This Week in Startups - Self-driving shakeup: TuSimple CEO fired & Argo AI shuts down + Divvy Homes CEO Adena Hefets | E1600

Episode Date: October 31, 2022

Molly Wood breaks down some shakeups in the self-driving space: TuSimple fired its CEO and is being probed by the FBI and SEC (1:40), and Argo AI has shut down after raising ~$2.6B. (8:50) Then, Divvy Homes CEO Adena Hefets joins the podcast to break down the state of the housing market and share thoughts on last week's hit piece. (14:09) (0:00) Molly tees up today's segments! (1:40) TuSimple CEO fired, company probed by FBI, SEC (8:50) Argo AI shuts down (12:45) Lemon.io - Get 15% off your first 4 weeks of developer time at https://Lemon.io/twist (14:09) Adena Hefets joins Molly Wood to discuss the Fast Company article covering her startup Divvy Homes last week (25:17) Grammarly - Sign up for a free and get 20% Grammarly Premium at https://grammarly.com/TWIST (26:49) Operating a business where the stakes are high (homeownership, healthcare, etc) (31:17) Adena breaks down the state of the US housing market (35:14) Athletic Greens - Get 1 year of Vitamin D free and 5 free travel packs with your first purchase at athleticgreens.com/twist (36:34) State of debt markets, operating in different interest rate environments, different capital structures, taking advantage of low-interest rates FOLLOW Adena: https://twitter.com/adenahefets FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

Hey, everybody, happy Monday. Happy Halloween. Welcome to this week in startups. It's a big Monday show. I'm holding down the fort. Jason is off today. You may have seen on Twitter that he has been called to service, let's say, in the Twitter war room.

So we're going to talk to him on Wednesday about everything, I think. Stay tuned for that. But today we have a great show for you. First, I'm going to break down some of the chaos in the self-driving world regarding two companies, too simple, and Argo AI, which of course shut down last week. Then I talk with Divi Home CEO, Edina Heffitz about her business, the housing market, and yes, that fast company hit piece. It's going to be a great show. I got this. I'm holding it down. Stick with me. This week in startups is brought to you by lemon.io. Need to speed up your product

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and five free travel packs with your first purchase. All right, everybody, some big and kind of fascinating Monday news that ties together with a little bit of a trend in self-driving cars. And if I'm being honest, kind of the whole self-driving universe starting to come apart a little bit. So let's start with the big news that broke today. Day, Too Simple, a self-driving trucking company has fired its CEO and co-founder, Dr. Zhao Di Ho. Here's what happened with Too Simple. If you hadn't even heard of it, it did go public in 2021. We'll get to that in a minute.

But its stock has been down, let's see, it plummeted 45% on Monday, not that surprising on news that they fired their CEO, but that represents a $630 million loss in market cap in one day. Two Simple shares are now down 90% year to date. Now let's get into why its CEO was fired. This is one of those stories that seem to be kind of an interesting capper to like, huh, it seems like things are not going very well in the self-driving universe and then just turned into kind of an amazing soap opera. Let's get into some of these details.

On Sunday, the Wall Street Journal reported that the FBI, the SEC and the U.S. Committee on Foreign Investment, Sipheus, were probing too simple on whether it, quote, improperly financed and transferred technology to a Chinese startup. Whoa. Too simple also released an SEC filing stating that a board investigation found that the company this year shared confidential information with a trucking startup that had operations, mostly in China, and was funded by Chinese investors. So you can see the kind of connecting the dot situation here.

In that filing, Too simple said it didn't know whether the Chinese startup had shared or publicly disclosed the confidential. information shared between the two companies. Before we get deeper into the soap opera, though, let's do a little background on too simple because I was actually not that familiar with this company despite it having recently gone public. The company was founded in 2015. It's based in San Diego. It raised about $650 million before going public via IPO, not even as back in April 2021. Some major investors include Volkswagen's commercial trucking unit and the UPS because of course, self-driving trucking is a big nut, right, that everybody's trying to crack.

Too Simple raised a little over a billion dollars in its IPO. It was valued at $8.5 billion. And in June 2021, peak madness, we can say, Too Simple hit a peak market cap of $14.9 billion. This is where I should tell you that this company has. very little revenue. It had generated $4.9 million in revenue in the first six months of 2022, almost really, when you're thinking about things like self-driving trucking and the size of the sales that you're probably making there, that is hardly any revenue. And at one point, this company had essentially a $15 billion market cap. For comparison, you know what company's

worth about $15 billion right now? Spotify, which has almost $200 million paying customers. and $3 billion in quarterly revenue. So yes, 2021 was an insane time for public equities. Also, the level of hope and belief that self-driving is just around the corner may have also peaked in June of 2021. Too Simple also had, let's see, about a billion, $1.1 billion of cash at the end of its fiscal Q2 and was burning $108 million per quarter. so basically 10 quarters of runway left at this burn rate.

