Yet Another Value Podcast - Packy McCormick from Not Boring on Opendoor $IPOB

Episode Date: September 29, 2020

Packy McCormick from Not Boring (https://notboring.substack.com/) comes on to talk about the burgeoning Not Boring empire, his experience in angel investing, and his current investment into Opendoor (IPOB).

All right. Hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have the founder of the Not Boring Substack, Pachy McCormick. Pachy, how are you doing? Andrew, great to be here. I'm doing well. How are you? I'm doing great, man. Well, look, let me start the way I do every podcast, and that's by pitching you. First, I mean, I had to have you on because YouTube viewers can see you sent me this awesome shirt. But no, look, you're the founder of the not boring substack. And I'm going to let me. you dive into it in a second, but as I was telling you before we started, like, I think it's the most interesting of the, there you go, YouTube. Wanted to match. Yeah. A little marketing there, too. As I was saying before we started, I think it's the most interesting of the substacks that we're doing. You're doing so many unique things that I don't think anyone else on substack is really doing. You know, most people look at substack and they say the end goal is I monetize my substack, right? Like I get a thousand subscribers. I turn

a hundred of them into paying subscribers and that's how I make it. And I, and I, think what you're doing is you're building an ecosystem and I'll let you talk a lot more about that but you know your post today was gamifying business you're gamifying the substack a little bit I would say and you're creating this really interesting niche and also your writing is incredibly interesting and you can go from one day talking about a you know five person startup to the next day diving deep into the background of tech giants like 10 cent or soft bank so uh really been enjoying it really appreciate you sending me this shirt and that that pitch out the way you know I'll turn it over to you. What is not boring and how did you come to start it? What's your

background? Totally. Well, yeah, first of all, thank you. You got the shirt because you've been referring a lot of people and you're one of the top referers. So really, really appreciate that and the kind of words. But yeah, so my story, I kind of have a little bit of the finance and the startup background, which is why I'm able to kind of write about both. But I, at a school, came to New York. My internship was in 2008 at Bank of America on an energy trading desk. So I was like to see like the world, you know, rock it up and then fall apart. It was over Fourth of July weekend. I remember leaving and everything was amazing coming back.

Everything was terrible. But it was a bunch of like ex-Enron traders. It was a crazy experience. BVe and Merle merged. So I went to Bag of America, Merle did that for a few years, was getting ready to go to business school and had my application in, had my deposit down, ready to go. And I found this company called Breeder, which is a real estate startup. up. It does kind of like on-demand meeting and workspace. So decided to pull out of

business school just to apply and ended up kind of after a four-month application process, getting hired there, ran a New York market, ended up running kind of all of our physical product and real estate and design and operations and strategy and a bunch of other stuff. Did that for six years, which is crazy. I decided to leave at the end of the end of 2019. It was in the middle of starting something kind of place-based. Coronavirus hit. We canceled some some of our early events, and then just kind of dove into the writing, which I'd been doing on the side for about a year. And really, I was like sending out links and listens and just like different things that I was interested in, kind of grew it from, you know, very slowly from zero

to about 800 subscribers. And then I decided to give myself a couple months and see if anything could happen with that morning. So now what I do is a combination of, as you mentioned, writing about really, really big companies. So that's like the 10 cents and the Amazon's and the stripes and all of that. And then really, really small companies. They're writing about different startups that I find interesting or different industries that I find interesting. And with the really, really small companies, we're able to kind of invest as a group through the not boring syndicate. So write about a company, put out an investment in my own public. And if people kind of like the idea and like my take on it, then they can participate in the investing. So really trying to

build a little bit more than just a newsletter. I come from, you know, a really kind of complex business previously. And so just sitting down and writing every week and having that be it, I think would get, not to use it. This is an accident, but happens would end up being a little bit boring. So really trying to just experiment with it. I think the space is still, it feels like everybody has a substack and it's still also very, very early. So I think there's a lot of room for experimentation on what this can be done. Yeah. So a big piece of not boring has been, as you said, you'll write up small companies. A lot of times you'll invest in them. And there's the Not Boring Syndicate, which I guess I'll just throw out nothing's investment

advice, you know, everybody can go check out the Not Boreen Syndicate, but nothing on here's investment advice. But, you know, the Not Boring Syndicate is a big piece, I think, of ultimately how you'll monetize. And I think it's a big value ad for a lot of the companies you'll publish on here. What's your background with venture capital? Is this kind of your first series? I guess it's more angel than VC, but is this your first time or had you been doing that during your time at Breeder? No, I had not been doing it. So we were on the receiving end, I think brother raised over $120 million. So we were on the receiving end of venture, saw the good parts of venture, the bad parts

of venture. But, you know, it's certainly my first time kind of leading a syndicate or angel investing. I was doing it personally and kind of the genesis of it. I was doing this personally. It was writing a check into a friend's company. He had left Airbnb where he ran a piece of Airbnb and was doing something else and said, I'm having a really hard time kind of explaining why this is a software company and not a real estate company to investors,

would you be able to write something up? I think it'd be so cool to see this in Not Boring. And so we did it. We worked with a friend who had a syndicate, sent him all of the investment interest, and the round was oversubscribed. I was like, you know what? Maybe we should do this.

And so we've done now three investments, one in a company called Composer, one in a company. Actually, it's my sister's company. It was a risk, but it's the most oversubscribed that we've had yet called OSE, and then one called Sweepe. And so far, it's been really interesting.

