How many venture investors once ran a residential real estate brokerage?
Era Ventures Founder and Managing Partner Clelia Peters just might be the only one. In 2014, she took the reins at Warburg Realty, her family’s real estate brokerage firm and the largest independent brokerage in NYC. Along the way, she built one of the most impressive backgrounds in proptech investing, co-founding top accelerator program MetaProp and joining Bain Capital Ventures as a Venture Partner.
Since going off on our own and founding Era Ventures with partner Raja Ghawi in 2021, Peters has taken an unorthodox approach to proptech venture investing. She’s hasn’t been afraid to bet on sticks-and-bricks concepts, backing companies working in the physical world including Truehold and Welcome Homes.
Our conversation digs into her investment thesis as well as the broader real estate tech landscape, her process, the future of sticks-and-bricks concepts, and much more.
As always, you can listen (and watch the video!) here on Substack or on the following platforms:
If you’d like to hear more like this, make sure you subscribe to Thesis Driven on these channels or here on Substack!
Season Two is made possible with the support of Neutral. Neutral is redefining multifamily real estate with a focus on sustainability, resident health and well-being. For example, Neutral is building the tallest mass timber and Passive House residential building in the U.S with a state-of-art wellness club in Milwaukee. Beyond environmental impact, Neutral offers investors access to substantial sustainable tax credits and deductions. Accredited investors can explore available opportunities at invest.neutral.us or connect directly with their team to learn more.
We’re back here next week with Roman Pedan, Founder & CEO of Kasa.
—Brad Hargreaves
The following transcript is automatically generated. Please forgive us for any errors or misspellings.
Brad Hargreaves: Welcome to Season 2 of the Thesis Driven Leader series. I'm Brad Hargreaves, founder and editor-in-Chief of Thesis Driven with 100,000+ listens from season one. We're really excited to be back with Season 2 of the Leader Series. We've got a great lineup of guests, all speaking to the key question of where is real estate and the built world going, as we always do with Thesis Driven, we're gonna look at this from a few angles.
We're gonna think about technology, urbanism and cities, policy, capital markets, finance - all across the board - as we did with Season 1. We'll bring on guests that can speak to those areas and dive deep into what the future is gonna look like. They're gonna range from CEOs of some of the largest real estate companies operating today, to investors and innovators pushing the boundaries of what the built world can become.
For today's episode, we're really excited to welcome one of my favorite investors in real estate tech, Clelia Peters from Era Ventures. We're gonna tell you a little bit more about Clelia and why we're excited to have her on board in a minute. Before we do that, we have one big update.
Since Season 1, we have a sponsor, which we have not had before. We're very excited to welcome Neutral as a sponsor of Season 2 of the Thesis Driven Leader Series. Neutral is a vertically integrated real estate developer building ground up market rate multifamily in the Midwest region.
I'm very excited to have them on board because they've gotten a lot of acclaim as one of the leaders of real estate focused on sustainability, health and wellbeing. Specifically, they're building the largest and tallest mass timber and passive house building in the United States. That's the Edison in Milwaukee, Wisconsin, and they're funding it in a really innovative way.
They're making institutional grade investments accessible to accredited investors through Charles Schwab's platform, making it easy to invest in private real estate, and you can learn more at Neutral.us or connect directly with their investor relations team at invest@neutral.us. So to today's episode, we're so, so excited for Clelia to join us in a few minutes.
Before we welcome her on, I just wanna talk a little bit about what makes her special. She's one of the most experienced real estate tech venture investors out there, not just From Era, which she started in 2021. Most people know her for that. Era's a little bit unique among real estate venture investors because she's willing to get their hands dirty in actually working with companies that have a brick and mortar involvement.
So for instance, they were the capital behind Welcome Homes, which is doing really interesting things on the single family building side. Truehold, a sale leaseback platform that raises Propco capital and owns actual homes out of that PropCo vehicle. We write a lot about Opco Propco on Thesis Driven, and talk about it as one of the, I would say, most misunderstood and powerful funding mechanisms out there for real estate tech investment and real estate, brick and mortar investment. Clelia is actually doing it. She's actually backing companies that are some of the more innovative and successful platforms.