Two simple projects that they will end the year with a cash balance of about $950 million. The company does have a deal with Navistar to start manufacturing trucks in 2024. So it's skating on the edge here, but I guess we'll see how it does as a company. Now, side note, our producers always find earnings reports for companies and our buyer producers. You know I mean producer Nick. because the man loves an earnings report, and finds the ones for companies with little to no revenue, particularly funny.

For example, here's what Too Simple wrote where companies typically put things like revenue or free cash flow or operating income. Too Simple wrote, quote, enhanced our government affairs and advocacy efforts. Maybe with that Chinese company? Quote, expanded our patent portfolio with 37 new patents as we continue to focus on technologies to support efficient commercial A, B, operations.

I just want to remind you, although I'm certain that you're familiar that none of that is revenue, free cash flow, or operating income. But okay. All right, but so back to this week's chaos. Again, reminder, too simple as being probed for, quote, improperly financing and transferring technology to a Chinese startup. Here's where it gets kind of dishy. The startup in question is a China-based company called Hydron, which is developing self-driving hydrogen-powered trucks. Hydron was founded in 2021 by Mo Chen, a Too Simple co-founder. And not only is Mo Chen a co-founder, he also happens to be Two Simple's largest shareholder. Mm-hmm. Chen owns almost 12% of the company. Now, here's a little more info on the relationship between Hydron and Too Simple. You could sort of see why this was not

like a hard, you know, case to crack here for Sipheus and the feds. A June business presentation from Hydron, viewed by the Wall Street Journal, named Too Simple as Hydron's first customer. Via that presentation, Too Simple was to purchase several hundred hydrogen powered trucks equipped with self-driving technology from Hydron. A Too Simple spokesperson said the company has considered an agreement to buy freight trucks from Hydron, but is not a Hydron customer. Two simple employees had also reportedly worked for Hydron in some capacity and were paid less than 300,000 by Hydron. Listen, I do not want to prejudge the outcome of these investigations. But the big lessons here for founders are one, when you are a public company, the rules are stricter and people are paying more attention.

Two, and increasingly, when you are dealing with Chinese-based companies, the rules are different. And the rules are changing every day and getting more and more and more strict. So if you are a founder, act accordingly. And this is probably not the end of the story this week. We're going to have more to say because Too Simple is reporting earnings after the bell today. We'll be watching. Too simple. Maybe a company that you hadn't been paying attention to before.

I wasn't. But we definitely are now. All right. Let's keep rolling on this self-driving news chaos. and a story from last week that everything was so busy we had to walk on by. Pittsburgh-based Argo AI, which was a darling in the self-driving world. It was backed by Ford and Volkswagen and was, I think, almost completely acquired by Ford at one point in a deal that I covered that was the moment I would say that I realized that

there were only about eight people who knew how to build self-driving technology. and every company was in a mad race to sort of lock them up and make them theirs. So Argo A, I was a huge example of that. It was founded in 2016 by veterans of Google and Uber's self-driving car projects. They were intending to build a self-driving fleet. And initially, Argo raised a ton of capital from, like I mentioned, Ford and Volkswagen Ford in particular, took a huge stake. According to Pitchbook, Argo was actually valued at $7.2 billion back in 2020, but then

lost the financial support of Ford and VW, and now its assets will be absorbed by both companies. That seems to include some employees as well. Here's a quote from an Argo spokesperson. Quote, many of the employees will receive an opportunity to continue work on automated driving technology with either Ford of Volkswagen, while employment for others will unfortunately come to an end. So it sounds like at least some of the engineers will be able to keep working at Ford and VW and presumably those companies are going to continue their self-driving efforts. In Ford's Q3 earnings report last week, it noted $2.7 billion in non-cash pre-tax impairment

on its investment in Argo AI, which resulted in an $827 million net loss for the quarter. Ford also blamed Argo AI shut down on two things. It's inability to attract new investors and missing the deadline to roll out a commercial Robotaxy product in 2021. I think what we're finding here, and I can't believe this comes as a surprise to anyone, because it's been pretty evident over the last decade that self-driving is really, really hard. And I mean, I guess there are a million different factors that go into this, right? There's IP.

