Invest Like the Best with Patrick O'Shaughnessy - Florian Hagenbuch and Mate Pencz - Everything Will Be Bought Online – [Founder’s Field Guide, EP. 37]

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Starting point is 00:01:00 that I became an investor. To embrace the future of sleep and get $150 off your new mattress, go to 8Sleep.com slash Patrick or use the code Patrick. Hello and welcome everyone. I'm Patrick O'Shaughnessy, and this is Founders Field Guide. Founders Field Guide is a series of conversations with founders, CEOs, and operators building great businesses. I believe we are all builders in our own way, and this series is dedicated to stories and lessons from builders of all types. Founders Field Guide is part of the Colossus family of podcasts, and you can access all of our podcasts, including edited transcripts, show notes, and resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO of O'Shaunacy Asset Management.

Starting point is 00:01:45 All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. clients of Oshonosi asset management may maintain positions and the securities discussed in this podcast. My guest today are Florian Hagenbrook and Mate Pinch, co-founders of Loth. Based in San Paulo, Brazil, Lofth is a digital platform designed to bring Latin American real estate into the e-commerce age. The three-year-old startup scaled to over 150 million in annualized revenue in 2020 and is on track for multiples higher this year.

Starting point is 00:02:25 We dive into the market opportunity in Brazilian real estate and how that differs from the market, the value proposition for eye buying across the U.S. and Latin American ecosystems, and touch on the potentials for Loft to expand from real estate into adjacent services such as mortgages. Florian and Mate are second-time founders and have some great lessons shared throughout the episode. Please enjoy this great conversation with the founders of Loft. So Florin and Mate, I'm so excited to talk about what you're building at Loft, but before we get into the company specifically, I think it's important to set the stage on a little back to on the market in which you're operating and building. Florian, maybe you can begin by describing

Starting point is 00:03:07 to me as you have elegantly before why Latin America represents such an interesting market right now for this kind of company for sort of technology, modern companies more generally speaking, and that'll be great place to jump into what loft is building and doing. Yeah, likewise, Patrick, we're very excited to have the opportunity to chat with you, big fans of your work. I would set the stage by saying Matt and I, we've been entrepreneurs in the region for about 10 years now. The one thing that's attracted us here and quite frankly the second time around kept us in the region was just this opportunity of building really potentially massive companies within the industries that we operate. And so in our case, we're currently in the real estate industry. But due to some very interesting market dynamics and among those, like a lower set of competitors,

Starting point is 00:03:52 less DC funding in the spaces that technology companies operate in, we just believe a lot of the markets are still very much unoccupied by large incumbents, differently from the United States. We're almost everywhere you look in every category there's a clear and large leader. And many times we feel U.S. technology companies almost get forced into a niche of which they grow off of. It just happens that due to the U.S. market structure and just sheer size, a lot of these niches very frequently are massive.

Starting point is 00:04:25 So many times you don't even have to look much elsewhere. Whereas in Latin America, we feel there's just a like blue deep ocean of space for technology companies to explore. And in many ways, that's what's attracted us to the region and kept us here still. Monta, can you set the scene for what this market that you started in with Lof looked like when you had the idea for the business or first started the business? Like what was the, I think there was no MLS equivalent in your market. That'd be something interesting to talk about. But what did it feel like and look like when you started? I think from a broader market perspective down here,

Starting point is 00:04:58 what we oftentimes find is that even if they are incumbent in most industries, there's just a lot less tech enabled or sort of venture funded competition. And I think also in addition to that, what you find is that trusted brands or trusted destinations are also further and far between. So there's really an opportunity to create platforms that generate more trust between users, trust between consumers out there. And I think as you double click on real estate specifically, what you find is that indeed there is both neither a multiple listing service. There is no MLS in any of the Latin markets really, but especially also in Brazil,

Starting point is 00:05:36 where we started the business and have been scaling it. there is no collaboration on my agents. Why is there no collaboration among agents? Well, that has to do with the fact that there is no broker exclusivity. So different from the U.S., where there's usually an exclusive listing agent, in Latin America, if you're looking to sell your home, you'd be going to not just one broker, but you'd be going to, if you're a rational seller and you're looking to maximize price, you're going to be going to several brokers who'll be listing your home on several different sites, including the brokerage house that they're affiliated with, as well as classified sites.

Starting point is 00:06:09 And essentially, you then have to run an auction process for your home, but without much coordination. Network of coordination, again, means that most of the information about real estate transactions, most of the information that could be relevant towards building an MLS is not being shared. So it's not that the information doesn't exist, but it's kind of stuck in these little silos, stuck in these kind of vertical pockets, and essentially becomes very fragmented. It's kind of out there on a neighborhood level. it's out there sometimes even on a city level, there's just no incentive mechanism to get agents

Starting point is 00:06:42 and brokerage houses to collaborate. So I'd say that that's fundamentally what you find in real estate, but what you also find in a lot of other industries were in the U.S. or other more developed markets, collaboration mechanisms or sort of more transparent platforms had already emerged. And I'd say to Florence point, this was also probably one of the main motivating factors to keep us here in the region and its start or second business here in a larger industry than the first business because we just felt that whilst being a challenging task, the opportunity to bring transparency and to bring efficiency into a large inefficient market is quite exciting to us. One of my favorite concepts is Rich Barton's idea, the founder of Zillow, of power to the people,

Starting point is 00:07:26 of surfacing information for consumers that previously was behind lock and key or just really hard to get. and that by shedding light on that kind of information, you create a lot of great externalities. Can you talk through your experience with that same phenomenon, Florian, in the early days of building the product? So when you approach this market, like part of this sounds like a huge data legibility problem. Like you just don't know the information you need to build this ecosystem. How did you attack that problem?