Clelia also has a really non-traditional background for a real estate tech VC specifically, she has a lot of experience on the brokerage side with not a lot of people in the real estate investment world. Due for seven years, she ran Warburg Realty the largest independent real estate brokerage in New York City.
It's kind of rare that the brokerage in real estate tech worlds combine, and this gives her some pretty unique experience, given everything going on in the brokerage world today with the NAR settlement, with Clear Cooperation, and we'll talk about that a bit on the show. Clelia was a co-founder of MetaProp, which is probably the best known PropTech Accelerator program out there, so really excited to welcome her to the show. Let's dive in.
Brad Hargreaves: Clelia, thank you so much for coming on the show. Really excited to have you on today.
Clelia Warburg Peters: [00:04:00] Brad, I'm so excited about being on the show. I was just saying that I do this a lot and actually am more excited to be on your show than I have been to do most things related to discussing PropTech.
Brad Hargreaves: Awesome. Excited to dive in here.
Let's just get started and talk a little bit about the why. Why start a venture firm focused on the built world in 2021, and then what's changed over the last four years since you started era? I feel like I need to step back with a little context.
Clelia Warburg Peters: I've been an investor in the category for more than a decade, right? So while I started Era in 2021, I had previously helped to co-found MetaProp in 2015. I've been at Bain Capital Ventures, so I really think of myself as pretty much the only second generation founder of a fund building for the second generation of this category.
There were a few things that I wanted to do differently because again, I'm actually the only investor in the category who's had both the experience of working at a specialist fund and the experience of working at a generalist fund. But there were some things that I wanted to [00:05:00] do that I didn't see anybody else doing.
One was that I wanted to build an institutional grade fund. I was looking to build a firm. I wanted to be backed by top tier institutional LPs as opposed to strategics. I had the experience of building a fund backed by strategics at Meta Prop, and I felt that there were some challenges in terms of backing the best companies.
With that model, I wanted to be very clear that founders were my customers, not strategic LPs. I felt like I was gonna be better able to do that with this model. I also have seen enough to have a really clear opinion now about where and how innovation can evolve the industry. I like to talk about what I call the continuum of innovation, where we can: enable the existing industry, we can replace part or all of a value chain, or we can transform the industry itself.
I'm more interested in replacement and transformation than enablement. In fact, I'm relatively bearish on enablement of the existing industry.
Brad Hargreaves: Let's dig into that and [00:06:00] better understand that distinction, and why are you bearish on enablement? It feels like that's the majority of stuff that's happening out there is handing tools to your developers, your real estate investors. Why are you bearish there?
Clelia Warburg Peters: At this point, what I have seen is that it's really hard to sell into the incumbent real estate industry. That doesn't mean it's impossible. We will continue to see in every generation one or two companies that are able to break free and actually build generational companies.
VTS is an example of that. ProCore is obviously an example of that, but most what I see is people getting to somewhere around 10 to $15 million in ARR than just stalling there because this industry is uniquely geographically diverse, private, and not necessarily that savvy in terms of the buying motion around technology.
It's just really hard to build a scale to business focused on enablement. It, it's very tough. And it's a very fragmented industry, and people don't realize, [00:07:00] they see it's big. It's clearly a big industry, whether you're thinking about multifamily alone or real estate writ large. They're both huge, but it's very fragmented.
Brad Hargreaves: You have someone who owns 10,000 apartment units in Ohio. They don't have a chief digital officer. They don't have a head of innovation. Maybe they need technology, but that sales motion is tough. They're often not thinking about what technology could actually do for them, and the pain of changing their internal processes may actually be, from their perception, greater than the benefit of whatever the tech could bring.
Clelia Warburg Peters: You can contrast that with now we have some of the scaled real estate owners and operators who have such a diverse ecosystem of SaaS tools. A lot of multifamily owners now are working with 20 different tools in terms of the 10 life cycle, and that doesn't feel sustainable to me either. So again, I suspect there will be one or two breakout tools.
But will that ecosystem of 20+ [00:08:00] tools continue to exist? Will those tools have venture scale exits? Mostly? I think the answer is gonna be no. Let's flip to the other side of the value spectrum that we look at and talk about companies more in the replacement or transformation side. So you haven't hesitated to invest in companies that own physical sticks and bricks assets.