There's the fact that only eight people know how to build this technology. There's the discoveries over and over that things like snow and weather are, harder than people expected and that just the sheer R&D is so much more expensive that it sort of feels like investors have lost their appetite for it. And carmakers clearly weren't sure how to approach it. They didn't necessarily in-house it. They made big investments in external companies. Maybe that was inefficient. I don't know. But we are really, I think, reaching an inflection point around self-driving where it's hard to say how it's going to go forward from here, even while we have self-driving cruise taxis on the streets in San Francisco.

If you are listening, Anthony Lewandowski, I owe you an email. He was recently quoted in a big piece talking about how, yeah, like self-driving technology is way farther away than we think and way slower moving than I think we want to believe. So these are two examples of headwinds coming from various points, but not the last, I'm sure. All right. So last week you heard Jason and I cover the fast company hit piece on Adina Hefitz. We reached out to Adina and she did want to come onto the show and share her side and experience. So I sat down with her on Friday afternoon and we talked through it all. It's pretty raw. She goes through some of the difficulties of being a founder and a CEO, also being a

female founder, how those two things intersect, having to make really hard decisions at a time when the market's changing, and because there are hardly any better experts, we touch on the state of the housing market. That's all coming up right now. Stick with us. Take it for me. Hiring developers is really hard. And so many startups struggle to hire fast enough to keep up with demand. So lemon.io is going to help you hire better developers and they're going to help you do it faster. Okay? That's the key. They have a network of engineers. from Europe and Latin America and every candidate has been tested and interviewed by their team. Here's how lemon.io will help you. No more wasting time with unqualified candidates.

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and they'll give you 15% off your first four weeks. That's right. 15% off your first four weeks when you go to lemon, L-E-M-O-S-T-T-T-T-S-T-T-T-E. It is. It is is so hard to find developers. They are so expensive. And that's why you need lemon.com. Adina Hefetz, thanks so much for coming on the show. Thank you for having me, Molly. I'm happy to be here. I heard you guys called me out and so I had to reach out to you and come in and have a conversation. I like to think of it as we offered you a safe space. I do feel at home at this podcast. So I do feel quite safe. Thank you. Good, good. Friend of the, friend of the pod. Yeah, I mean, I think we almost, we almost sort of have to start with because this is happening in part because of our callout slash impassioned defense slash safe space invite to come on the show. Jason and I basically, as former journalists, both just had a fit reading this fast company piece that came out about Divi, where I think like all of us are way too familiar with the piece that comes out that just happens to name the female CEs.

CEO and like put some version of her biography in a crappy light and then tear the business apart. And I didn't, I don't think either of us felt like there was enough response from Divy in the piece. How are we feeling? How was that day? Oh, well, that day was terrible. Yeah. It was funny. I had another interview with someone who was always really, really tough on me. and I think I started crying to him. And when I started crying to him, he was like, are you okay? And I was like, I'm okay. I'm okay.

So definitely tough, but also like, I think that I'd probably separate into a couple things, which is like point one being that I really enjoy feedback on Divi. I actually like I read Reddit articles of some of our customers. I get a lot of feedback from that. I often have conversations. and I love that. I love thinking about how we can improve our business over time and grow and we're not perfect.

I'm not perfect. And so we're very open to that. I think what frustrated me most was just how unbalanced the article was. And look, there were some petty jobs taken to me. I'm okay with that. I'm a big girl. I can handle it. But I think that, you know, I tweeted this,

but it was just the questioning the intentions of our employees who show up and work their butts off to work on homeownership. I mean, our employees could be working at, you know, a consumer app, a SaaS, B2B SaaS company that maybe would be easier day and day out and they choose to do divvy. And that question those intentions, that's what kind of threw me off of it. Yeah. And by you're being very gentle. By question the intentions, you mean subtly compare you to predatory lenders from the 1950s in Chicago? Yeah, there was a small hint of that. And yeah, Yeah, the wording was just not fair. And like, look, I'm not saying, again, we don't do everything right.

And those were, you know, two cases out of what are thousands and thousands of maintenance requests that we constantly field. And I can get into the accuracy of specific stuff, but I don't think that that's particularly relevant. I think that what's more relevant is if you are going to question what we do, then at least have the facts in front of you. And so, for example, things like if you were going to call us predatory and say that our buyback rate, which is almost 50%, isn't good, you should at least quote the industry average, which is a fraction of that. And so I think that it was just presenting everything in a really unbalanced and quite negative light when in fact the statistics were good. That's like we're two to three times our closest competitor in terms of buyback rate.

And yet it was positioned as look at them, they only went about half the time or customers only went half the time. And I thought that was just not. not good reporting. You're reading the reviews, like you said, I am sure that there must be maintenance. It's home ownership, right? It's really complicated.