One, I think it's a really fun way for the not boring community to kind of get together behind a company. Two, really cool way to tell a startup's story. I think, like, you know, a lot of what I write about is business strategy as it relates to tech. And I think even at the very earliest stages, you kind of need to have that in place. And so I look for companies who are kind of open to me sharing their story and their strategy publicly early because they have something defensible enough that their secret

sauce won't kill them if I tell that people kind of what they're. they're what they're up to. And it's been really cool to see, like, Swaypay, which is the last one that we, that we wrote about, got a hundred different merchants. What SwayPay does is they'll plug into a Shopify storefront. They'll offer a discount based on your kind of how many Instagram followers you have. Yep. And so like the big thing they're doing before lunch right now is recruiting merchants. I think they had 60 people signed up, wrote it a hundred people signed up. They've closed, I think 100% of those companies, which is insane. But it's, it's cool because, the money is kind of one piece, but money is a commodity at this point. But I think what

companies get out of it is a chance to tell their story to the people who might be customers or investors or whatever else. Yeah. And look, you know, I think a big thing with venture capital in particular, you know, venture capital and private equity firms both have this, but especially venture capitalists, if you're only providing money, like, you're kind of the worst of the venture capitalists, right? Like, you're not really going to get access to the great deals. Like, you're obviously providing a service here, right? You're providing exposure, the money, but it's just a really interesting model. So I think that's pretty cool. And then what about so you write up, and we'll dive into one of these in seconds. So you write up big companies and

small companies. So how does the big company write-ups fit into the not boring substatt? Yeah. So I think, you know, like the number one advice that you get when you start writing is to find your personal monopoly or like your niche that you're that you're going to be really good it writing about. And I try to avoid business strategy for about a year because so many people do it so well. Ben Thompson's like the canonical example, but Ben Thompson writes about business strategy better than I ever will. And so I really tried to avoid it for a year. But then I started writing about kind of the intersection of maybe pop culture or explaining businesses in a more approachable way by using a little bit of pop culture. And so have just started to dive into companies. So I've

done everything from Zoom recently, Open Door, which I know we'll talk about, uh, Tencent, soft bank, like all these big companies. And I think the really interesting thing is, is digging into the backstory where I think like a lot of, a lot of newsletters focus on kind of what's happening right now or what product release there was or did they just raise money or how are they doing in the market. But I think connecting from the very earliest days to where the company is now and where they're headed and how you can kind of pick up the different clues from what they've done in the past is really interesting. I think I'm increasingly having started writing, I've always been a techno optimists and I think I'm even more of a tech optimist now. I think there's so much potential

kind of locked up in these companies and the leaders in tech right now are going to just get bigger. So it's fun to dive into their story and predict where they might go. Yeah. As someone who's like, you know, my background is value investing in. The more you, the more you talk and think about these tech companies, the more like you published the gamifying of business, I think is what it was this morning. And the more you talk and think about that, you're like everything that we're talking about with the future like the people who are set up for it are the Googles the Netflix that especially the 10 cents you know and you look at one company I've been looking at a lot recently is like Nordstrom's you know and like the thesis there's pretty simple right like every retail in the world's closed

they're going to come out to the other side they've got a great brand but then you think about and you're like well like Amazon like Amazon's a retailer there's all these Shopify stuff like what is the future for Nordstrom with all these class A mall stores and stuff and it's just it's hard to bet on anything. It just seems so easy to bet on all these like thing companies and stuff. And the more you study them, the more optimistic you kind of get. I view these as value investments because I think people discount future growth too much in these in these tech companies just because it feels ridiculous. Like kind of my earlier trading experience coming out of out of school was being an idiot and investing in Apple options. I should have just bought the stock. But you know, like there was

just a law of large numbers happening with Apple for a very long time where it was just hitting such market cap was so high that people were like, ah, you know, and discounted the multiples because it was just too not expensive. Expensive is the wrong word, but the market cap was too high and so people discounted it. And I think even though like it kind of broke that four-minute mile when it broke a trillion and everybody else has kind of followed, I still think there's a lot of value because people just feel silly kind of projecting into the future. So like today when I write about business as a game and like, could you run a business through a video game? Like I'm not a video game expert, I don't understand, like, the technical piece as deeply as I need to,

and I've gotten a few replies being like, this is a really interesting idea, but here's what you're missing. The point of those is to really say, like, cool, expand your mind, like something like this will happen in the future. What does the world look like when that's the case? And I think there's more growth than people even anticipate or can imagine at this point. Yeah, no, I love the idea of Apple breaking the four-minute mile of the trillion-dollar market cap. And then within a couple years, just everyone's breaking through that. Like look at something like we've never seen businesses like these before right like I think I think of something like Google and you know there's no there's nothing with the network effects like Google search engine you know somebody put a tweet over the weekend like hey if you gave someone a trillion dollars you could recreate America's railroads right but you could give them a trillion dollars and like Microsoft basically tried you couldn't recreate Google search engines and like the data that they're going to have with autonomous driving and people's YouTube having stuff like it's just you can't recreate that and When you start thinking about that, you get so bullish onto the future of these things.

Yeah, Hamilton, Helmer, who wrote Seven Powers, which is one of my favorite strategy books, was on a podcast, and he was talking about Google's network effects and whether Google has network effects. And he's like, the way that you have to think about it is there are all these new, and I'm not going to remember the number, but just an ungodly amount of searches that have never been searched for before. And because they go to Google first, all of a sudden, every time that search happens again and again and again, you're just going to get better results on Google for all of the edge

cases than what I'm Bing. So Bing and Google, if you search Apple phone, they'll probably give you the same result. They'll both go to Apple.com. But for all of the edge cases and there are way more edge cases than you'd expect, Google just keeps getting further and further and further ahead. And then I guess the last thing I want to talk about with Not Boring is, I don't think you've done it as much recently, but for a while you're running the Not Boring public portfolio, right? And I think if I remember correctly, you had Slack in there and you even published a post that was like, I'm an idiot for choosing Slack over Zoom, which I guess we were all at for that. You had a couple other ones in there. Spotify at the beginning of March, I know was one which

to my chagrin, I've always been hugely bullish on Spotify. Like they literally had Netflix's old CFO as their CFO. And for years, he was saying, this is Netflix 2.0 guys. Like, why aren't you guys getting this? I've been a huge bull in that for a while and too much grinned and pull it. But what's the future for the not boring public portfolio? Is that going to take a back seat? Or are you still kind of operating that? Totally. Yeah. I mean, I'm still investing. Typically, I invest in the companies that I write about. My problem. as an investor. It works in a bull market. It doesn't work as well in a bear market is that I'm such an optimist that like once I dig into a company's story, I'll see the bull case way more easily

than I'll see the bear case. And maybe that's right in this new world and maybe it's not. But when I start diving into a company, I'm like, oh my God, this is a no brand. This is going to be the most valuable company in the world. And so I'll invest. But yeah, Slack has dragged me down. The rest of them have performed pretty well. I'm still super bullish. I love your thoughts, but I'm still super bullish on Slack long term. I wrote when I wrote about that Zoom, Zoom versus Slack a while back early in quarantine, I said that it was a long-term thing,

but still kind of mentally it hurts when Zoom keeps zooming and Slack doesn't. But I'm still pretty bullish. On Slack particularly, I'm no expert, but I do think Slack's a little bit like, you know, you worry with any tech company is that a larger tech company or a tech company, like kind of their size evolves into their market.

