Alex Lange, Operating Partner at Second Century Ventures (SCV), the venture investment arm of the National Association of Realtors, weighs in on what’s next for venture investment and innovation in residential real estate. Prior to joining NAR, Lange was chief technology officer of Market Leader.
Inman will be exploring upcoming trends at Inman Connect New York, which will take place January 26 through 29.
Inman asked Lange via email to discuss where venture activity stands as it relates to the real estate industry and where money is being spent on innovative ideas. Here’s what the technologist-turned-investor thinks is next.
As operating partner at Second Century Ventures, you have a front row seat when it comes to technology innovation in real estate. What are the most popular trends out there today?
2015 has been an interesting year with more quality seed and early-stage deals out there than in any time since the dot-com bubble. Some of the trends we are seeing related to the real estate industry: big data, the impact of security regulations, the Internet of Things (IOT) and connected device space and Realtor safety.
Let’s start with big data. That’s a pretty buzzy term, but there are also lots of dollars being invested and interesting applications cropping up. What does it look like for real estate?
Companies misuse the term “big data” more often than not. Most of the time, they are simply referring to mashups of large data sets from a variety of sources. What’s important is insights surmised that weren’t readily obvious and whether those insights were in a readily actionable format.
I’m seeing a large number of companies trying to innovate around listing data (present and historical), demographic and social data and even purchasing patterns.
They generally have a common theme, “helping the real estate professional remain relevant throughout the relationship.” Whether it’s instant quotes for home services, social reviews of seemingly everything, incentive programs, content publishing, etc., they are all looking to integrate into your workflow and engage your sphere of influence.
Like all forms of indirect and direct marketing, you need to “work them” to be effective, so pick ones that resonate with your workflow and marketing style. Additionally, take a hard look at what data they are using. Clean and complete datasets are harder to obtain than most realize especially if timeliness is part of their secret sauce.
One company I like in particular is SmartZip. They’ve done a great job of isolating the most probable people in a given area who might sell their home long before they “raise their hand.” Again, how you incubate that data is imperative to your success. I expect we’ll see more innovation in 2016 leveraging data to find actionable leading indicators, especially from companies like Vast and Onboard that readily have data access.
How is the regulatory landscape impacting innovation?
The recent changes in securities regulations (JOBS Act) have created a fertile environment for crowdsourcing companies to sprout up. More and more startups are crowdsourcing common investors and matching them to real estate deals both commercial and residential.
These offerings typically have lower barriers to entry (non-accredited investors) and no apparent limit on the types of projects or properties. We will start to see in 2016 which business models survive as these companies intersect with traditional lending.
Companies like AssetAvenue, Realty Mogul and Groundfloor are just a few that are aggressively going after this market. The key points to consider are:
1. Is it a debt- or equity-based investment?
2. Does the investor need to be accredited?
3. Is the property residential or commercial?
I’m watchful with equity-based, nonaccredited residential offerings. Suddenly, my grandmother can be sold into an instrument that has almost no liquidity (at least until the property is sold) on a property that often has rights in favor of the occupier. With that said, I believe the SEC will eventually need to regulate equity crowdfunding platforms in the name of consumer protection.
IOT promises to be a big investment area, and the applications for real estate are apparent and emerging (Nest, The Connected Home, etc.) What’s next there?
The IOT space has received a lot of press, but we’ve seen little traction yet in our industry with the exception of home automation. Buyers, especially millennials, are actively searching for “smart homes” and the data suggests that it can increase the price of a home by as much as 5 percent.
Additionally, consumers are enamored with the thought of their August Smart Lock unlocking the door, turning on the lights and begin playing their favorite song on their Amazon Echo before they even step inside their house. I expect to see far more innovation in the home automation space hit the market in the coming months.
Realtor safety is a critical issue. Inman has published more articles this year on the topic than ever before. With smartphones, safety apps are popping up. How else is technology driving safety?
NAR’s REALTOR Safety program was enhanced in 2015 to support members who want more information, resources and solutions to stay safe on the job. So, safety remains an industry imperative, and a primary focus has been on personal safety devices. Entrants have some combination of critical features, and a few are very close to an optimal balance of form and function.
There are times that you are simply concerned (put my friends on alert), and there are times you are in peril (need the police now). There are times you don’t have access to your phone or want an assailant to know you’ve alerted anyone. There are times your location isn’t precise enough because you’re on the 25th floor of a high-rise.
The technology is readily available to account for all of these scenarios, and I expect updates from the current providers and many new entrants in 2016. Finally, the most viable products currently leverage key fobs, but we’ll see these technologies integrate with wearables making safety as ubiquitous as tracking steps.
How is SCV addressing these trends? Are there current investments that map to them that you can share?
We actively seek out companies that align to these trends directly as SCV or through the REach accelerator. Our directive, first and foremost, is to identify, incubate and integrate technologies into the industry that benefit NAR members. It’s why we are very “hands on” with the companies to ensure they become strong partners for our members. At SCV, it’s never been about capital under management — it’s about member success.
With that said, SmartZip (big data), August Smart Lock (IOT), AssetAvenue (crowdfunding) and Gard Llama (safety) are companies in which we have involvement that clearly align to these trends. Applications are now coming in for our 2016 REach Accelerator class, which is an interesting proxy of industry trends to come. Stay tuned.