It's a lot of paperwork. It seems like some of this might have been a fundamental misunderstanding about who is supposed to pay for what in these two cases. And I also don't want to, I don't want to imply that these two cases were, you know, these people made it up or, right? It sounds like they had a crappy experience.

And it turned into, to an article that made it seem like everything you do is crappy. I'd say first of all, working a home is complicated. It's complicated for me, and I run a company that literally manages thousands of homes. So I think that sometimes it takes people a little while to figure out how to work their home. And so, you know, in that one case, it was a 2021 completely new HVAC. But as we all know, if I, in my house, I've done this multiple times where I always turn my thermostat way up right before I go to bed and then I leave the way.

window open right in the room where the thermostat is, which means that when the thermostat goes to read the temperature, it reads freezing, right? And so then the heat blasts in like every other room. So it takes a little while to figure out how your homeworks. That being said, it's our job to ensure customers have a good experience. And those two customers didn't have a good experience. And so it's on us to fix that. And so both of those customers received emails, phone calls from us. I want to help them. I want to fix them. I want them to be happy. It does mean no good to have customers who we're unhappy. And so, so long as it's communicated with us, we'll make adjustments and we'll try to learn. And that's what we've done in these cases. I wonder how much you, you know,

I have a friend who's a female startup founder and CEO. And she made a comment to me not long after I think the piece about Steph Corey and away came out. And she was like, you know, I mean, almost, she's like, almost all the female startup CEOs could be on a group chat. We're not. but on the ones I'm on, we're kind of always just waiting for our turn. And I wonder how much you think that this piece had this tone because it was your turn. You know, I,

it's funny, I do make that joke where whenever I have to, like, make a hard decision or a hard call or I have to say, no, we actually have to cut back on this or this. And I was like, is this going to be the statement, right?

That gets, you know, me canceled. Like, is that going to be the thing? and I do think that there is this constant fear. For this article in particular, I'd probably separate, you know, I think this article, I don't think it was meant to be a take-down piece of me in particular. I think it was meant to be a take-down piece of Divi. Yeah.

And that, to me, is a little bit different than some of the other cases, whether that of Steph or Emily Weiss or any of the other women who have had that. Look, I think that if someone is doing something, that's ethically not appropriate, there should be journalists who bring that to the spotlight, and that is their job, right? However, I do think that women, proportionally, female founders have been targeted at a higher rate.

And I think it's important to recognize that when your intentions are not to bring forward a real issue, but to sensationalize something to get eyeballs or viewership, that you are, in fact, really harming the industry and preventing future female founders from succeeding or even wanting to take that sort of risk. So I think that there is a level at which journalists need to also recognize the role that they play in industries and shaping them and forming them. Because you can say, you know, you're tough. You should just be able to take it. No, these have real consequences, right? These things that get published that are salacious, they do have real consequences.

So again, I'm not saying that there shouldn't be reporting on ethical violations, but I think that doing it with the intention not to bring something a serious issue to the limelight, but to get eyeball and viewership, I think really harms the industry. Or potentially to bring two serious issues to the limelight out of hundreds of thousands, for example, right? Because candidly, like, the tone of this piece pissed us both off. as just observers and people who know you, and we're not besties, you know, like we're not hanging out.

But as someone who knows you and has talked to you and sees and has practiced journalism, there was unquestionably like a nasty overtone to this piece that we were kind of trying to uncover. What happens, I think, is like, when you see female CEOs get this disproportionately poor treatment, or you see this kind of, you know, the other dynamic that my friend pointed out is that, like,

it's almost inevitable that you have to fall because if you're the female CEO or if you're a female of, like a woman of color CEO, then there's like a hero worship situation. And as soon as you have to make a hard call, like you said, you can only fall all the way off the mountain because you were at the top of the mountain to start with. And so it just becomes this ongoing dynamic so that then when you see an article with a nasty tone that might really just be rooted in fears about housing inequality, Yeah. It's like way too easy even for me to sit there and be like, you just came for the female CEO, which is also reductive. I don't know what the intention was. And I read the article many times and you're right, it landed on me that the same things could have been said in any more data driven and factual manner. Yeah.