Starting point is 00:07:55 The MLS has a lot of interesting features to it, one being the agent collaboration system and the governance behind that. Then there's a whole, obviously, inventory availability mechanism that's embedded into the MLS. And, you know, I think many times American consumers might even take that for granted. Most countries around the role don't have anything similar. And then there's third pillar, which is really information services. And I think one thing that Zillow and I guess Trulia did very well was exposing data that's accessible only regionally and only to a broker category to the end consumer.

Starting point is 00:08:27 For us, you know, it was a very similar experience. I think we're nowhere near finished on that journey yet. From the very beginning of our company, we started accessing pockets of data. So whereas still in the US had to manually integrate, I think, into the more than 7 or 800 MLSs that exist around the country, we went to regional and local notaries many times access paper-based records of information, put a lot of investment behind digitizing that and transforming them into standardized and freely shareable and processable information. And over time, what we did is then convert that into products that our customers could use, whether that's like an instant offer on our eye buying business,

Starting point is 00:09:10 or whether that's an evaluation of the home's worth. Those are things that we started putting in our customers' hands. We believe that it's a big pillar to what we're doing. When we think about our strategy, that's probably one of the most important things that we can do. And we continue to invest very heavily in making sure that we progress on that front so that we can ultimately bring the transparency and the efficiency that Matti mentioned what we think digital platforms. That's really the valid proposition of a digital platform in an offline market like ours.

Starting point is 00:09:39 So Florian, one thing that would be helpful to orient the audience is to understand what the process would be like in the old school way of buying a home, let's say, in Sanpalo or Monta's based. What would it feel like five years ago or even today if I did it the traditional route? And I'd love to understand that in contrast to what it would feel like if I was a consumer, that instead used loft because I think often companies are best understood in contrast to an alternative solution. I'd love you to walk us through those two potential paths for someone buying a home in one of your markets. We'll remember when I framed a little bit of the features of the

Starting point is 00:10:13 MLS, I think one of the key pillars to is the inventory availability, right, this ability to see in a given market, all of the inventory that's available on market, off market, has an offer, is for sale. It's basically real-time inventory for real estate in a wholesome fashion. So without this feature in the market like Brazil, what consumers tend to do, they tend to access different pockets of inventory that are constrained or contained within different pockets of market agents. So typically a consumer would go to a traditional offline broker. It can be a chain or independent smaller brokerage house. There's a couple of thousand of them in Sao Paulo, and it's quite fragmented.

Starting point is 00:10:59 The largest one will probably have sub-5% market share. And you would basically run a process of talking to several of them trying to get a feel and a view of what's available in the market. There's a lot of negative incentives in this market in terms of collaboration, data sharing, things like that, because there's no exclusivity relationships. people don't really have incentives to be very truthful or forthcoming with information, whether it's price or availability or anything like that. There's a lot of fake information because in a sea of brokers,

Starting point is 00:11:35 one way to stand out is to basically misleading advertising in a way. And you as a consumer, you would have to basically come through all of that data and all of those different pockets of inventory to ultimately make sure that you're seeing the cut set matters to you in terms of like what you're looking for, whether that's like region or budget or like specific specs. And because that's made mostly offline, you would have then a big time investment on the offline component as well. So there's only so much you can do in an online setting when then you have to like switch over to like a visiting and a seeing schedule where you're actually going physically to check out the properties that you might be interested in. So in general, it's just a very

Starting point is 00:12:17 unproductive flow. So, Florian, maybe walk us through the unlock that happens when you, through building everything into databases, gathering the proper information, becoming more of like a trusted brand, what does that enable for the consumer that previously they couldn't get in this really fragmented, messy, home buying experience that was the incumbent standard? Our view really is to create an e-commerce-like experience for the home buyer. That's our ultimate goal as a company is to bring the home-buying experience into the e-commerce age. So everything that we take for granted today when we shop for electronics or clothes or books, applying those same concepts to basically the home-buying experience.

Starting point is 00:13:03 It starts, I think, with selection. I don't think it's a very productive value proposition to buyers, asking them to go to different pockets of supply to make sure that they're seeing what they're looking for. So aggregating that supply and having enough choices for people to do their discovery, being one thing. But then really entire process from discovery to narrowing down their options to actually transacting in an online to offline and to end way through what we would call a trusted platform rather than in a peer-to-peer fashion like the real estate market.

Starting point is 00:13:39 in these markets still sometimes behaves. So that's really our end goal as a company. And we certainly are in the stage right now where we're still replicating a lot of the offline behaviors in an online fashion. And we're not really yet in the stage in real estate, I would say globally, where we're actually bringing totally new experiences to the home buying experience. But eventually we think we'll get there not too differently from what happened in apparel or what happened in general retail.

Starting point is 00:14:06 Can we talk about that for a while? That sounds really interesting. So on the one hand, this seems like how technology always goes. Like it's the classic like horseless carriage concept that first you replicate the offline experience online. And then once you do that, now new behaviors can start to proliferate. Could you describe eye buying in as much detail as you can, sort of from your seat, what it feels like as a technology, why it's so interesting, maybe even your thoughts on eye buying

Starting point is 00:14:32 here in the U.S., which has become a big topic with some public companies, obviously Zillow and an open door and others doing this. Talk us through this. Like, this just seems like a really interesting change in how a huge, people's biggest asset is bought and sold. I'll do an analogy that we like to use a lot of internally from another industry. And then we can segue into real estate and what that means. The analogy that we like to use a lot is, is the music experience, like consuming music. So if you think back to the 90s, you know, when I was a teenager, I had like collection of CDs on my shelf. and then I would go and say, hey, I want to listen to, I don't know, Carlos Santana with the artist and the album,

Starting point is 00:15:12 would put the CD into the CD player and be like track three, press play. And that would be the way I consumed music. When you then go into the technology revolutionad dot com, boom, the first platforms, whether it snaps or later, like even iTunes, they kind of replicate that same behavior. You would buy the Carlsontena album, and then you would choose basically the song that you like and you double click and play that song.

