By Hiten Samtani on August 25, 2014.
It’s no surprise that Uber, Instagram and Buzzfeed are attracting big-name technology investors. The three upstart businesses are rattling the cages of established industries and possess an undeniable ‘cool’ factor. But what may surprise some is that many of the early backers of these companies are also betting big on startups in the New York real estate scene.
Josh Kushner’s venture capital firm Thrive Capital, a backer of Uber and Instagram, is also an investor in leasing platform Hightower, real estate marketplace Honest Buildings and residential brokerage Urban Compass. Founder Collective, which backs Buzzfeed, also bankrolls office search marketplace 42Floors and real estate information firm CompStak.
This cross-pollination by investors, sources said, shows that real estate is now truly on the tech industry’s radar.
“For too long, the real estate and tech industries were not communicating with each other and that’s what’s really changed over the past few years,” said Jared Kushner, CEO of Kushner Companies and an active player in the space through an investment in Thrive. “As a result, tech startups are starting to solve important problems, which has led to the creation of better companies and more investor interest.”
That interest is translating into a lot of cash, too. Globally, real estate tech startups pulled in more than $740 million in funding between July 2012 and July 2014, as The Real Deal reported last month. That number doesn’t take into account recent capital raisings in New York, such as Urban Compass’ $40 million Series B funding round and Hightower’s $6.5 million Series A round.
Given this surge in investment, TRD took a look at some of the individuals betting big on the city’s hottest real estate startups.
David Frankel, Founder Collective
Investor in: 42Floors, Lovely, CompStak David Frankel
At 23, Frankel founded Internet Solutions, which went on to become the largest internet service provider and private data carrier in his native South Africa. In 2000, the newspaper Financial Mail named him the South African Technology Achiever of the Century. Now based in Boston, Frankel serves as a managing partner at investment firm Founder Collective, most well-known for its early-stage investments in companies such as BuzzFeed, Uber and 3D printing-firm MakerBot.
Frankel’s real estate sector investments include San Francisco-based office space search website 42Floors and rental search website Lovely, as well as New York-based CompStak. That outfit crowd-sources rent prices, square footage, building income, tenants and other leasing information and then sells it to landlords, asset managers and private equity firms. “We think that they portend the future of how these transactions will take place,” Frankel said of CompStak’s crowdsourcing model. “What was previously viewed as proprietary will become less so.”
When evaluating what prospects to make bets on, Frankel stays true to his firm’s name – he looks at a startup’s founders. “We love to see people with a lot of intellectual property and knowledge within a space connected with good technology and good marketing people,” he said. He then looks at, among other things, the prospect’s idea, as well as the market’s ability to absorb that idea. The rise of Uber, for example, would not have been possible before smartphones became ubiquitous.
Real estate’s appeal to Frankel, he said, lies in its sheer size and insularity, making it a prime target for the kind of disruptive companies he likes to get involved in. “It’s a massive asset class and may change slowly,” he said, “but there’s so much lucre in it.”
Joshua Kushner, Thrive Capital
Investor in: Hightower, 42Floors, Honest Buildings, Urban Compass
It should come as no surprise — given his family’s real estate pedigree — that Josh Kushner is an investor in at least four industry startups. His firm, Thrive Capital, recently upped its bets on both Hightower and Urban Compass, which is now valued at about $360 million.
At 15, Kushner did a stint at the family business – Kushner Companies, which is now run by his elder brother Jared –and later interned at commercial giants SL Green Realty and Vornado Realty Trust, according to Crain’s. But while at Harvard, he got bitten by the startup bug, and later teamed up with Jared Weinstein, a former “body man” for President George W. Bush, to form Thrive in 2010.
Home runs for the firm include online eyewear retailer Warby Parker and Instagram, which Facebook bought for $1 billion in April 2012, just days after Thrive led a $50 million financing round that valued the photo sharing-app at $500 million.
Representatives for Thrive declined to comment for this story. But Jared Kushner, an investor in the firm who sits on several boards of Thrive-backed companies, said that a startup aspiring to crack the market has “to identify a real pain point for owners and a solution that is so smart it will be worth the effort, friction and disruption for a team to get excited about it and implement it.”
Krug is a vice-president at Behance, where he heads up business development for the online portfolio service. His real estate investments include Honest Buildings, which connects developers with vendors, and leasing portfolio management platform View the Space.
“There is no bigger industry I can think of than real estate that’s equally as inefficient,” Krug said. “It’s owned by a collective of people doing things the way they’ve always done. But finally, technology is catching up.” Prior to Honest Buildings, he said, developers were relying on word-of-mouth to find vendors, similar to what was happening in the creative industries before Behance came along. “Their stories were very similar to ours,” Krug said.
When making investments in the real estate space, Krug said he places a bigger premium on direct industry experience than he might in more mainstream fields such as transportation. View the Space co-founders Nick Romito and Ryan Masiello were both brokers before starting the company, and Honest Buildings CEO Riggs Kubiak worked at Tishman Speyer.
“If it’s rainy and you go outside and try to flag a cab down, you automatically understand Uber and what it’s trying to do,” Krug said. But in a complex and niche field such as real estate, “it helps if the founders can talk the talk back to the people they’re selling this to.”
Dave McClure, 500 Startups
Investor in: RealtyShares, Storefront, CompStak, View The Space, 42Floors, Lovely
McClure is a founding partner at 500 Startups, a Silicon Valley-based tech investment firm and startup accelerator. 500 Startups’ bets include market intelligence company BackType, which was acquired by Twitter in 2011, and 3D printing company MakerBot, which was acquired by a rival in June 2013 for more than $400 million. 500 Startups has also been an active investor in fledgling real estate business, with at least seven of them in its portfolio.
McClure, an ultimate Frisbee enthusiast whose LinkedIn bio contains the words “troublemaker” and “Sith Lord,” previously worked at PayPal and managed investments for Facebook fbFund, a joint venture by Facebook, Founders Fund, and Accel Partners to provide startups with early-stage capital.
Investor in: View the Space, Lovely, CompStak
Ling is an investment partner at Khosla Ventures, though he made his investments in View the Space and Lovely independently of the Silicon Valley venture capital giant. He’s worked in senior positions at Google and Facebook, and his personal investments include payment system Square and data-mining firm Palantir Technologies.
The typical formula for a startup’s successful growth, Ling said, is to gain traction in one market, “and then you take that playbook and repeat it in other markets.” That’s certainly the case with View the Space, which started in New York in 2011 and now has more than 3,000 office buildings across the country on its platform. His other investment, Lovely, was acquired for $13 million in April by private equity firm TPG Capital through its subsidiary RentPath.
(Alexandra Barrett contributed reporting for this story)