And like Slack, it does seem like Microsoft, come into there, Zoom's coming to there a little bit more indirectly. And like, you do worry about the case. Like, your biggest bear case for Google is really like search moves to Amazon, right? And your biggest bear case for Amazon is really like everybody wants to go to these like online Instagram shores and Shopify kind of over out Amazon. It's tough to think of a real bear case for Amazon. But you do work. But, you know, related to what you said, like, does my style of investing work better in a bull market than a bear market? I do think a lot of people have been turned into like kind of investment geniuses over the past six months. But totally. I do think being an optimist,

when you're talking about these tech companies that scale, like being an optimist because skew, you know, you strike out, it's still a zero, but you hit a home run. It can be like a 15 times grand slam in tech. I think it's better suited for optimists, to be honest with you. I completely agree. We'll see if Slack's, if that's right on Slack.

I actually like, yeah, I really did not subscribe to the Microsoft team's argument for a very long time because they did all the auto starts and they were inflating their numbers and it's Microsoft. And so like they can kind of push distribution and make their growth curve kind of look any way that they want. I actually think, though, that pandemic has hurt Slack because it's forced all of these companies who Slack would have had a chance to sell into to just go to whatever they had

on their computer right away. And they have teams on their computer and it auto starts every time that they open. So they have to go to a remote chat tool. They're going to go to teams. I still think long-term Slack strategy of connecting companies through a chat interface makes sense. And there's a lot of positives there. But it's certainly been disappointing from a growth perspective when everything else is doing

as well as it is. it's funny you said like i didn't think Microsoft would hurt slack this much because you know who else didn't think that like slack famously took out the new york times advert full page advertisement that said come on in Microsoft the water's warm we're ready to compete and like with hindsight they even did the interview with uh strategy where they're like yep maybe that wasn't uh maybe we weren't ready for that hey you know what i'm still bullish long term and there's this one thing that like kind of as i've been writing has come up more and more and more is that if you get the young companies and the young users early and then you are really, really patient and you kind of grow with them over

time, there's an advantage there. I just think that there's probably a tougher scaling for them to sell into the corporates as quickly as they wanted to. Yeah. No, it's, and we'll talk about open door one second, but it is one thing like, you know, you look at like a Snapchat, which skew so heavily to like, you know, I'll just call up the teenager market versus the, the core Facebook product today skews so heavily to older audiences. Yeah. And like when you start projecting that out, it does get really interesting because if you keep the teens, that's that huge growth part as, you know, today's 13 year old becomes tomorrow's 14 year old

and they recruit today's 12 year old when they turn 13. So it is interesting thing about that. I'm super bullish snap too, so we'll see what it goes on there. Hey, that's been fantastic as well. I remember when they came public, people were saying their CEO, Evan, uh, yeah, they're like, look, he's the best product guy since Steve Jobs, people were saying that. they had some rough times, but they had, with Facebook and Instagram, I think they had kind of

the worst market position you could imagine with the best giants try and stack them. And obviously they've carved out and they've managed to do a lot of interesting things. So that's been really cool. Yeah. And I mean, just what the breadth of what they're building, I think is super underappreciated with a snap. Like something as simple as Bitmoji being on pretty much, you know, possibly on any keyboard in the world, Samsung's auto putting it on any of preloading it on their keyboards. Like they have all these different things by opening up everything they build through their SDK and all these different things where I think SNAP is going to be powering a lot more apps. And so whether the SNAP app itself is the thing or whether it's SNAP's technology being in so many apps that

are kind of geared towards that younger market, I really, I think the future is brighter than people expect for SNAP. And I think they're a really interesting studying how for something consumer, just like the small things can make the big difference. You know, I think how viral those things are for uh they've got this thing where it's a filter you hold a button down it flips up like what harry potter's school are you and it flips through a bunch and it'll tell you you know you're griffindore or slithering and there's no rhyme or reason to it you know it's completely random but these things go so vital and the drive so much engagement and anyone could build that right but they're the ones who built it and i think it really speaks to them and and and reels has and

you know like instagram stories have and and it spreads a little bit in stories obviously it's done very very very well but i think it's really about building the product that your audience wants in particular, too. Teens and kind of like Gen Z and young millennials are just so much more likely to share goofy pictures of themselves than me. So, and I'm more likely than most 33-year-olds to share goofy pictures of myself.

So I think it's really about- Behind you, yeah. Exactly. So I think it's really about nailing the product for your particular audience, and I think they do that really, really well. Cool. Well, hey, let's turn to Open Door.

That's kind of the last company you wrote up. I think this is one that's really in the news, you know, it's really easy to imagine this 10 years from now being 15 times the size, as Chimov says, this is his next 10x. You can imagine that. I know a lot of people say you look at the eye buying market and this is going to be a zero over the long term. You could picture that too. So why don't you talk to them? They're going public thrust back. What is Open Door? What's the bull thesis on them? Everything like that. Yeah. So Open Door is the original I buyer. And what that means is that they use technology to price, bid on and acquire homes. And then they

have their network of inspectors and contractors and all these people who understand the fixes they need to make on a house as quickly as humanly possible. They have these like huge kind of economies of scale in terms of the fact that they do so many houses that their costs are now kind of like 50% down across all these different categories of like carpet and wood and all these different things that they do. But essentially they use technology to buy houses and flip those houses hopefully for a higher price. But they charge both kind of zero to six percent to cover costs and then somewhere between zero to six percent to as like a liquidity premium. So if you don't have any rush, you probably shouldn't sell to Open Door.