Starting point is 00:15:39 And it took a few years until the paradigm of how we consume music changed to something that's a lot more common now, companies like Pandora or, I guess, more quickly, Spotify where you're not really picking individual albums. You still have that feature, but you're really consuming music in an algorithmic way, so to say. So when you think about buying at home, and I'll get to I buy in a second because I think The eye buyer is more than the seller point of view rather than the buyer point. Although there are benefits to the buyer as well, when you're buying a home and you're doing it digitally,

Starting point is 00:16:15 there's a lot of processes that have been replicated digitally and have been made more efficient through technology, whether that's like the discovery part. You have better photos. You have more listings. You can do a 3D virtual tours that mimic some of the stuff that you would do offline. But we're still, you know, as a category, and that's regardless whether you're in Brazil or you're in the States or even China, which is a market we look a lot to, we're still in this stage of replicating the experience offline online. And I believe, you know, that in the next five to ten years we'll go into a phase in the industry. We're going to come out with certain experiences and certain ways of consuming real estate and that haven't been possible before without technology.

Starting point is 00:17:02 And there's a lot of things that we've been experimenting with and that we believe in there could be interesting in that sense. In some fashion, also follow what happened in other categories. When you think about eye buying from a seller perspective, also from the buyer perspective in a way, it's really this fundamental shift in a market that is traditionally peer-to-peer, sell you my house, you buy a house from a seller to interacting with a platform. So you're selling your home to a platform. and you're buying your home from a platform, and you're basically enjoying the benefits associated to that.

Starting point is 00:17:38 I don't think we're yet seeing the experience being that much different today. I mean, there's obviously some smaller features such as more safety, more trust, more convenience. Even if you think about the way you buy a car, right, you're buying it usually from a company, from a platform, and not from an individual like you maybe did 10, 15 years ago. But we're not yet in a phase where you're seeing massively different experience. experiences and products being born, although I think that will be born that will happen in the next couple of years. Before we get to those potential exciting use cases or features, I guess,

Starting point is 00:18:13 of future platform-enabled home buying and selling, I'd love to just understand the eye-buying process as it exists today. Maybe walk us through a single transaction where I guess it would start with someone trying to sell their home, them wanting to sell it, engaging with you, how that works, how you buy it, who you then sell it to, like one transaction all the way through would be really interesting. Maybe, Matta, you could walk us through how that works on the platform today. Yeah, it very much starts with our bedrock foundation of data, which powers our valuation model, our AVM today. And as we're mentioning early in the conversation, it started in a very, very humble fashion with one single notary and a relationship that we built with this regional

Starting point is 00:18:54 nodery that started providing us some transactional data that we start to analyze. Today, you basically are doing that at scale. So you have an AVM that processes hundreds of thousands of data points of transactions that have happened in the markets historically and also data points that we have brought to the table, again, through the platform itself. So the information on buyers and sellers that have browsed on our website. Now, when we take that information and essentially put it in the blender, use data science to put it in the blender, it helps you as a seller when you come to the platform to get an instant price. And also if the property fits the requirements that we're looking for,

Starting point is 00:19:33 it fits what we call our buy box, then we'll be making an offer on that property, a binding instant offer on that property. If you agree to that price, if you're willing to sell for that price to us to loft, we'll basically take you through the process that Florin just mentioned. We'll basically take you through the end-to-end transactional process, which today in a digital fashion kind of replicates the offline process.

Starting point is 00:19:54 but then still gets you to that same end state of having your deed, the deed of your property transferred over to us as a buyer. So the platform loft purchases the property. And you get cash in hand, cash in your bank account within call it a couple of days. Can you talk me through the programmatic pricing portion of all this? So everyone always talks about machine learning and data science and blah, blah, blah. But this is a great example of it actually being used in practice, like taking in inputs, creating features and producing an output, which in this case, I think it's a price, an offer price.

Starting point is 00:20:26 How important has machine learning been to the product and the business? And how have you administered that? Talk us through the story of building that function into the product. It really all has to do with data at scale. At the end of the day, the pricing of a property has a lot to do with comps, with benchmarks. The magic, I guess, really happens in the scale of the data, not sort of in the data itself. I think when people talk about machine learning and it's kind of like taking out of context, oftentimes people don't realize it's really just data analysis at scale. If Excel were to be able to power thousands and thousands of lines and columns, then you could potentially do this in an Excel spreadsheet. There's no rocket science per se happening.

Starting point is 00:21:07 What is happening, though, is that you're getting massive benefits of scale by having a lot of data that translates itself to higher accuracy. So we're basically just over the years, we've gotten better and better at predicting what the value of a home should be. And we're able to produce that price to you within seconds rather than having to run through perhaps manual analyses and giving you an appraisal, which in some cases would, if you were an appraising firm, would take you hours or days to do, and would just produce a much higher mean error rate than our valuation model, because we have a lot more data. We have a lot more transactional data points. We continue to refresh those transactional data points based off of our own platform data.