And less bias, right? For sure. And I think that coming after either company or me in this way scares other people from ever starting something. thing in this industry. It is hard to create a business that serves a population that is either middle to lower income that is in Silicon Valley. And the reason why is because no one wants this scrutiny. No one wants this predatory article written about them. And so as a result, it's hard to find people to innovate in some of these areas. I don't think this is going to hold me or divvy back. I think it actually has fueled our fire in the sense that the amount of

messages I got from random strangers who literally, the message was, do not let them get you down. They are naysayers. And even from customers who were like, I read this and I don't care what that was, you've changed my life, you've had a tremendous impact. And look, again, there's no one who could say that in their job, they were perfect. Right. Right. We all make mistakes in our jobs. I've done it, right? So maybe we could have called the customer better sooner, right? Maybe. But our intentions are good, we're willing to learn, and we're also willing to admit fault. And look, if there's a better way that we should be doing something, we're also open to changing. If anyone, like, if someone can come up with a better way that we should be doing Divi's

model or changes that we should be making, where I can still have a sustainable business, I'm open to it. But I think that the root of the issue with this article is it wasn't based in fact. It was based in very extreme statements that had little or not. no factual basis. Yeah. What separates good contributors from great contributors? It's the ability to communicate clearly and concisely. And that's why you need to use grammorily. I love this product. They use it every day. It's made me. I'm already a great writer. Let's be honest. It's made me a faster, tighter, more confident writer because professional writing is not easy. You want to be

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com slash twist, grammarly.com slash twist to get 20% off. I would imagine that in some ways, and then we can move off this. The stakes, it's that the stakes, like to your point about these are spaces that are hard to innovate in because they're very intractable problems, right? Home ownership in America, housing inequality in America is a profoundly difficult, borderline intractable problem. And then when something goes wrong, the stakes are really high. So you can kind of almost only get yelled at.

That's at times what it feels like. And also I recognize that this is the cycle of press for a startup. Right. It's like you're the hot new amazing startup. Oh, wait, no, is what you're doing good. And then it'll circle around. So I'd say, I try to not let it get me down. I think the bigger impact is on your employees.

Yeah. Where these things like, they're tough. And I think that was the most upsetting part was probably the impact on morale or our employees, who I know, like, read that and they were like, I really tried to respond to this maintenance ticket in time. Or like, I was the one who sent the email. Maybe I wasn't super clear in my email. Like, there are people on the other side of this. Yeah.

That wake up every day responding to thousands of maintenance tickets so that we can do this. And, you know, it's just, I think maybe seeing the intentions as, hey, Divie's really trying. something and, you know, maybe they'll figure out. Maybe they won't figure it out. But the intentions here, the intentions are way more positive than we have seen in this industry previously. A tough thing at a tough time because we're just going to get all the tough topics out of the way. Because also you did have to make card calls recently, right? You did have to lay some employees off. Yes, we did. We did a layup of 12% of our total headcount expenses. Look, I think that there is nothing worse.

There is truly nothing worse when you start a company and you make a promise to someone that you are going to give them an opportunity and a career and you can't fulfill that into the promise. And I ultimately take full responsibility for this. I think I probably should have been better at knowing where the market was headed and slowed hiring earlier so that we didn't have to be in this position. And I fully take responsibility for not having done that sooner. And as a result, I had to make some hard decisions, which I think all founders are

wrestling with now. Looking back, I constantly am like, okay, well, what are the lessons I learned? How do I not make this mistake going forward? And part of what I've learned has been, how to trust your gut around certain situations. And so I'd be going to onboarding calls and there'd be, you know, 20 new employees on the onboarding call. And I would look at it being like, is this, is this, is this, is this, is this, is this. Is this? And during those times now, going forward, I think I will be better at pushing back at suggesting, hey, this doesn't feel right and making adjustments. I think you question yourself.

You're like, I don't know, maybe we do. Maybe I'm missing something, right? And so just being a little or having a little bit more understanding and I think commitment to my own gut and my own feeling around how to run a business. Yeah. Yeah. No, and that makes sense. Because of course, you're going to have managers coming to, like, I need this resource.

We're always all saying, we need this resource. We can't do this job without this person. But it's, you know, I wouldn't beat yourself up too much. Like you said, every, I mean, I would in that if I were you, I would feel horrible. That is a horrible thing to have to do as a leader. It's also probably the moment in which you really become a leader, maybe in some ways. Does it feel like that at all? I hear people say that a lot, but it doesn't.

that's like when people tell you they're like, this is a growth opportunity. And you're like, I would just rather not have. Yeah. Do you feel like this is a crucible moment for you or? Yeah. I mean, look, everything is a learning opportunity.

I see that. But some learning opportunities I'd rather, I'd rather not have to go through. Absolutely. What, you didn't lay off anybody who was responding to maintenance tickets though, right? You still have plenty of people to do that. Uh-huh. Molly too soon.

Sorry. I'm sorry. I'm just, you know, yeah. I got to have at least one journalism question in there. Let's talk about the market because obviously, if you're seeing this slowdown, I find that really interesting. I would not actually have thought that Divy would see a slow down primarily because maybe housing affordability was starting to occur. Let's talk high level first about the market. So first, existing home sales are down 20% year on year. So volume of home sales are down 20% year on year. Pricing is still up 8% year on year.