If you just want to sell your house, then maybe you pay a 2 percent discount and you sell to Open Door. Open Door takes that 2 percent and then whatever appreciation, hopefully they get on the home and that's their margin kind of net of all the costs that they need to do to get the house back in shape. The bullcase on Open Door is that real estate generally, and I from kind of a commercial real estate startup is super, super slow to move and is one of the last kind of industries that's really been untransformed by tech. I know that we're both kind of Zillow Zillow bulls, and I'm a huge fan there. But really, that changes the way that you get in touch with an agent. And Zillow now has an eye buying program as well. I think Zillow is an absolutely

incredible company. I think Rich Barton is one of my favorite CEOs. But I think what Open Door has done really well by focusing on i buying is just getting this head start in all their markets that kind of just compound over time so they're the best pricers i i kind of mistakenly thought for a while that this estimate was going to be an excellent input into a pricing model and it's really really good as like a broad thing and incredibly good as a as a lead generation tool not so good on the specifics of like you know if this basement is like this what are the chances that i'm going to have to pay two thousand dollars to repair that the foundation in the basement for example and open door over the past six years has built up by having their own inspectors and selling

the houses themselves all this proprietary data that they feed back into the model. So it's not just how's the neighborhood performing. It's how's the neighborhood performing? Are there a bunch of telephone wires across the street and what does that do for the price? Our inspector said that. Our inspector also said that homes that have, you know, we've seen through all this inspection data that homes that have black spots in the kitchen end up getting mold. And so they cost X, Y, and Z. And so they just have this data set that I think really helps them. on the pricing side of things. But I think the bull case for any of these companies

is that residential real estate will not stay untransformed. And so I've heard many people say Open Door, Redfin and Zillow, just buy all three. And one of them is going to win. And this is going to be a trillion dollar market because housing is so huge. And $1.6 trillion in housing changes hands every year in the United States alone.

So if you just kind of bet on this trend and don't even pick a horse, you're in pretty good shape. Yeah, no, I think that's a great overview, but let me back up for a second. So Open Door, right? My worry here is I've got a million dollar house. I'm going to put it up for the market. Open Door is going to come in. They won't bid your house. So they have this tight buy box between 200 and 500,000 for I think the reason that you're, you know, you're going to say the 2% starts getting really big. And as you kind of move up into the more luxury market, there's a lot more factors than just like it becomes less of a commodity when you get more and more expensive. and so they stay in this kind of small box between two and 500,000. Yeah. So I actually chose a million just to make the math easy, but let's do 500,000 just to say. So I've got a $500,000 house, right? Like what Open Door is going to bid on it.

If I'm selling, I'm going to sell to the high debtor in general, right? Why am I going to choose Open Door? And if I choose them, why haven't they just paid the highest price for my house, which by definition, you know, this is why basically what Open Door wants to do is buy your house, spruce it up a little bit, flip it in 90 days, right? by definition they're the high bidder of the house why shouldn't they get like kind of pretty poor returns from being the high bidder on an asset yeah i think they realize which houses they can high bid and which houses they can low bid like they have this they have their kind

of price elasticity of demand curve in there where you know at 10% maybe 20% at 10% premium maybe 20% of the houses convert at a 2% premium maybe 60% of the houses convert and so they're always kind of sliding between there and it seems like they're really trying to optimize kind of house-by-house margins versus growth. And so in some cases, they'll throw a high liquidity premium bid on your house and not expect to win it. Their bet is that they're going to be sharper on it so that if Zillow or Redfin or somebody wants to come in on every one of the houses that they're bidding and underbid them, one, their costs are going to be lower. Two, they think their pricing is going to be a little bit more precise and accurate.

So sure, Zillow can actually just bleed them dry. If Zill wants to offer secondary and the market keeps wanting to kind of fund Zillow and I buying because they see it as a trillion-dollar opportunity, that I think is a really big risk, is that somebody could bleed them. But I think it requires without the precision and without the economies of scale that they have, which, of course, Zill can acquire over time. Without those two things, it's going to require somebody saying, committing to losing a lot of money for a long time.

And I think Zill has done a good job, obviously, at this point of, of moving their investors over. The stock tanked when they announced eye buying. And then it's been this kind of slow and then rapid decline as they've kind of found an investor base that's comfortable with them doing both lead gen and eye buying, which are two very different businesses. But who knows how patient that investor base is

with them bleeding money to try to win eye buying over time. Yeah, because my worry, and Zillow certainly fits into this, but my worry is like all real estate is local, right? And obviously what Open Door and Zill are trying to do is get enough data that they can automateize a lot of the local. But like I've got 15 friends back, back, I'm from Louisiana, New Orleans, who, you know, their side job is kind of, or the HGV flip or flop show, right?

Like my friends on the side, they'll go buy houses, spend 90 days sprucing them up and then try to resell them. And like when Zillow or Opendoor bids on a house, like they're obviously competing with these guys. And some of it they can get through with, you know, their local knowledge and they're, or some of that they can get through with automation. but they are competing against like my friend Jeff who he lives there he can actually spend his afternoon go walk around the thing like he's got a lot of knowledge and I do worry

that's been the worry for a lot of these things right like you're competing against these across the board and you're you're never just going to get great returns on capital because of that yeah I think that's right and and obviously there's not as much centralization as an Amazon but like that's that's an argument against an Amazon as well at some point is like the people, the stores that can physically be there are going to sell to the customers who are in the neighborhood and they have a relationship and they're used to going to the store. And I think certainly there's, I mean, obviously until COVID small retail was doing broadly fine and didn't just go away because of Amazon. And I think similarly, there will be projects that make sense

for local folks and projects that make sense for an open door. But what Open Door has, I mean, they're not fully nationwide, right? They're in 20 markets. They have 4% of the Phoenix market. So they do have kind of a reputation in somewhere like a Phoenix. They do have a network of inspectors and contractors. And they do have through good times and bad, although they stopped buying for a little while, though they're picking back up now. Through good times and bad,

they can say like, look, contractor X, if you stick with us and you know, you price our bid the lowest, you're going to have 10,000 deals to do over the next couple of years. So they have that advantage. And I think, you know, when you're dealing with contractors, like either if your friends have their own guys. I think that that might help. And obviously, like, that removes a layer of

margin from the whole process. But otherwise, contractors are going to go with who pays them the most money over kind of the medium term. I don't think super, super long term, but also not on a job by job basis. If they see that for the next two years, I'm going to be able to get a hundred jobs by working with Open Door, that's a big advantage that I think that they have in the local markets. Yep. And there's probably like scheduling things where if they can schedule open doors to be like, hey, we've got 100 houses, come to this. job Monday, this shop Tuesday, like they don't have to go out selling to get 15 different local jobs. Right. I've seen a million, a million companies that have tried to do, and like Thumbtack