Starting point is 00:21:48 the more we transact, this becomes more of a virtual cycle. And we also vacuum up as much data as we can from the open market, whether it's through public data sources such as notaries or whether it's through non-public relationships, commercial relationships we have with other firms. We really get our hands on as much data as possible because that's what really powers our AVEM. And perhaps your listeners are familiar with COSTAR as a case study in the U.S. I think that the parallels in the U.S. commercial real estate market are actually much more similar to the local table stakes in Brazil because there is no MLS in the commercial market, in the commercial real estate market.

Starting point is 00:22:25 And I think Kostar over the years has employed a similar strategy of just assembling these disparate and unconnected data sets into one more connected data set with a big difference that they obviously monetize this data more as a SaaS business or selling that data. In our case, instead of selling data, we keep that. that data to ourselves to power and ever improving and scaling AVM valuation model. How should listeners think about your business model? So if you're buying homes and then selling them, where is the money made? How is it made? Like what determines good for you when it comes to earning revenue from being the platform that manages these transactions? I think that the most

Starting point is 00:23:08 relevant parallel here is to traditional e-commerce. When we talk about eye buying internally, we actually call it our 1P pillar. So we call it our first party pillar. And when we talk about marketplace listings, so listings that we end up listing in our portfolio, but not acquiring on balance sheet, or not running the risk, our third party listings.

Starting point is 00:23:26 If you think about Amazon having their fulfillment centers and having their first party supply in those fulfillment centers, but also having a lot of third party GMV or third party supply that flows through those fulfillment centers and is fulfilled by Amazon, that's really the way to, think about our business model or revenue model, we only make money if transactions happen. Essentially, when you compare and contrast first party and third party transactions, what unites

Starting point is 00:23:53 them is that we only make money once a transaction is consummated. In the first party's case, we obviously take the risk up front. We take apartments into our inventory and then we make money once that apartment gets sold at a premium to where we bought it for, either because we priced it well and we're able to sell it for more than we acquired it for, or because we also before it's some maintenance work, some renovation work on those properties, which we do on a certain percentage of properties today. On third-party listings, we make a service fee that's part of the broker commission that's traditionally charged in the market. So if you think about the 6% of broker commission in the U.S., in the Brazilian market and most emerging markets, you're talking

Starting point is 00:24:32 about 4 to 5 or 5 to 6% of broker commission as well, we essentially make a cut of that broker commission together with a broker that usually is coming together with a buyer. So essentially, it's a split commission fee model on third party. Florin, as you look at the U.S. I buying market, what stands out to you? I'm sure you've studied these companies, maybe even know them really well. What do you think is notable about the competition for eye buying in the U.S., which really obviously still is a very small percent of overall transactions? What do you see here? What are your thoughts? Where do you think this goes? We obviously look at the market a lot to try to learn as much. as possible from it. A few thoughts here. I think, first of all, my perception is that it is a little

Starting point is 00:25:13 bit of a, on the seller value proposition side, today is still a somewhat niche offering in the sense that the problem that the I buyer solved in the U.S. is basically instead of waiting 90 days to sell your home, I just saw some Redfin data recently shared by Glenn, and I think like the average home is now taking only 37 days to sell. I buyers still do that in a week, a matter of days. Whereas when you look at an emerging market like Brazil, when we do an instant cash offer, for really looking at like a couple of days versus a year to sell your property. So I feel the value proposition, Delta, is quite a large one there. Secondly, I think in the more short term, it seems like margins are very tight for buying the

Starting point is 00:25:53 states. There's obviously competition between players, but general, because of the market structure and the data transparency and quite frankly the efficiency of the US real estate market, there's just not a lot of spread going around in terms of arbitrage. buy-sell prices. I think it's a very challenging business model to make money with. And I think that's the main criticism that people have with the I buying business in the short term. And the long-term, I think the opportunity is really exciting because if these companies that are pursuing this are successful at driving enough volume through their platforms, eventually they will have inventory

Starting point is 00:26:32 because they acquired it, that would be proprietary and exclusive for either Zillow or Open Door or whatever. And that could basically create a real alternative to the MLS system. And I think that is obviously a very, very valuable opportunity if it can be executed on. So I think the prize is this big. Short-term challenging, long-term, very interesting. And it's one of those markets that I think will just take a lot of time and capital to be worked out. If we come back to Loft in Brazil and in other markets into which you're expanding, what are the adjacencies that are most interesting to you? So the home is the biggest asset. Most people own really important transaction for them. There's lots of stuff that happens around the home financing, et cetera. How do you think about

Starting point is 00:27:18 using the wedge you've built by gathering all this data and building a real online modern platform? How do you think about extension of that advantage, that position you've built into places beyond first and third party revenue events around individual transactions? Yeah. So the first meaningful pillar that we built in addition to the transactional marketplace is the mortgage pillar, home financing in general. And again, using the e-commerce parallel, after you've figured out which home you'd like to move to, you need to know how to pay for that or you need to find the best and most

Starting point is 00:27:50 affordable way to pay for the home. And oftentimes, although still mortgage penetration is much lower in Latin America than it is in the U.S., increasingly part of that decision of how to pay. for it is at least the decision about should a finance or should I not. One of the first adjacent pillars that we built was the equivalent of a checkout function, which is our mortgage business, our business where we show you today in a marketplace format. So we don't take any of these mortgages on our own balance sheet, but we compare and contrast offers from partner banks and show you in a very transparent fashion what we think the best offers are. And then again,

Starting point is 00:28:22 handhold breadth that process until mortgages are dispersed into the salaries account and you have the keys in your hand as a buyer. That was the first step. And then from here on, we've been advancing into other product categories as well. But if you kind of think about the Maslow hierarchy of needs of a home buyer, certainly mortgages the number one by farm between in terms of adjacencies. And then from there on goes into insurance and other products that we can delve into as well. And Patrick, one fact that I think is interesting to mention on that is just relative comparison to the US players. Zillow, Open Door, and a few of the others, they've also tried to cross-sell mortgage products to their customers.