Brad Hargreaves: WelcomeHomes, for instance, and LongMark, formerly TrueHold, had to remember the rebrand here. So tell me a little bit about that thesis and what gets you comfortable with investing in companies that hold hard assets, within this perspective that we're more interested in replacement and transformation?
Clelia Warburg Peters: We have to be interested in things beyond SaaS and in fact, I'm something of a bear on SaaS in this category, which I know is proudly a contrarian perspective. I really wanted to invest in things that weren't just SaaS. I think there's six core business models that you can really invest in in this category.
SaaS is one, FinTech is one, marketplaces is one, but then there's hard tech and robotics, Propco Opco [00:09:00] models, and tech enabled services. And I think you're gonna need a basket of all of those things to have a top performing venture fund in this category. And I'm proud to say that we have all of those things in our fund.
One, when the companies that you mentioned, companies like Welcome, which is… the original business model was actually acting as the GC, or True Hold, which is a sale leaseback model focused on allowing seniors to age in place in their homes. We just saw an enormous need in the market, and it was a need that we felt could not be addressed just by building a SaaS company.
Truehold in particular has been able to demonstrate that the Propco Opco model that they brought to market and just asterisk for those watching you mentioned Long Mark, I'm using the term TrueHold. What's happened with that business now is that the Long Mark has become the name of the holding company that holds the Truehold business. And I think that reflects Brian Hardecker, the CEO and founder's [00:10:00] perspective, that he's building a next generation tech enabled asset manager that will probably have products beyond Truehold on the platform. But the Truehold product is the sale lease back model focused on allowing seniors to age in place in their homes.
[There’s a] clear need for the product in the market. And again, a SaaS product was not going to cut it. So Brian is an N of 1 founder who'd come from Blackstone. I think the question mark for me when I backed Brian at the seed at Bain Capital Ventures was, is he gonna be able to become a true founder? And he's just done an extraordinary job of doing that.
Brad Hargreaves: So I wanna dig into Truehold for a second because I think a lot of people ppo, all the Opco Propco models and they're like, ah, they don't work. You can't do them. But without revealing any proprietary information, it feel like Truehold is working. So why, what did they do differently that a lot of the other Propco Opco models, what did he do that made it work?
Clelia Warburg Peters: So at some of this is Brian was uniquely well suited to build this business, and from that he [00:11:00] had both the grit to build on the Opco side, and he had the connections and ability to raise capital on the Propco side. One of the things that's so tough about Propco Opco models is that you have to excel at basically building two businesses simultaneously.
I like to say that in the early days of tech, you would hear Silicon Valley investors say, “oh, I would never invest in a team that didn't have an engineer as a founder.” For me, my feeling about Propco Opco models at this point is I would never invest in a Propco Opco model or a multidisciplinary capital business that didn't have capital markets expertise built into the team.
People underestimated how significant capital markets knowhow was to build these companies. I also think Brian was really lucky to be building at the moment that he is in a kind of post-ERP world. I think that there were a number of ideas like this that came to market during a time [00:12:00] when capital was too easy and too accessible.
So those companies scaled too fast without really thinking about what they were going to do in a more complex interest rate environment. I actually think it's a gift to have scaled that business in a complex interest rate environment. If the interest rate normalizes, I think that he already has a machine that works that's not just reliant on cheap capital.
The Propco Opco model is really important versus the balance sheet business model. That's another lesson I think we've learned in Gen 1.0, right. Having your capital held in a distinct entity that allows people to consider your Opco as a distinct entity is also a really important, for lack of a better term, technology when building businesses of this sort,.we can see it today where Opendoor is being really penalized by the public markets for the fact that they're a balance sheet business. I believe that Opendoor would be trading at a much higher multiple if they were a Propco Opco [00:13:00] model. The Propco model is a very natural fit for Truehold's business as well, given their relatively long-ish hold period and how they think about the world.
Brad Hargreaves: Hearing you say, this is the ideal interest rate environment for building a company like True Hold. A Propco Opco model reminds me of people talking about recessions being the greatest time to build operating businesses, because if they work in a recessionary environment, they're gonna work in the good times too.
