca”, or the common yet unique language around searching, finding, processing and even negotiating the transaction of real estate. In practice AI helps a real estate professional manage relationship engagement, intelligently cultivating potential home buyers and sellers further down the sales funnel with greater accuracy and efficiency. AI stands to more efficiently manage the ‘contract to close’ phase of the greater sales cycle, requiring less agent interaction, mitigating the risk of costly errors and omissions. Rocket mortgage is an obvious example. Then there are companies like Blend that are automating the entire mortgage process, from qualification to close, with minimal involvement from a traditional loan officer… increasing efficiency, ensuring strict compliance guidelines are met, subsequently driving down operational and thus origination costs. We’ve seen quite a bit of innovation over the years in these fields, we feel that AI represents a golden thread that weaves through existing technologies, products, services and businesses that enables disruption. Who figures out the lingua franca between real estate and technology first will have first mover advantage. Who does it best will disrupt the market.
• #7: From a B2B position, IoT disrupts by enabling more cost effective and efficient business models. Since OpenDoor is currently top of mind for this industry, ill use them as an example again. They’ve leverage IoT to adequately subsidize a human sellers agent value. Smart locks, blue-tooth beacons, wireless cameras… all made more convenient through the advent of AI in this space in the form of Siri, Alexa and Google Home. These things come from the security and retail industries. How all of these Things are integrated together as well as with legacy platforms to the real estate industry is very interesting to to the venture and greater investment world.
• #8: Centralized vs Distributed authentication. Blockchain technologies stand to increase transparency, authenticity and efficiency issues around verification of recording vital documentation to the transfer of home ownership. Proof of title, mortgage, deed, income, assets, taxes, insurance… On the potential disruption scale of 1-5, with 5 being the strongest, the advent of Blockchain technology into the operational world of document authenticity and verification of real estate and multiple adjacent industries, is a 6. In practice… I assume most of you here have heard of OpenDoor? They’re on a mission to simplify real estate. They’re doing so by eliminating the inefficiencies that often arise through the collision of residential real estate and mortgage processes. OpenDoor has a very large pool of capital that allows them to buy and close on homes from sellers within 3 days, no surprises, no headaches. It is this very efficient financing lever that makes OpenDoor a very real disrupter to residential real estate for the customer segment that is willing to pay extra for this convenience and peace of mind, rather than go the traditional route. I mentioned Blend in the mortgage world, using AI to increase efficiency in the form of reducing the time and effort required to qualify and close on a mortgage. Incorporating blockchain technologies into that ecosystem decreases qualification to close time frames to the point that 3 day closings are potentially not that far off for traditional real estate transactions. Different means, similar end, coming from the mortgage industry and applicable to buyers, not just sellers. No surprises, no headaches… and potentially far less cost.
• #9: We’re seeing more corporate venture arms providing funding where some VC investors may have historically played, which makes sense as companies become aware that they may need to disrupt themselves to survive. We see opportunities to invest in technology companies that exist outside of the real estate bubble and apply them to the industry. By developing outside of the incumbent process and business model, we believe there is incremental value to be captured for all parties.  Remember that during product discovery.