Starting point is 00:29:00 When you look at what they call their attach rate, like how often are they able to attach the mortgage to their transaction? It's in the low single digits in the States. And that's because the broker relationships, they really work. The buying agent, he has a strong relationship with his buyer. And then buying agent has a lot of mortgage broker firms and offerings that he can work with to bring that to the table. Whereas in the Brazilian context where these relationships are very weak, it's a much bigger opportunity

Starting point is 00:29:31 for companies such as ours. We are seeing attachment rates in the 80s, 70s, 80s percent. So completely different volume. So 80 percent of the time when someone's financing home, they're also getting their mortgage rules at the moment. And we think that's one of the proof points of this all-encompassing model that we're presumed. What else is there interesting about just the overall full? fintech opportunity here because one of the things that I've been studying a lot is in younger markets,

Starting point is 00:30:02 let's say outside of the U.S., there seems to be more of an opportunity for companies to do a lot for their customers, like a loft customer trusts loft. And you can extend that a lot more than, as you said at the beginning of this conversation floor in the U.S., usually it's a niche solution and you use a lot of different companies. Outside the U.S., it seems like people are willing to use fewer companies and therefore you could have fewer amazing huge businesses as a result that build trust with consumers. How do you think about fintech just as broadly as possible as an opportunity in Latin America and beyond? In a way, we think that every prop tech is kind of a fintech or board member, Alex Rompel. He likes to say that prop tech is a fintech with real estate as

Starting point is 00:30:45 its product. And we really believe in that too, because it is at the end of the day, a large financial transaction, a lot of financial implications and a lot of transactional cash flows, quite frankly, between disparate parties happening when a real estate transactions happen. And as Matt mentioned, you know, mortgage was really one of our first pillars that we started exploring and I think quite successfully. And I think these parallel opportunities, they exist out of two reasons. Like one is just pure necessity. I think if there were more alternatives of companies that we could partner with to outsource some of these things, we would, but many times because it still isn't as developed and as competitive of the market like the United States,

Starting point is 00:31:29 a lot of these markets just haven't been tapped into and explored. And so there is no companies that we can work with. And we have to build it ourselves. 2012, we built the first company, and there weren't even payment gateways, really. We used to, you know, integrate directly into acquiring companies to process payments on our, on our e-commerce side, stuff like that. Obviously, then the time, it gets a little better, but it's partial necessity and then also opportunity. With fintech specifically, we have the mortgage product on the buyer side. On the seller side, there's a lot of interesting fintech applications to our business, walking through a few of them, but like home equity line of credit, many times someone who's selling,

Starting point is 00:32:07 60% of the time they want to buy another place, but 40% of the time they just have another capital requirement that they're working through, and that is a lending opportunity way. Also, products such as sale leaseback for a specific audience or specific population and niche. It's also a product that could work or rent-to-own products. For each of these, there are two or three venture-back companies pursuing a model like that in the States. And for us, we think that eventually these things are potentially features of our platform that we'd like to explore. Also, because nobody's building them. So if we don't, then it just doesn't exist.

Starting point is 00:32:48 How do you decide what to do next? Oriental ourselves today, you guys are having a meeting together. And as leaders of the business, you're trying to prioritize what to tackle next when there's so much that you could potentially tackle given the market. How do you build a roadmap? Like, what skills have you learned there across the several businesses that you've built that you're applying to loft? It's probably one of the most challenging things, prioritization in this some opportunity set.

Starting point is 00:33:13 But I think it's more pain points kind of building around what the real needs of the customers are. And again, finding the home, are identifying the home in a curate in an assisted fashion, certainly number one, figuring out how to pay for it, number two. And then from there on, we do look at what are other needs that we could be facilitating and that the largest possible set of consumers are worrying about in where we don't find other kind of good digital tech-enabled alternatives in the market. We are pretty aware of what's going on in the ecosystem in general. we have made acquisitions in the past as well, investments and acquisitions into companies. So not every single product decision becomes a kind of organic product development.

Starting point is 00:33:54 We employ kind of inorganic strategies as well. But it's basically that it's following the breckrums that the consumers leave in front of us as they basically do their mostly analog journeys today. And we feel confident that we can create a high NPS digital alternative to that current pain point. Florin, how do you think about the value proposition to customers and how you market it? So you've had an ability to build a big brand in your market pretty fast, ridiculously fast. What about that is intentional?

Starting point is 00:34:25 So some of this is just your product is really good and very different from the incumbent solution. So people take notice and they tell their friends about it. But what is the more intentional way that you try to build awareness and market the brand to the populace? Like Mata said, with the market opportunities that we follow the breadcrumbs that the consumer leaves behind, from a brand standpoint, really what we talk to is pain points that the consumer is expressing. And I think from the very beginning, we try to make sure to invest quite a bit of resources into understanding where those consumer pain points lie. And we feel like we have a pretty good grip on them today. and then we try to cater the brand and the value proposition of the platform towards those pinpoints. And ultimately, it's really a discussion around convenience, safety, and confidence in a way,

Starting point is 00:35:19 predictability, transparency, and having very good customer support that in a way is what drives what we're trying to do as a platform, but then also as a brand. And I would say that that has been quite intentional from the very beginning. and very much ties into also what we believe is this like e-commerce like experience, like all these painpoints and slash value proposition that I just mentioned. We think ultimately that's what commerce brings to the table. And I think we've been intentional with that from day one. What have you learned about business building, just generally speaking, having been repeat

Starting point is 00:35:55 entrepreneurs, what are the top lessons that you learned early on that you've brought to this latest experience building and company? Curious what both of you have to say here. I'd say that some of the top lessons have to do with pacing. I think that even as a first-time entrepreneur, intuitively, you end up making a lot of good decisions. You end up making mistakes for kind of situational reasons. But I think that in our case, at least first time around, we had a lot of good intuition.