kind of does this, but on the commercial side, try to do like a thumbtack for contractors or something. And it's really, really hard to do if you don't supply, if you don't control the supply, like they'll just get a better job and they'll ditch whatever job they were, they'd signed up for before. It's a really tough industry to wrangle. And so I think you do need that kind of like massive scale and commitment of jobs to be able to wrangle. It's like, I don't think there's going to necessarily be like a thumbtack for full, kind of full-scale contractors on houses. I think it will be eye buyers coming in and just promising kind of big blocks of jobs to these guys. I think when you first started mentioning Open Door, you mentioned that, hey, what they're going to do is, I think what you said was if you need certainty of clothes and speed, you might be more likely to go with an eye buyer than a kind of traditional, hey, let me put this up and sell it to the highest other families going to move in.

Why would you, why would certainty and speed of closing a house be so important? I mean, we're, and this is an extreme example, but my wife and I are in the middle of selling, we bought like a property that we put on Airbnb upstate. And we luckily like my friend was looking for a house upstate. His, his realtor told him that everything was 30% higher than it had been a couple of weeks ago. And so we were like, oh shit, we should probably sell at this point. And so we put it out there. We found a buyer in the middle of that process. And then I think prices actually kind of cooled off a little bit. And so like we've signed the docs, but until that money's in the account, I'm a little bit worried every day. That's one aspect of it. Like there's just this uneasy feeling when the biggest financial transaction that you'll make over a certain amount of time is up in the air. That's one aspect. Another aspect is that people are looking, maybe people already have an offer in on another home. And so to be able to move, they need that certainty so that they can, they know that they have the cash coming in, even if it's a little bit less. because for a lot of these people, potentially,

that the house is appreciated maybe 20, 30%, and so the difference between, you know, selling for a 30% markup from where you bought and then 28 is not that much relative to just I'm going to get the cash in my account in like three days. And so I think there's value to that as well. Yeah, get the cash in my account and be able to close on the next house

that I actually have a time crunch on. And I mean, your return is going to just fire out if you start investing in SPACs with the money that you get for that three month period, right? Your returns are going to far outweigh that 2% Delta. That's a, no, and one of the things that you, and I'm going to use this as a transition to Zillow, but one of the things that like stands out from the, from your write-up is I originally thought, you know, one of my things when I look at companies, I love the company that controls the top of the funnel, right?

And when I thought Zillow, I thought as you write, as you point out, Zillow's estimate, that is the top of the funnel. And that has been Zillow's thing to lure in people to hire real estate agents with them. I was kind of thinking, oh, that's the thing that's going to encourage them to buy through Zillow, right? They go for this estimate, they stay and they just sell their house for this estimate. And what you pointed out, and I thought this was such a good point was, hey, your house is by far the largest thing for 99% of Americans. It's the largest transactions they'll ever make. You're not going to take the first bid just because you went and got the Zillow's estimate, right? Like, you'll get the Zillow bid, and then you'll probably go and check Open Door.

And if open door is better at pricing, it doesn't matter they don't control the top of the funnel. As long as you can find them through a Google search, they're going to be able to get their best bid in. and they can beat Zillow through that if they've got better data and all of that type of stuff. Yeah, because pricing isn't about having the lowest price. Pricing is about knowing better than anyone else, the highest price that you can pay and still make the margin that you want. And so, yeah, they're going to, you know, if they can figure out a way to squeeze more into that price and they're the second or the third place that somebody looks, they're going to

win that deal. And it's a point that you made before. People are going to shop around, look for the highest price and they'll sell to whoever has highest price. That's my bull case on Zillow as well, and I bet they do pick up a ton of people who don't price shop. I mean, I think the other thing that we haven't discussed is just that I think this market more than most others can support a bunch of winners. Your friends can do really, really well locally. Open Door and Zillow can do really, really well.

But I think for the majority of people, it's actually a benefit to Open Door to have someone like Zillow out there, educating people in the fact that you could sell your home at the click of a button. And if Zillow has brand trust with people and they do it, then I think it just lends an air of legitimacy to eye buying that then when Open Door has a better bid, they can take advantage up without having had to build that top of funnel. One of the things I've thought is interesting here is like, you know, a lot of Zillow's traditional margin has come between matching people with, especially real estate agents, but increasingly they were, hey, we'll match you with the mortgage broker and we'll get a fee for matching you

with the mortgage insurance, all that. And they bought a mortgage provider as well. And they bought a mortgage provider as well. Yeah. And Open Door actually has bought, I believe they bought a title insurance company, right? And one of the things I wonder is, you know, we talked about top of the funnel assessment. One thing is I wonder with Open Door is longer term, what does it maybe make sense like, hey, we run the actual buying and selling into the houses at like basically zero margin? And then we make all of our money on we're going to do the title insurance. We're going to do, we're going to get you a mortgage for your next home. We're going to set you up with the real estate agent to buy your next. home or we keep all the real estate agent commission for us because we buy a home from one person we buy a home from you and we sell you a home that we already own like I wonder if they actually the flipping is a zero percent margin and they make all their margin on everything else connected because there's so much they're so scientific right like this is just their DNA is how do you drive the cost down as low as you possibly can that I'm sure right now like their attach

rate on title is like 82 percent so 82 percent of the people that they offer a title to or maybe even higher go with title title is this like regulated industry where the margins locked in at like 75% if you can get somebody to to do title with you like that's just free money essentially and so I think at some point and then that's just one thing I think at some point they're going to start you know buying and selling these houses at a loss to be able to get these other things I I think Amazon buys them at some point it's like I kind of just slid in at the end of at the end of the essay because like if you're trying to win the home I think just kind of like being that first point of contact with the buying and selling process,

you can just attach so many other things on there. And so right now it's low LTV, high margin things like title insurance. Over time, I think they'll probably work to increase the LTV so they can treat the loss in the home is just a KAC. And the KACLTV starts looking really good. So you think like Amazon buys them because Open Door buys your house, I buys your house, and then Amazon will install like Echo in every room and then they sell you the Amazon pre-equipped house. And then you have, you know, you have Amazon Prime

and you're just going to be shopping with Amazon thereafter. I mean, they spend like billions of dollars on content, for example, to get people to use Prime. Why not spend $10 billion to buy Open Door to be that first point? That's interesting. So I've looked at the master plan communities before, which, you know, they own a giant block of land and then they build the grocery center

and then they build a thousand houses around it and I have wondered before like why does an Amazon do that and build the entire community based around like a whole foods and a super efficient Amazon distribution center right and then you build Amazon into everything and anyone who moves in there you can almost sell the houses at zero margin because everyone who moves in there becomes the best customers that Amazon will ever have and yeah you think open door can do something similar I think they can I mean they can do it themselves and and limit the number of things that you sell to people and limit the LTV or you can go into an Amazon the open door piece is profitable.