The inverse is not true. When you talked before about bringing a fund to market in 2021, maybe I had some sense when I really decided to launch ERA that we were at the end of the go-go period. Even I cannot take credit for the fact that I actually think this was an ideal time to bring a second generation fund focused on this category to market because I think we're really seeing a leveling, we're seeing people reflecting on lessons [00:14:00] learned from this first decade in the category.
Clelia Warburg Peters: And even like you were a great example, Brad, of someone who built a really interesting business in the category and now is giving back to the category. And I think we see a lot of different people doing that, whether it's building a second businesses in the category, or third businesses in the category, or just trying to reflect learnings back into the community.
We know a lot more than we did, and I think people are a lot less likely to make some of the foolish mistakes that momentum and over enthusiasm caused, not just specialists, but frankly generalists who poured money into this category. I think one of the big things when we think about things that aren't SaaS is that.
We have to price and evaluate companies that are not SaaS companies, like they're not SaaS companies, right? Like where people started to really go wrong is when you're giving a company that has some type of operational complexity or real asset exposure, like a 20 x revenue [00:15:00] multiple, 'cause it's growing really fast because there's been some light of hand where you've been able to leverage the interest rate to juice growth, then you're really in trouble.
But if you're appropriately valuing and understanding these businesses, I really believe that this is going to be where some of the growth in the industry comes from.
Brad Hargreaves: Just to shift a little bit and talk about some of the venture landscape today. You've previously talked a lot about the role of generalist investors. We've looked at a lot of the PropTech wins of the past decade, 15 years. Many of them have been led by generalist investors. It feels like over the past three years you've seen a big pullback of generalist investors from the real estate tech category. Is that true, and if so, do you think they're wrong?
Clelia Warburg Peters: It's hard for me to say whether we've seen a pullback of generalists more acutely in the real estate tech category, versus generalist investors redirecting their attention towards [00:16:00] things like AI and other categories. There's a lot of different categories that have fallen out of favor as people have refocused.
Venture is a little bit like high school, right? It's all about what's cool, not cool right now. I'm so delighted that it's not cool right now because that actually creates an environment in which you can invest in companies in a way that's more rational. But by the same token, I will say, and I think we may be unusually well-placed to be doing this, but we primarily co-invest with top tier generalists.
So in the 12 investments that we've made to date. Our co-investors are pretty much exclusively top tier generalists and for a company like Long Mark, which the Truehold holding company, every one of their rounds has been competitive with multiple term sheets from top tier generalists. So even that belief the top tier generalists won't do the bricks and sticks businesses, [00:17:00] it's not true.
Brad Hargreaves: It's really about business quality. In my experience, it a hundred percent is, I do think there has been a level of coldness that the generalist investors have toward PropTech writ large, which is not exclusive to PropTech, to your point. You're totally right. It's just there was a period of time here.
Clelia Warburg Peters: Remember when WeWork was the highest valued startup in the world? Yeah. That was six years ago. It was not that long ago. It was the fastest growing venture asset class for a number of years, which is funny because we had coined the term PropTech at MetaProp just like five or six years prior to that, and it seemed impossible that there was gonna be like that much growth in the industry.
FinTech had its own bubble, but I think a lot about the fact that many of the most valuable FinTech businesses today were created by Gen 2.0 founders in FinTech, so people who had actually had some exposure to the category at [00:18:00] other companies and then came back to build like the company that they felt should be built, or that Stripe is a lot more valuable than PayPal.
I do think generations build on each other and people learn the lessons from companies and founders and prior generations, and I do believe that it's inevitable that we're gonna continue to drive innovation in the largest assets class asset classes in the world, which are physical world, whether it's real estate, logistics, infrastructure.
They are so under-innovated, it's inevitable. We're gonna continue to innovate in these industries, and I actually think that we know a lot more about how to do that effectively than we did a decade ago.