Starting point is 00:36:23 We didn't have the right pacing yet. So knowing, for example, when to really start to build foundational pillars for your culture. And the fact that that starts from day one is something that, we didn't realize the first time around and certainly corrected for the second time around. So heavily investing into culture, heavily investing into really being intentional about the type of people that you hire rather than just purely hiring for necessity. I think that was a big topic for us. And I think just generally really trying to make sure that whilst you're operating at warp

Starting point is 00:36:55 speed on a day-to-day basis, make sure that you give yourself time. When you do have some time off, give yourself time to plan. and plan your pacing around execution, plan your pacing around hiring, and really make sure that you take decisions about when to course correct and when not to course correct at the right time. I think that first time around, you have a lot more reticence to make tough decisions sooner. I think second time around, you end up making tough decisions, more radical decisions more quickly. It doesn't mean that you still don't oftentimes make those decisions delayed, but you make them less delayed than you would be doing them the first time around.

Starting point is 00:37:32 So I think, frankly, for me at least, from our first principles perspective, we're building the same way that we used to build 10 years ago. We're just much, much better and much more precise in setting our pacing and making sure that we basically reduced the mean error rate around our decisions for lack of bad timing. So I think for me, between the first company and the second company, the really the key insight was really around ambition. So the story I like to share is the following. When we started a first company, about the same time, a company was started in Japan doing exactly the same thing that we were. And I don't think we've mentioned this, Patrick, but our first company, it was kind of like an online printing company similar to Vista Print in the US. And actually, Vista print ultimately ended up acquiring the company. But, you know, after 700 years, we sold the company for an interesting amount, but nowhere near the size that we're talking about now.

Starting point is 00:38:26 And this Japanese company, seven, eight years later, was a billion or two billion dollar market cap company listed on the Tokyo Stock Exchange. And the difference between us and them, quite frankly, was just ambition. We had a certain ambition, a certain dream, and we fulfilled that. But it ended up being a relatively small outcome versus what it could have been. And I think that's the lesson we took very much to heart when we built a loft. We have much bigger ambitions the second time around. That is really what fuels what we're trying to do. I think the flip side, the lesson we've then learned at Loft is you talked about prioritization is,

Starting point is 00:39:06 how do you separate good from great opportunities? We talked about FinTech within FinTech that's embedded in the platform. What's a great opportunity for what we're trying to build? We think mortgage is one of those. And there will be tons of other good opportunities, but that are not great. and how you read through those and prioritize appropriately. And I think those were some painful, maybe some painful lessons for the company that certainly we know how to navigate through now.

Starting point is 00:39:35 And the analogy I really like to use, and I've told a few repeat entrepreneurs, this. And I think people liked that story as like, when you're starting a company for the second time, you really have to remember the first year of your first company. But what entrepreneurs, quite frequently do, is they remember the last year of the first company. And they will be influenced by that when they're building the second time around. And that can just lead to your spending time on unnecessary things when in the beginning we should be really spending time on product, finding product market fit, listening to your customers

Starting point is 00:40:09 and make sure that you set the foundation for the business. How did you get product market fit early on? Because it seems like the go-to-market is really tough. Maybe this is the time to tell that story around gathering data from notaries or something. how did you have a big enough supply to get buyers interested in working with you? What was the attack plan that got you to that early product market fit? It was quite frankly a lot of hustling. I think basically our first experience really helped us there, not being afraid of getting your hands dirty and doing a lot of things that don't scale, but that eventually works.

Starting point is 00:40:41 But I think our key insight was less on the data side. The data side really helped. The iBind model really helped quite frankly to attract supply onto the platform. It's just such a unique value proposition and so unheard of in a market like Brazil that someone like Lough would give you instant cash for your property, that that ended up attracting like a ton of interest from sellers and quite frankly also from brokers. But the demand side was trickier. When you're an I buy in the United States, you acquire the property and then when you

Starting point is 00:41:10 want to distribute this property to the market, you always have the opportunity of listing it on the MLS. And immediately the entire market will see that inventory available. and if it's priced appropriately, it will trade almost instantaneously. It's not as liquid as a stock market, but it's nowhere near the illiquidity that we see than we see in the market like Brazil. And so our strategy there was a very hyper-local focus. We basically did a kind of like a circular expansion wave strategy.

Starting point is 00:41:40 We started with one neighborhood in Sao Paulo, and that's about 30,000 housing units. It's relatively large. It's a mid-sized city in some countries. but we started there. We really tried to make sure that we had awareness there, that people knew of our existence, that the brokers in the area knew that we existed. That's where we transacted the first couple of units.

Starting point is 00:42:02 And then we expanded almost like an onion layer type thing into adjacent regions and took it from there. And with every marginal region that we were already on the platform, we had the benefit of the previous region. and there being some overlap, because ultimately the buying decision is a geographic one. You have some flexibility with buyers in terms of how they see the wanted location. But this focus on just like a very specific niche area and expanding from there really helps. It also helped that that was a more premium area that we started.