on all the things that they attach to the the you know the first purchase and then like home cleaning and like all these things that they can like really kind of control at scale in a local market um and i know that's an oxymoron so they can do all of that on on kind of the first sale start adding some repeating things that relate to kind of managing the house itself but with amazon your lTV is like pretty much unlimited at that point if you may if you make sure that people think of Amazon for everything that they're going to buy home related or otherwise. So let's talk management here, right? I think this is interesting because you're attacking a trillion to two trillion dollar industry, right? Like the companies that if you can win,

I buying, you can be maybe the biggest company in America, right? So when you talk Open Door and Zillow, I think it's interesting because you've got two really storied management teams there. I guess Zillow, I guess Open Door is more you've got a storied financial backer than actually management team there. But how do you think about that? Like what's the background for these management teams and backers? And do you favor one over the other? I think on management, it's probably a tie.

And I can't believe that I'm even saying that like Rich Barton has built this business before. I don't know if you've read. There's an incredible piece that Kevin Kwok wrote on Rich Barton's loops and the fact that for the listeners, Rich Barton is the current CEO of Zillow and the founder. But go ahead. Current CEO of Zillow.

Was it Expedio? also. And so what he does is just build these businesses that have content. And in Zillow's case, that's his estimate where essentially he just ranks first in search engine whenever you search for, you know, pick an address in your city right now. And Zillow's going to come up first. And so versus, you know, the anybody else in the industry, you're just paying less to acquire customers because you're first in the search results. And it's a thing that he's done, I think, three times now. So Zillow is the third time. Rich Barton, his interview with Ben Thompson is another one of like just the best things that I've ever read in

my life and made me fall in love with Rich Barton as a CEO. I think on the open-door side, they were founded by Keith Rubei, who's a venture capitalist, who also worked at PayPal and Square and also has a pretty incredible track record himself. And then Eric Wu, who has been in real estate, has had some moderate successes. This is his first, like, massive success. And then they've built up a team of executives from Amazon and all of the different tech companies to come to come work there. So maybe I give a little bit of an edge on management team or just CEO to Zillow. But I think like the other piece of that is just the culture that they've built from day one at Open Door. And they have my favorite, favorite cultural value of all time,

which is Bips for Breakfast, which means that they just like pull basis points out of the business wherever they can at any time. And Eric Wu, I've watched 10 interviews with the guy now as part of this process and just always talks about having to make the hard decisions to light people off or to they removed free lunches and like do all these little things culturally that you just expect if you're going to work at Open Door. And so I think like if the management team is relatively equal, the fact that you have this culture built up, people just understanding that like all we do is minimize costs and

make our algorithm better, then I think like there's a kind of team advantage that you build up over time by having everybody buy into that culture. Yeah. And the BIPs for breakfast, you know, I think a lot of people say BIPs, which are basis points, you know, a fraction of a fraction of a percent, say, oh, is that a big deal? But, you know, Holmes, it's a trillion dollar industry. But these I buyers, they're talking about operating on sub five percent margins. So like, Bips are actually really, really big. And one of the things I was sending you separately is, you know, I think Zillow right now is minus 2% margin on their eye buying, whereas Open Door, I think on the eye buying itself, they're slightly positive margin.

Yeah. And I was saying like, look, when you look at the differences here, it's not that much. And you have to, if you're bearish on Zillow, which I think the people here were, like, you have to explain why Zillow can never narrow those cost differences. And you're not talking like, you know, it's talking, hey, Zillow's expenses are 4% of the sales versus their maintenance costs are 4% versus 3%. It's like, that doesn't sound like a big difference, but it actually makes a huge difference when you're talking margins. Because it's essentially like, you know, just the way that the accounting works in real estate, like the revenue is the total, you know, value of the home. And really what you're talking about, like the net revenue or the margin is this like little,

I think for Zillow, for Zillow, it's negative two. For Open Door, it's at 1.9% after interest right now. And so like your net revenue is really that. And so a 1% difference is like 50% of the revenue. It's a massive, massive difference. So anywhere that you can remove costs. One, helps right now with the margin and helps more drop to the bottom line and all that. But two, over time, and this is why I'm not certain that Zillow catches up, is that you can just keep getting better at pricing and you can just keep lowering costs. Like, the lower your costs are, the lower bids that you can make and still make a margin, the more volume you get, the more scale you get, the lower your input costs are, the lower your labor costs end up being

because, as you said before, you can like kind of block people in in different slots. And so it's just this advantage that compounds. I don't think it's the same kind of compounding advantage that maybe a Google has where it's just the internet and it's this infinite scale. But there are these compounding advantages that they have. I just think there's a limit in the physical real estate specter to how big of an advantage, how low you can get your cost, right? Because at some point, like the contractor, yeah, maybe he'll take 100 an hour versus