Brad Hargreaves: One last question on the venture ecosystem. As we were talking about you investing in brick and mortar concepts, focusing on transformation replacement rather than just enablement… one of my favorite generalist firms is Slow Ventures. They were a backer of Common. I know them very well. One thing that they're [00:19:00] doing that I think is very impressive, and we'll see whether it works out, but it's really interesting, is they're bending what the venture model even is. So they're one of the backers of Metropolis, a parking operator. They’re like, we're not gonna sell software into parking operators - that seems like a slog. We're just gonna create a software enabled parking operator and just buy all the rest of them. What's your view on that? Is that something that you see yourself doing? Era doing? I really hope so.
Clelia Warburg Peters: Metropolis is an important generational company and I have huge respect for Alex. Metropolis was one of the companies when I was at Bain Capital Ventures that really didn't fit our SaaS focused model at that fund, that I was so sad not to be able to invest in. There's all these little dings that you have when you're an investor working at a big platform where you get excited about something but you like can't - it's not gonna get past your investment committee.
And that was one that I remembered that was painful. And so I think part of [00:20:00] my motivation with Era was how can I build a fund - how hopefully, ultimately, can I build a platform that actually helps to facilitate innovation in this category? And in order to do that, we have to move beyond SaaS.
We have to move beyond some of the outdated ways that we think about what's going to generate venture returns, though the reality is that's just going back to the roots of venture, right? Venture really was a hardware backing business venture started to facilitate the modern airline industry. It's only in the past 10, 20 years that there's been this proliferation of SaaS models and really a belief that the way you drive venture style returns is in backing SaaS companies.
There will be people who are able to deliver just tremendous returns in AI continue to be able to return them in pure play SaaS, but I do not believe that's gonna be the way to drive real [00:21:00] value in our category. So I think a lot about like how I build a fund, how I build a platform that's actually gonna meet the best founders where they are in building in this category.
One thing I do just wanna say about that with things like PropCo OpCos is that it's really hard to do and most people are gonna fail at doing it. So we have looked, I would say at Era, we've probably looked at every PropCo OpCo model in the market. We are really disciplined about deeply understanding metrics.
I think most people, because they don't have the experience of seeing multiple versions of these models, they don't even understand what good looks like. And I can say from that perspective that I think that Truehold, Longmark is currently the best, the top performing PropCo Opco model in the market.
Brad Hargreaves: Would you say that's including some of the like home equity, like the Points of the world? Do you consider those like PropCo OpCo point?
Clelia Warburg Peters: I guess Point is increasingly structured like [00:22:00] a PropCo OpCo model, but I think in terms of scale, the pace that Brian has built that business, Brian has raised more than a billion dollars on the PropCo side.
That's in five years. He was a top five buyer of SFR in the country last year. Now, we have to contextualize that. Not that many people were buying SFRs last year, but still it is really extraordinary growth in that company and a lot of discipline in the way they've been doing it and leveraging tech to do it.
Brad Hargreaves: Yeah, his CMO, Jeremy Avin is one of my absolute favorite people, a total gem. Let's just pivot and talk a little bit about your process. So maybe tell me about a recent investment. How did you find it? Go through the process of getting comfortable with the investment. Tell me about how you do this.
Clelia Warburg Peters: Yeah, so first I just need to make the caveat that this is not a one size fits all process, and that's particularly true for us because I have a strong belief that if you have a deep sector expertise, you either need [00:23:00] to be a very focused pre-seed or seed fund focused, like investing in everything in the category, or you need to be a multi-stage fund.
I think that once you're focused by sector, you need some flexibility to invest in the winners and sometimes you have to follow them for several rounds to understand who the winners are gonna be. It's very different to evaluate a seed stage company versus a pre-seed and then a Series B extension. Those processes are incredibly different.
But would you series B extension a company you already were invested in? No, but it was Homeward, which I've known Tim Heyl for a long time. It was a company that I have looked at multiple rounds and had questions, is the wrong. Because I think Tim is a phenomenal founder. It was like a right place, right time opportunity with Homeward.
Brad Hargreaves: What does the company do?
Clelia Warburg Peters: Yeah, so Homeward [00:24:00] is a tool that allows sellers to buy their home from them at 78 cents on the dollar, and then allows them to buy their next home and then sells that home together with them, and they participate jointly in the upside.