Starting point is 00:42:38 Then we went, I guess, a little bit more down market. And then there was obviously a brand spillover effect from that as well. I think that's probably our key hack in the beginning. I want to go back to this idea of calibrating ambition and the difference in the first company versus this one. How would you recommend those out there that are trying to figure this out for themselves? Think about this problem. Like how did you go about calibrating your ambition or defining it for Loft, given that you

Starting point is 00:43:05 had the experience of maybe a good outcome but not a massive outcome? What advice would you give here about ambition calibration? I think that the most important thing is actually not to give. yourself or not to constrain yourself unnecessarily on any specific time frame. I think that the first time around, we placed a lot of undue pressure on ourselves, thinking that we should get the company to a certain outcome by a certain time. I think the second time around, we just basically said our ambition is large. We're going to summon the capital and the people that are necessary to build a very large business. How large that's going to be, we don't actually know. We're just

Starting point is 00:43:43 going to let compounding work gets magic, and we're going to have the patience to see how things play out. So I think it's really about having an open-ended time horizon and understanding just how powerful the laws of compounding are in business building. How about you, Florian, like, what do you think is the key to getting this right for maybe even just focused on, say, second-time entrepreneurs? Yeah, I think this calibration process for me is always a personal decision, also at the end of the day. I think the path that we took, but we said, okay, good outcome. The first time around, second time around, you really want to calibrate up on the ambition. That's not necessarily for everyone.

Starting point is 00:44:20 There's a lot of implications with that financially, reputation, work-life, balance-wise. I mean, there's a lot of concessions that you end up making by pursuing this path, and this might not be for everyone. So what I usually like to tell an entrepreneur is just that they look inwards and choose the path that makes them happiest and what they're ultimately pursuing. And I think for Matt and I, that is very much a growth and development curve that is accelerated versus a more standard evolution. And I think that's a big part of what makes us calibrate up on that scale. But this notion of it's a personal decision and every path is unique, I think is something that's really important to keep in mind.

Starting point is 00:45:04 What about the business world beyond loft is most interesting to you both right now? I know you've both done some investing. You're obviously very active in an emerging region, close with a lot of the great entrepreneurs in that region. What is happening now that you think is most interesting that those listening might not be aware of? I think what's currently maybe being underappreciated is the fact that there is no longer such a concept of online versus offline, at least in our view, we think that any kind of comparison of how offline retail or offline commerce is moving online. line and kind of measuring that on a monthly, quarterly, or annual basis is kind of misses the point. I think we all kind of have our digital twins by now. If we don't have them yet, we're going to have them in short order. And I think this is accelerating, sort of upending how businesses are being built in a very, very radical fashion. We're basically seeing essentially these parallel worlds being built. And a lot of these digital platforms are sucking up a lot of the value or underlying GDP really that prior to them analog platforms, analog businesses were occupying and a lot of that

Starting point is 00:46:12 is happening across sectors. So I think that the other big insight that we've had is there's really no kind of sectorial lines in the sand anymore. You can start a digital platform in one area and it's very much conceivable that you make that travel to sectors that seemed somewhat adjacent but not directly connected and all of a sudden those paradigms are broken. And I think a of those paradigms are being broken as we speak. We see the emergence of not just in China, but outside of China as well, increasingly super apps or apps that are occupying territory that previously was completely unconnected. So to me, that's probably the single biggest insight that COVID also in many ways has accelerated. The same way that we're seeing kind of some

Starting point is 00:46:57 retrenchment of globalization, I think in the digital world, it's actually the opposite, We're seeing kind of the emergence of a larger and faster and faster growing platforms that are basically driving sort of a digital globalization, if you will, or digital conglomeratization in a lot of local markets. How about you, Florin, you've done a lot of investing too, I know, and are a business nerd like I am. What strikes you as the most important or interesting trend happening right now? Yeah, I really like the trend that Matti lined up and actually connecting, I guess,

Starting point is 00:47:28 with the podcast here. I think what's really interesting to me is how some of these trends really tend to accelerate in markets, such as emerging markets like Brazil. I think in many ways a lot of these markets leapfrog stages of evolution, sequential evolution that happens and more developed markets like the US or even Europe. Like one example of it's maybe an overly simple one, food delivery space. I just spent some time in Miami when you order DoorDash or Uber-Eats the experience, a level that you have. on these platforms is many, many times in fear what you would experience in a market such as Sao Paulo. So it's always fascinating to me how technology can help a market like Brazil for a couple of stages. And we've seen that over and over again. It's a question time until

Starting point is 00:48:18 emerging markets bring solutions in established industries that exceed the market in terms of innovation and experience and things like that. And, you know, I think if we're successful with loss, it might even be the case that in real estate, you'll see something like that happen, and either coming out of Brazil or even a market such as China. That's quite fascinating at the moment. What are lessons that we've missed about your experience so far building law? I try to summarize what's so interesting. One, it's the wedge into modernizing a system that, you know, super fragmented, no good information. And then using that central platform to make a better buyer experience, better seller experience,

Starting point is 00:49:01 and then bleed into adjacencies around the home. So it's this huge opportunity in a big market. What have we missed in terms of the key lessons from building it or the key challenges that I haven't asked about? One of the things that was almost a prerequisite to building the business, the way that we've built and scaling this wedge, the way that we've scaled it, is around kind of just how we've executed and how we've focused on summoning the best talent and best capital as possible. So I think for second time entrepreneurs out there, I think the lesson is really look for opportunities

Starting point is 00:49:35 that as a first time entrepreneur would be really difficult to tackle or because the industry is just highly complex. There's a lot of red tape or because it just requires sums of capital and experience level of people at an early stage that would be difficult to get if you're starting for the time. We joke sometimes that Brazil is certainly not for beginners, but doing what we're doing at loft in Brazil is probably certainly for more advanced level entrepreneurs. And that's just talking about kind of the prerequisites. It doesn't mean that the business will necessarily be successful at scale, but really just talking about what the table sticks are that are necessary.