110 an hour for someone else because you're guaranteed and you're going to fit into a schedule better. But at some point, he's not, he's not going to cut even further. You know, like, he actually has to get paid for his time. And there's a lot of these things. You know, a lot of people talk about, oh, you're going to get lower interest rate costs. Well, that's just cost of capital. Somebody with lower cost of capital can always step in or somebody who can equal you. And there's just a lot of these things where I do think you kind of reach the natural limit or, you know, pricing. Like, at some point, you're not going to be able to cut your pricing that much lower. So I do think there are some limits. Except for what we talked about earlier,

where like the more you can attach the lower than lower and lower and lower. Yeah, exactly. And you expand the market a little bit as well. I think by making it so easy to buy and sell home, like one of the things that I wrote about, they haven't said this publicly, but is really the idea that like home buying can be as easy as renting at some point like when they handle moving

and they buy your furniture for you and they, it just becomes a lot more liquid and the transaction volume goes up. And so those advantages then like it just gives them another little opportunity to compound, but I do totally agree with your broader point there. When you wrote that, one of the things I thought was Carvana, which is used car retailing, they said, look, the average person sells, does a use car transaction once every seven years. And they're like, if you think about what the used car transaction is in someone's heads,

it's going to a sleazy used car dealership and really having to negotiate into this awful process. They're like, if we make this really easy, like our base cases is once every seven years. But if we make this really easy and really seamless and we cut the cost enough, like, why couldn't people do it once every six years, once every five years? And similarly for home buying, like, you know, obviously it's a big expense, the U.S. government encourages it a lot, right? Like, we didn't earn a lot of taxes. Why couldn't the average person move once every 15 years

instead of once every 20 years if they make this whole thing so much easier and they lower a lot of these frictional costs? So, yeah, I'm with you there. I think that happens. And I mean, it'll be really interesting. Like, I just love this space generally and love being able to watch the space over time

because it's going to be a war of attrition, potentially. It's either a really big market and they decide to not play, against each other. Zillowl's gone into all the markets that Open Door started out in. So they are deciding to compete head to head. So it's not that. So it's a bit of a worth of attrition here. And we'll see if Zillow can catch up to Open Door's advantages before they just give up and say, hey, we're actually going to just send leads to Open Door and make our money that way and go back to this high margin business that we had before. And, you know, we'll own all of the rest of

housing and they'll own these like, you know, tens of thousands of transactions a year, but certainly not the entire market. So last bear case I'll put to you and then we'll kind of wrap this up is you said Zillow is moving to all of Open Doors markets, right? And I think a lot of people had said, look, Open Door, the first market is, I think it's Phoenix. Phoenix, right? And the reason they went is the housing stock in Phoenix is new. The housing stock in Phoenix, because they did a lot of cookie cutter homes, I think it's a lot

more homogeneous, a lot more similar across the board than, you know, I'm from New Orleans. So you'll have a house that's 100 years old next to a house that's 10 years old. It's hugely different four plates. And the house that it's 100 years old needs a lot of upkeep versus in Phoenix, if everything's like 10 to 15 years old needs a lot less upkeep. So I do think a lot of people look at this and say, hey, there's a reason everyone's going into the same markets, right? They're not, Zillow's not choosing, hey, nobody's in New Orleans. Let's go start in New Orleans. They'd rather go attack in Phoenix. Do you think there's, do you think that's an issue or do you think over time as they kind of get the core down in Phoenix, it's pretty easy for them eventually to go to the

wall and it's market I keep saying. Yeah and I use Athens where we had the Airbnb house as my example because the house is built in 1895 and the foundation has issue like it's that is a much much harder market to get into. And so I think I know the way that they talk about it in their in their deck they have kind of this $1.6 trillion of houses change hands number. But then the way that they talk about their opportunity is if we do what we did in Phoenix in a hundred markets. And so there's a lot more than 100 markets in the United States. If we do, do it in 100, over the next X number of years, it'll be a $50 billion revenue business. And that's the gross revenue, full value of the home, et cetera.

But that's what they're looking at. I don't think they're basing their numbers on being able to do this in every market anytime soon. I think over time, the software and the internet will work its way kind of into everything. And certainly, they'll probably build lower weight products that maybe they'll come in and compete with Zillow or whatever else. But I don't think they need to win the New Orleans or the Athens, New York or anything like that in order to get to pretty massive scale. Yeah. And I think another bear thesis that a lot of people said was, hey, there's going to be, you know, in the next recession, housing prices are going to go down and all these guys are going to get slaughtered. And maybe the pandemic was a unique, was a complete unique one-time thing. And it was pretty darn fast, everything. But all these guys, you know, they weren't unscathed. But they did survive the March 8th.

April timeframe. So I do think that that laid at least part of that worry to bed. I don't know how you feel about that. Yeah. And it's been, this has been such a weird recession or whatever you want to call because this is not the test that people are looking for where housing prices across the country drop 5% or anything like that. Like housing prices in a lot of markets are up significantly. And in the markets that they're in, like they're in a lot of the markets that people are moving out of the cities and into. So there's actually, you know, this has kind of been a positive. I think that they ended up kind of selling down their portfolio as much for the uncertainty on their end of like, will we be able to go to, you know, go to the place where we need to sign the documents

or where the title is held or like, is the city going to actually be operating and like doing deals? And so I think there was kind of uncertainty less around price and more around just like the ability to do business. So this has been just such a bizarre downturn for them to be tested on. I think to the extent that you get something where prices drop 5% overnight, that's not good. But their argument would be nothing actually drops 5% overnight. People hold out. And so housing prices kind of drift slowly, even in the financial crisis, housing prices took a while to kind of hit their trough.

And because we only hold for 90 days and we're the best priceless and we provide certainty in an uncertain market, we actually are in a better position than anyone else in a downturn. And if they, if their margin, like they say they can get 5% margin, like if their margin is actually 5%, then they, if housing prices only drop by 5%, they should be protected, right? Like they're not going to be posting crazy losses. They're going to be basically break even. And hopefully, as we talked about, they can make, they can make their profit on the title insurance and all the add-ons that eventually they'll be able to do. Anything else we should be talking about with Open Door? I think we covered a lot with Open Door. I think we, I'm surprised by how much you got there. It's a super interesting company. All right, here's the real test. Open Door, I think we've mentioned your long Zillow, your long Slack, a couple others. Is Open Door joining the not boring public portfolio? Oh, 100%.

Open Door is in there and I'll kind of continue to buy. It's so tough. Like all of my, all of my buys are long term just because of, I think, like, the nature of tech and also just the nature of how you should be investing generally. But Open Door has gone from, you know, the 10, every SPAC prices of 10 to, I think it was up to 17 per 17 bucks today. So it's already up a bunch, even since I bought it around kind of 14, 15. And I have no idea what it's going to do in the short term, like zero idea in the short term. But long term, I feel pretty good about it.