So we're seeing, yeah, which is really surprising when volume is down and pricing is up. And what's happening is people are going to list their homes. If they're not getting the price that they want, they're delisting. They're pulling the home down. They're like, well, I have a 3% mortgage. I'll just rent this home out, right? Or they won't be a forced seller. Now, that's not going to last forever, but we're in this very weird in between,

where usually when demand has come down as much as it has because of where mortgage rates are, which are at very high levels for recent, but actually not crazy high compared to if you go back like 50 years. But usually when demand starts to fall like that, price would also equally go down. We are seeing price decline month over month. I don't want to seem like it's not. But on a year of year basis,

we're still up quite a bit. So I would say the housing market has held it together pretty well. My view is that as we had into the second quarter of 20, 23, we're going to start to see kind of where home prices are really going to decline. So we're expecting home price depreciation for 2023 as is as our most economist. We're thinking probably mid to high single digits year on year for 2023. And then mid to low single digits for 2024 is roughly what we're currently modeling in. So I'd say equity markets kind of responded really quickly. Housing markets go a lot slower. And so we're waiting to see that

fall kind of take place. And that's probably going to come in mid-2020. through. And then how do housing prices actually correlate to your business? I mean, it seems to me like more affordable houses is better, but at the same time, people are looking for a way in. I would say right now, consumers are scared. They're stagnating. They're just like, I don't want to move. I don't want to take on risk. People are reading the news every day. And I think it is a moment of fear. So we actually, we start to see a slower top of funnel. And we did a survey of our customers who ultimately didn't convert with Divi, two thirds of them.

67% said that the reason why is they were just scared about the macro economy. Wow. Which is wild. And so people are just kind of staying put. So they were like, we're not buying. We're just. It's not even by. I mean, moving a house, like moving from one house to another, I mean, that's like

$5 to $10,000, right? On top of it, you've got to take on a mortgage. Mortgage rates are increasing. You're seeing available inventory. pricing hasn't come down that much. And so most folks are basically not making any set of movements. Now, how this affects DeVie's business is I do think that when people are ready to actually transact, they're going to struggle with a mortgage.

I think mortgage rates are going to stay elevated for a while. So I can see them turning more towards renting when they are ready to actually make a transition. And we're still, I mean, relatively, we're still seeing decent, like, pretty good demand. I mean, it's come down definitely from peak, but still pretty good. a demand. And I think the more affordable to housing is, houses are the more we pass that through to consumers. So every dollar for dollar. So we kind of see it as the cheaper we can buy homes, the cheaper, the tenant and customer can ultimately buy back the property for us. But we'd probably

estimate it's highly local right now, depending on where you are, you're bidding kind of anywhere from 80 to 90% of list value is what we're seeing broadly. Hmm. That's never happened in all the time I live in Oakland. So my immediate response says to be like, amazing, where? However, different topic. Yeah. Listen, you know J-Cal, I've been on a health kick. I'm talking about myself in the third person. And you want to know one of my secret ingredients? It's athletic greens with one scoop of athletic greens AG1 formula. We're absorbing 75 high quality, vitamins, minerals, probiotics, and more. And this is going to help you start your day off right. And tight is right.

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It's amazing. Your energy level is going to go up. It tastes delicious, and it's so good for you. Thanks to Athletic Greens for supporting. this week in startups. What does lending look like? Like our banks tightening up, it sort of feels like whenever there's something like, I mean, except that they can make a lot of money on these loans right now. Like, is it looser than it has been? There's been a bit of a credit. So we, divvy borrow is a ton of money. That's how we purchase homes is we take out large debt

facilities. The debt markets are open at a very expensive price. So what we're seeing is the debt markets are tightening around taking risk on new models. So certain things, certain companies that haven't gone out don't have a strong track record, I think are going to really struggle. If you do have a track record, I think you can raise debt, debt capacity, but you are paying a very high premium for that. That's not even just divvy or startups. That's in general the entire market. Now, there's also, you know, other forms of debt that that you can take out bond issuances, things like that. So things like the securitization market, which often is a way in which, um,

startups will pool a bunch of assets and then it brings down ultimately your cost of capital. Things like that are actually almost completely closed. I mean, open for a price. But I would say startups that are banking on tapping into the debt markets over the next six months, I think it is going to be challenging at best and expect to pay two to three times the interest rate that we had previously. Wow. How big a problem is that for you? Fortunately, we have a pretty good track record, and I have the best CFO and he set up a bunch of hedges in place.