The big innovation for them is that they're not a direct to consumer product. They're a B2B product partnering with top agents and teams to allow the top agents and teams to offer this tool as a white label part of their process. Because they've really leaned into that go to market motion, their CAC is virtually zero.
For a lot of these D2C businesses that have tried to offer this, like one of the big stumbling blocks for them was like the enormous cost of acquisition, and so Tim was one of the top leader of one of the top real estate teams at Keller Williams in a unique position to be able to really build and sell this product for top agents [00:25:00] and teams, and they originally had a buyer's focused product.
Obviously when the entire residential transaction landscape changed in 2022, they had to pivot. He just did an amazing job of… their revenue went like this. He changed the direction of the company and he got the revenue back in 15 months to the very high flying point that it had been previously. And there are not that many people who can do that, who can rebuild the plane while the plane is in flight, and I was very impressed.
We've been friends for a long time, but like he really wowed me in his ability to do that. So in that situation, we came in, Tim came to us with that opportunity, we diligence it really quickly. One of the things that we're often able to do is leverage our existing deep sector knowledge and our existing network of relationships.
So that was the situation where at BCV, we used to use AlphaSights, which is one of [00:26:00] those like dialing for expertise services. But mostly for me, I can get like the 10 people I need to get on the phone via my network or because I'm already regularly talking to them. So we did that. We tend to be very diligent in our analysis, like we go deep in people's financial models.
I think it's an important caveat in venture to say numbers are always made up, right? Financial models don't actually tell you what's gonna happen with the company. What they tell you is when you look backwards, they can tell you the story of the decisions that the founder and his or her leadership team made.
Then when you look at projections, they tell you about the way that people think. That's the value of projection. But we always go deep in projections. We go deep in business development pipeline at Era alone. We, since we set up shop, we've looked at 1200 companies at [00:27:00] this point in my physical world investing career.
I've probably diligenced like 10,000 plus companies in the category. So my pattern recognition, my knowledge around the places where people get like tripped up, it's just really good. I try to ask the questions that are the things where I have seen other people get into trouble in. And to a certain degree, that would also apply with a pre-seed founder.
But with a pre-seed founder, you're really just testing their thinking about the idea. You wanna understand the scale of the market, the pace that you think it could grow. And then there's something intangible. I like to sometimes say that venture is like one part analysis and one part witchcraft.
Because part of what venture is in my experience, is really trying to energetically feel into who can birth a whale. It's so insane to build a venture scaled company, like to [00:28:00] build a company of that pace.
Brad Hargreaves: It is a totally unreasonable thing to ask someone to do. It's not the size of where you're going, it's the pace at which you have to get there.
Clelia Warburg Peters: Yes. That is absolutely wild. Yeah. And so it's partially calibrating, can this person do that? Can this person holds that almost like energetic body. Can this person attract talent to them? Can this person think under pressure? That is often just about like interaction and really like the feel of being with the person.
Brad Hargreaves: Let’s drill in a second into part of your background that I think is really interesting. You referenced it when you're talking about Homeward. They're working with agents and there are not a lot of other VCs out there. I don't even think I can name one who have really deep experience on the residential brokerage side, and obviously a [00:29:00] lot is happening right now in the residential brokerage world.
Tell me a bit about that part of your background and how you know what's going on in that market right now. What opportunities do you see there from a venture perspective?
Clelia Warburg Peters: Yeah, this is really how I got into real estate. I had been at the Boston Consulting Group for a number of years. I worked at a tech company for a little while myself, and then I got involved with my family's business, which was running what was at that point, the largest independent real estate brokerage in New York.
And I really did that because there was some stuff going on with my dad. He needed an extra pair of hands at the company. I'm like a good Jewish girl from New York. I love my dad and I never intended to stay. But then once I got into the business, I just, I like fell in love with the real estate category.
Brokerage is a very weird and particular thing I think [00:30:00] that people often misunderstand. Brokerage and the residential transaction in general because people think of like real estate agents as being like one step above used car salesman. And it is true that the barriers to entry in this industry are insanely low.
Like your hairstylist has more licensing than the person who's selling you your home. And actually in a lot of that is NAR. And the fact that NAR has been such a powerful lobbying body and NAR was incentivized to keep the barriers to entry low. No, I mean the National Association of Realtors, the Trade Association for brokers in the us.