Starting point is 00:50:14 So I think that there's definitely an insight there for folks that are looking to start their second or third time business. I think that there are still massive niches out there that almost by necessity can only be tackled with very experienced and complementary teams and making sure that this relay race of team that is composed of hundreds of people in the early stages maintains itself motivated and maintains itself on pace execution wise. I think that that's a lesson. It's also a constant challenge. I think it's both an insight, but it also is probably our single largest day-to-day challenge

Starting point is 00:50:48 is managing kind of the short-term, long-term tradeoffs and making sure that the team continues motivated, but also in sync around what the core objectives are in any given moment in time, whether that's measured through monthly performance or quarterly OKRs or the annual budget or the three-year product roadmap. Everyone needs to be aligned on what needs to be delivered. And that's not easy when you're in sort of year three of business building and would typically be oftentimes tackling maybe simpler challenges, less complex challenges than we are today. Florian, anything else that we've missed that you think has been critical to your success and maybe portable as a concept to other builders out there?

Starting point is 00:51:30 I'm trying to think here because I thought Mattis pointed was really good. Maybe adding in the launch would be this flywheel effect of all these building blocks. So you're talking about having as a second time builder a bigger ambition. A bigger ambition than attracts better talent, I would say, at the margin, certainly, but in general as well. Better talent will mean you do a better job at executing when you set out to do and will drive traction, which in turn then will attract at the margin, better capital, more experienced or reputable investors.

Starting point is 00:52:08 And that then in turn fuels the ambition again and makes the flywheel spin. And I think this concept is somewhat portable and it's certainly something that I think we have either consciously or unconsciously executed upon from the very beginning of loss. Guys, it's been so fun to learn about the business. And I think that like a couple other conversations I've had with a company called Tinkoff in Russia or there's one in Kazakhstan that I'll be doing soon, there's these huge market opportunities to sort of apply, like you said, the e-commerce like experience, just the modern experience to a huge market. And it's been really fun learning about how you've done it. I asked the same closing question to everyone.

Starting point is 00:52:47 so I get to ask twice. Maybe Florian will start with you. What is the kindest thing that anyone's ever done for you? Yeah, I was afraid you weren't going to ask Patrick, so I'm really happy you did because I even told Matte, we got to prepare for discussion because Patrick will always ask it. And I think it's a great one, actually. And I've thought about it a little bit.

Starting point is 00:53:06 I think for me, it's really almost the origin story in terms of how I even got into startups or B.C. or investing or why am I even on this podcast? For me, that starts when I applied to college in the United States. My background is I'm German, but I grew up in Brazil. I went to a German school. I had nothing to do with the States, really, except when it came time to apply to colleges. Parents wanted me to go to Germany.

Starting point is 00:53:31 I didn't really like it, and I decided to apply in the States instead. So I tried to put together my application by myself, no advisor, didn't even know that existed at the time, didn't even know what the SAT was, kind of like tried to learn it all by myself, figure that and put together my best foot forward in terms of my application. But I think it was, let's say, an underwhelming application. If I look back on it today, at Wharton, where I went to undergrad, there was this program called the Huntsman program. And it was like a dual degree, international studies and business. You got a Wharton degree. You got a degree from the college. And there was an advisor there. She was German. She was an older lady. Her name was Inga Herman.

Starting point is 00:54:14 And I think the kindest thing that anyone has ever done to me, and I think she did, I think she had just a very kind lens that she looked through my application. And she was able to filter through who's Florian, who's he really, what is he setting out to do? And I think she was really a key piece in me getting accepted into school, getting to warden, you know, and starting my career from there. I really think I wouldn't be here today if it hadn't been for her kindness. Love simple examples like that. How about you, Matay? Not unlike what Florian said. I really tried to trace back.

Starting point is 00:54:47 I ended up here on the podcast, how we ended up here on the podcast, how we ended up where we are in life really. I also benefited from a U.S. education. But the very reason I was able to study in the U.S., but also, frankly, grew up in Germany, has to do with my parents. I was actually born in Communist Hungary in 1986. And then my parents, for my first couple years of life, were really working hard on finding a way out of communist Hungary and into Western Germany. And at some point in 1989, just still about a year before the Berlin Wall fell, they took the tremendous courage of putting all our belongings in a car and putting me at the time as a two, three year old in the back. And off of a tourist visa that they were able to swing to Western Germany, said goodbye to the entire family and departed, not knowing when we'd ever be able to return back to Hungary. And I think parents are always kind to their children and parents play a pivotal role in all of our lives.

Starting point is 00:55:43 but I think that my parents at the time with that move, getting us into Western Europe and allowing me to benefit from an education in Germany and then after that in the US, I think that really has been such a courageous and also kind act, which now I know that was mostly motivated by trying to put me on higher and more solid footing. I think that that's been really kind of at the origin story, if you will, the kindest act that I could think of. Incredible story. Wow. Parents are the best. I haven't heard anything quite like that answer so far even after 300 of these or something.

Starting point is 00:56:17 So great place to close. Thank you gentlemen so much for your time today. It's been a pleasure learning about your path. And thanks for sharing some of the lessons you've learned with everyone listening. Thanks for having us, Patrick. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more.

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