And to your earlier point, it's either zero, and that's the downside, or it's 10 to 15x. And so it feels like a risk that's worth taking, particularly because SPACs are bizarre, and we can talk about them at some point, but particularly because like these things kind of have to close. and so they price fairly aggressively before they start trading up and going wild. I think like $4.8 billion, if you could have gotten it at $10 is just such an unbelievable entry point, I think, on a business like open doors. It's interesting because even when I did loop for the warrants, I think at 17, I think it comes out to about a $10 billion market cap is what it comes out to.

And like, again, when you talk about this future and like, you know, title insurers, if they could become the fourth largest title insurer in the United States, that alone will be worth their entire market cap today to ignore every other. opportunity they have, right? But, you know, I don't know, it's really interesting because this is the company that SPAC for meant for, and like the previous IPO SPAC space, I thought that was kind of a more of a moonshot rocket. This is literally, yeah. You look at it and like, I can paint a picture where, hey, this is hugely risky, but when this works, this is going to be worth 20 times the current price or something. You know, he said this is my next 10x and that makes

sense. And he's doing IPO, C, IPO, D, and IPOE at this point. And F, I think. I think he has six total funded now. And then he reserved all the other letters in the alphabet. And I'm just tempted. I don't know what they're true. I haven't looked at him, but I bought C. I bought some C the other day. Because, I mean, inevitably on these things, it's like when Warren Buffett buys something at this point, like when Chamath picks a target, it's going to pop a little bit. I think, I think you're probably right. I mean, gosh, IPOC is at 1225. That's insane. for something with $10 in trust. I think you're right. I think you're right. It's really interesting and it'll be super interesting to see. But you do worry like that I've never seen

anything as crazy as the SPAC bubble, you know, like open to a reach deal to sell themselves for $4.8 billion. And today at 17, the market saying, hey, that deal you reached a month ago, it was wrong. You're worth twice that. And there's a lot of other incentives and stuff, but it's just really crazy. I think the whole, and this is like the Bill Gurley thing on IPOs and Like, in an irrational market, it's hard to say which of these make sense and which of these don't make sense or irrational or optimistic or however you want to call a market like this. Like, you could have priced Snowflake at 300 and it would have popped for a little bit initially, right?

And so, like, it's not like they're necessarily leaving money on the table because the market went a little bit crazy. I do think that SPACs, obviously, are wild now. I saw something like, I think it was postmarket tweeted, something like, oh, interesting. There's 300 SPACs. There are not 300 companies that have become. SPAC quality. I think things like this are really good to kind of push the edges and figure out what needs to happen in like the more kind of traditional process and traditional market.

Because does it make sense that the public market should be investing in riskier early companies uncapped? Maybe, maybe not. There's a whole conversation and argument to be had there and Nevada credit and all of that stuff. But like could you could you have, would this open the door for unaccredited investors to be able to join price rounds, where someone who knows what they're doing, who's a professional venture capitalist, whatever, is coming in and pricing around and saying, we have a million dollar allocation for retail. And you're not going to be buying at like 95,000 X revenue multiples because someone actually has to make a return on that. So I think, you know, the idea of retail investors being able to share on the upside,

awesome. The idea of retail investors maybe being wiped out by the downside, scary. And I think SPACs will kind of be this thing that pushes regulators to figure out maybe what the right approach is here. Because it is crazy how much of this value is created and captured in the private market and then to the people who get the allegations in an IPO. Yeah. No, I think part of that rights. I mean, with the SPACs, you know, like the ones around electric vehicles and stuff right now, like is crazy. Nicholas crazy is because of the story, but there are a lot of ones. that, you know, two months ago we're thinking they were going to be bankrupt and now they're announcing specfields and getting valued at like $10 billion. Like, that's crazy. But like,

I'm really, even though I don't know if I'm going to do open door or not, like, I'm just really happy like open door, which is completely new, completely unique, like the opportunity for that. And like, I mean, I'm excited for that type of company to come public and just have the opportunity. I want Stripe to go public so bad. I mean, it's going to be bought up unbelievably. And I think Ackman talked to them and they said they weren't ready or he said they weren't ready, which I'm sure he just rebuffed them. I wonder if Chimoth might have enough pull in tech to convince them to do something. And then with Stripe, like if you're Stripe and Ackman comes to you, right?

Why go with Ackman? Like go with some fly-by-night SPAC that's going to give you the greatest economics you could ever dream. Right? Like, no, and that's the thing with a lot of these companies. Like, you just have a bake-off because every SPAC is pretty much the same aside from the name brand. And obviously, Chmoth, like, brings a little bit of an extra following stuff. But have a bake-off. And I bet you you could get a SPAC that's going to say,

say, like, we'll value at, you think you're worth 20, we'll value at 120 or something. Totally. You know who I'm super bullish on and his, uh, his, one of the analysts there just started, uh, tweeting about Stripe and did a thread the other day. Uh, but Altimeter is doing, is doing a SPAC. And Altimeter is, are you familiar with them? Uh, I, I'm familiar with a couple, they all, they all start blending together at some point. Yeah. So Altimiter is, uh, is a fund that is both private market and public market tech fund slightly thesis driven invested in bite dance early just like has this incredible incredible portfolio and track record across private and public markets and they have a spec and one of their analysts started tweeting about stripe the other day I doubt it'll happen

but I think like outside of Tramath that's where it hasn't I don't think price it hasn't gone public yet but that's one that blindly I would put my money in as well because they have such a strong track record. So maybe you see an altimeter coming in and convince stripe. You know who also has a SPAC? I think it's just about to launch. Rich Barton's launching a SPAC too. So that'll be an interesting one. That makes me a little tiny bit, a little tiny bit bearish on Zillow. I think Casper's CEO had a Slack also like I think active, active CEOs raising SPACs is a little bit crazy. But who knows? Cool. Well, hey, this has been so much fun. I think we're running about an hour, so I've taken up a lot of your time. You know what?

Again, we've got IPOC, IPOD, IPOE. We can just have you on for every IPO spec that comes on. I love that. Packy, I love Not Boring. I'll be sure to include a link in the snow notes. Everybody who listens should sign up. I think they will be encouraged you after this. Thanks so much for coming on and we'll stay in touch. Awesome. Thanks for having me.