But buying and selling a home like a home is the bottom of Maslow's hierarchy of needs, right? So it is this incredibly emotional transaction for most people, and for most people, the largest financial transaction they're involved in within their lives. This industry is an [00:31:00] extremely important part, not just the real estate industry, but even our national identity as Americans.
Home ownership and the guarantee of home ownership has been such an important part of being an American. It's been really interesting for me to actually have this expertise in this part of the industry, and this has been the part of the industry that's generated the most value, created the most winners.
In the overall real estate technology space to date, I would say, I think first many people misunderstand real estate agent motivations. Like the number of people who come to me telling me, oh, we have this product that are, it's gonna make an extra few cents on the dollar For real estate agents are go to market, is gonna be to get them to sell through, to have the real estate agents sell the product.
And most real estate agents actually are transacting. They're relational, not transactional, so it's very unlikely you are going to get a real estate agent to do anything that would undermine the trust [00:32:00] in the core of that relationship with their client just for an extra few cents on the dollar when their commission income is already so large, right? And that almost always fails in my experience.
That's part of why I was so interested in Homeward because like mostly like 99% of the time selling beer, real estate agents fails. I also like to joke, if I had a dollar for every Stanford MBA who goes into San Francisco, tries to rent an apartment, has a bad experience and says “I'm gonna disintermediate real estate agents.”
I think at this point we also definitively know that's not gonna happen. Everyone has been talking about that since 2006. Since I've been in tech. There have been someone, first, it was Zillow, it was the ILSs are gonna disintermediate it now it's the AI agents. And so it feels like every, every five to 10 years there's a new attempt.
I have come to believe it's like it's not [00:33:00] gonna happen. I think consumers want to work with real estate agents. They may complain about them. They may wish that some of the agents in the ecosystem were better. I wish that too. But people actually want someone holding their hand for this incredibly high stakes transaction.
And I think we're well served in this country that we have both buyer and seller representation. I've lived in countries like the UK where you don't, and I actually. Think that like buyers are not well-served by not being represented. I do think we're gonna see some shifts in the ecosystem. I like to say at this point I think brokerages are at greater risk of disintermediation than agents.
The brokerage model is really under threat. It was already a low margin business to begin with. Compass really changed the game in terms of like pressure around commission splits and recruiting fees. There's increasing pressure related to the broader suite of tech tools that agents need or want to use, and whether brokerages pay for those [00:34:00] and if they're not paying for those, like why are they still getting their commissions?
If the agents are paying for those out of pocket. There are like platforms like Zillow, which definitely would like to be closer to the transaction. Then I also think that we're gonna see a shift where historically search was top of funnel in the like serious buyer journey, but because the way tech allows genuine pre-approval for mortgages, increasingly we'll see financing as the top of the funnel.
And that's why you're seeing all these players like Rocket just announced that they're consolidating. Rocket Homes and Rocket into a single platform, and they're gonna have a search tool. And Zillow, the fastest growing part of Zillow right now is their mortgage business. And I think you will see a consolidation of financing tools and search tools with financing as the new top of funnel in the residential transaction process, and top for serious buyers. Such an important input to [00:35:00] someone knowing what they can actually buy is, what can I finance? What can I afford? Does that make sense? I'm curious your view on, as there was a lot of discussion at the end of last year about the end of clear cooperation and obviously you mentioned Compass.
Brad Hargreaves: They, Robert Reffkin has been pushing very hard for the NAR to come off its Clear Cooperation rule, which basically requires agents brokerages to post listings to the MLS, basically within a day or two of them being publicly marketed, which then that MLS is pulled in a bunch of different by the ILSs and gives some transparency to those listings.
But obviously it means that the MLS is a locked in monopoly on those listings, which is the antitrust allegation. Curious your take, do you think Clear Cooperation is going away. What's gonna happen next?
Clelia Warburg Peters: I think it's unlikely that Clear Cooperation serves survives in its current form. Now, I do think it's important to have a little historical [00:36:00] context, which is that clear cooperation is itself a new thing.