And so I feel okay about that, but are we nervous about what the markets are going to look like in 2020, for sure. And we're getting out there early. We're having conversations to try to set up debt capital pretty early on right now to make sure that we're just prepared. Now, buying season's going to slow, so we're kind of okay for call it six to nine months until the markets kind of get back. But I don't think it's as bad as the growth equity markets, but it's similar to growth equity where you can raise right now, but you're raising it a steep valuation discount. It's the same thing where you can get debt right now,

but you're going to be paying up a lot for it. Yeah. What areas are still, where are you finding good buys? What are, because I know that when we had you on with the roundtable, we were sort of talking about, you know, places that had gotten hot that might not be so hot anymore, places that were still hot. What's happening now in the kind of digital nomad is Boise still? the jam. We are seeing softness in Austin and Phoenix and Boise also. I'd say in particular,

one of the things that we look at constantly are eye buyer concentration, where eye buyer is really big and are they sitting on inventory? All of that stuff is very public data. And then what is going to be the impact of that as the markets have kind of frozen? So if you have a bunch of listings and the market is frozen, right? All of a sudden, you're going to start decreasing your price, which will bring down overall home prices in the area. And so we're paying attention to that. I think that basically high concentration of buy-buyer markets make us really nervous. Places like Atlanta have held up relatively well. We're seeing some softness in Texas. Florida is doing okay right now. But I think that we should expect, you know, when we say that

we're bidding, call it 80 to 90 percent of list values. value, that's an average, which means that in some markets were up at 95% to list, some markets like Phoenix were bidding much lower, 70 to 75% to list value. Wow. And we do that because, like, we're not going to buy a house for a customer if we don't think that we're buying it at the right price that the customer's going to be able to buy it back in three years from now. And so we have to buy it at a discount to ensure that when they go to buy it from us,

the price holds. But I'd say, yes, very market dependent. and I buy market scare me more than the other markets. Interesting. When you look at being capital intensive at a time when capital is getting more expensive, will that change your buying strategy at all? Like, do you imagine that you might look at different types of properties to sort of extend that runway, I guess? Yeah.

Being capital intensive at a time when capital is not free flowing, turns out it's quite challenging. to actually do that. And so we're actually, we are spending some time thinking about new capital structures and way to do that. So growth equity markets are pretty much shut down right across the board, especially late stage growth equity. And so our view is we can't bank on raising capital 2023 or even maybe even halfway into 24. And so as a result, we're looking at raising more propco level equity. And there are folks who would have found that are more private equity or asset managers that'll give you equity into that. That's a little bit different than the venture market. So we are starting to get more creative and starting to tap into new sources of capital.

I will say that being a capital intensive business at a time when interest rates are rising has another fun layer to navigating the whole like running a company thing. Crucible moment. It's a crucible moment, Edina. They all seem like they're crucible moments, though. Can I get a non-crucible moment? They never say crucibles. Yes, it's like literally I get them.

It's every week at this point. But I guess, like, look, I think people always say the grass is always greener. So I might be complaining that I'm a capital-intensive business. And so I might be saying, well, every startup has its thing. And, you know, meta is not a capital-intensive business and it's going through its own set of struggle. It wasn't. Apparently it is now. Well, yes, now it is.

But so the point of being that the grass is always greener. So you have to figure a way to navigate this. I think earlier stage folks that actually need a lot of capital might struggle a little bit to enter the market. especially in the debt side because debt providers don't take as much risk. But that being said, you are going to learn so much over the next few years, right? Like just thinking about operating in this high interest world, thinking about different capital structures,

like you already have such deep market knowledge. But I feel like you're just going to be, I don't know, you're just getting a whole entire MBA. I'm not trying to give you a pep talk here. I just think like you could come out the other side of this and be like, damn, I really genuinely. genuinely learned a lot and now can do anything. Every day I feel that way.

Every day I'm like, okay, well, that just felt like, I was joking this year, this week felt like it took like 10 years off my life or I was like, I feel like I've aged and grown and learned. And I can't even remember a time before Divi. Like, it feels like Divy has been my whole life in some ways. And the learnings have been incredible. Jeez, it is hard. And I mean that as like, okay, so you like found a company and then you go through and

you survive like March 2020 and you're like, oh, I've made it and things are going to be okay. And then Jerome Powell raises interest rates to, you know, we're going to be heading up to close to 5% for Fed Fund. And you're just like, no one told me this was going to be a new challenge. I didn't know that this guy was going to try to put me out of business, basically. This one dude, just coming for me. I, yeah, my partner, he always jokes that like me and Jerome, I have such a close relationship with him because I'm always like, what are you doing? Where's our interest rates going?

Meanwhile, he has no idea who I am at all. But I feel like I've learned a lot about the macro economy interest rates. Yeah, a lot of stuff. Yeah. Do divvy buyers lock in an interest rate when they start renting? They lock in a buyback price. So they lock in a buyback price and they build up equity in the home and the equity that they're building up does appreciate.

So it appreciates with the home. It's not interest, but it's equity appreciation. Right. Okay, gotcha. Do you feel like Dibby is going to be in a relatively good spot because of what you've already built, because of the base that you have? Like, is it, I feel like that's sort of the question right now is right. Have you done enough?

Is there enough question? It's a good question. One, I always feel like I haven't done enough. Like, I always feel like I should have done more. I should have like raise more capital or I should have handled this differently. Why didn't I? So do I think I could have done more? Yes.

100%. I should have thought or been more. of it. However, given all of that, I think we're fortunate that we raise a lot of capital. I think that we're in a good place now where we can kind of huddle into, I keep joking with our own place. I'm like, we're going to go into our little cave and we're going to go build out really cool stuff and come out and hopefully in six to nine months, we'll be at peak interest rates and we'll kind of see where we're headed as a, you know, of the country. So I think that we're going to be ultimately successful because we have raised, we raised a very large round

from Tiger, we've raised a lot of debt capital in addition to that. However, I think that had I gone back in time, I wish I'd put in place when I think about what I should have done, I'm like, well, I probably should have hedged when interest rates were at 0% and done a bit more work around that. No one told me that I was like, you don't think about it. What interest rates are zero? You're like, oh, they're just, that is what interest rates are at the time, right? And so it felt like they were there there forever, right? It was like there was never any time before that and there will never be any time after that. This is just real. Yeah. And so look, I can go back and name 10 things like that that I probably should have done. And should I ever start a capital intensive real estate company again?

I have learned my lesson. But at this point, I think it's in some ways a lot of this has been priced into the market and it's holding out for another six months. So I keep telling all the companies, you know, some of them a little bit more earlier stage than divvy that are also capital intensive is get yourself runway, make it through the next six to nine months, and then I think the worst might be behind us in terms of where interest rates are going to peak. Now, how long they're going to stay there, I don't know. And so it might be a longer recovery than that. But I do feel like the economy moves faster today than it had 20, 30, 40 years ago. And so making these changes might have a more rapid impact. Honestly, supply is still low. Like still fundamentally, for all of the reasons, even the

raising of interest rates really quickly sort of continues to ensure that supply might stay low because if you can't get the price you want and you have that low interest rate, you know, so then you kind of, I can't, I find it hard to imagine a universe in which housing prices change dramatically over the next six to nine months. Certainly volume is the issue here. I mean, I will say, I do think home prices are going to decline. Yeah, like decline. I fully think that. It'll range depending on what market you are in. Overall for the U.S., I do think mid to high single digits next year.

And I think that that does mean double digits in certain markets like Phoenix. And I think that it means a lot less and more stable markets where the supply demand dynamics have been a little bit more imbalance. But yes, I do think home price. Now, that doesn't mean that it's going to decline in every local geo, right? So it might be the case that in certain zip codes, that's not going to happen. But overall, yes, I do think that for the U.S. No, I don't think it'll stay low for a long time.

I actually think that it'll have actually a quicker recovery. And a lot of that is because, to your point, we have very little supply of homes, but I don't think that being up 8% year over year is going to loss as to 2020. No. Right. All right.

Adina Havits, I'm going to let you go so you can go get that afternoon happy hour. That wasn't the positive. We can end on a happier note. Molly, we need to end on a happier note. We need to end up something more positive. I mean, it sounds to me like you're saying housing is not going to lead us into a recession. So yay. Low single digits. We got this.

We do got this America. We've got it. Yeah. We've got this America. We're going to be okay. Six more months. We've got it. All right. Thanks, Holly, for having me. Thanks for enduring. All right, everybody, thanks for listening. Once again, happy Halloween to those who celebrate. Stay safe. Don't eat too much candy. Eat as much candy as you want. I actually don't care. We have an awesome show for you tomorrow. Actually, Jason interviewed AOL co-founder Steve for the second time on his new book, The Rise of the Rest,

how entrepreneurs in surprising places are building the new American dream. This is something Steve Case has been working on for years, trying to spread entrepreneurship, distribute it more evenly, if you will, across the country. And then, of course, on Wednesday, we'll be back with the news. And we are all hoping to learn a thing or two regarding Jason's situation and The Bird, maybe. We'll see.

Stay tuned. See you tomorrow.