For a long time there weren't such strict rules requiring… Part of the debate right now is about like the timing around listings being posted to the MLS and being posted publicly, and it used to be that it was almost understood that agents and brokerages could share listings internally for certain periods like.
There just weren't that many rules about it. And actually it's ironic that Compass has been such a big advocate because part of against Clear Cooperation, part of what happened was that when Compass came into the ecosystem, they were venture backed, they raised a billion dollars. They were incredibly aggressive about growth, and they tried to use sharing listings internally, pre-marketing as a wedge to motivate agents to come to their platform.
Brad Hargreaves: MLSs are a funny beast because they're [00:37:00] part, some of them are businesses and some of them are owned by, or owned or run by brokerage advisories as nonprofits, and NAR has this big brokerage advisory board and other brokerages and agents were mad when Compass did that. And that was part of what motivated the Clear Cooperation rule to be put into place that people actually wanted to bar anyone from being able to create a walled garden of listings that they could use as a recruiting wedge. This really none of it was about consumers rights. It's not about consumer transparency and everyone can get their listings. On the MLS, it was about recruiting.
Clelia Warburg Peters: Yes. And I think it still is, but there are knock on effects for consumers and there's a big debate now around what's in the best interest of consumers. Robert Reffkin, who I have a, I consider a friend, have a lot of respect for, has positioned this in part as [00:38:00] like seller advocacy. And he talks about the home builders and the fact that home builders very rarely put their homes on the MLS.
And some of that is about days on market. And the fact that if your home sits for a long time on the MLS buyers, start to days on market is a blood in the water signifier, right? Once you see that something has sat on the market, you're much more likely to low ball. And so part of the position of people who are like it's much better to be able to pre-market things is that you can test buyer interest before you start to accrue days on market.
I think there are people who feel like buyers are the group who should be advocated for the most, and like buyers should have that transparency related to days on market. And then there's the inside baseball part of a world without any clear cooperation or without any requirement that things go onto.
The MLS is a world that starts to bias towards walled gardens, where larger national [00:39:00] platforms have the ability to share listing information internally. To basically pre-market and then that becomes a recruiting wedge. I think the reality is that we're gonna end up somewhere in between. We're gonna end up with some modified version of the rules that require things to be posted to the MLS, but maybe give like a longer window or just like tweak the rules a little bit in some way.
Brad Hargreaves: I think one important thing I like to remind people when we talk about Clear Cooperation is there's no Clear Cooperation in commercial. And there's no obligation for an agent that has a multifamily building or a warehouse or an office building to list it on the MLS.
Clelia Warburg Peters: There's no Clear Cooperation. So obviously you've done a lot of deals across the real estate tech spectrum, different categories, different models, et cetera. Are there certain areas within real estate [00:40:00] tech you would like to see? More ideas. You think there should be more innovation, more entrepreneurs tackling than there are today?
Brad Hargreaves: Any businesses you wish exist that you want to come to you. Union Square Ventures does this thing where they'll write a blog post about a business idea just to drum up interest from anyone building in that category. So I'm curious of are there businesses you wish exist or areas you wish there was Focus on that there's just not enough of?
Clelia Warburg Peters: Right now the investing team at ERA is me and my partner Raja. I hope to be in a position over time where we have more bandwidth to do more of not only putting those sort of ideas out there, but maybe truly partnering with founders at the earliest stages to help, like a venture studio type model potentially.
One of the ways that we think about this category is almost like there's three souls in the physical world, right? There's people, material, and money. And [00:41:00] most of the time I think there's been a lot of focus again and like us being bears on SaaS in the platforms that connect those things and we think that the spend, the ability to build businesses in.
In terms of connecting those things is much smaller than actually building within those things, right? So with people, we're very interested in hard tech and robotics. We're very interested in their labor shortages and issues related to unionization facing many different parts of the physical world ecosystem.
And we think that is gonna drive people towards robots. So we're very interested in robots or tools that facilitate either training or basically like amplifying the horsepower of the labor involved in terms of materials where this is a place where we get into kind of sticks and bricks and like [00:42:00] actually building things like we're not afraid of.
Things that, you know, we're interested in next generation materials themselves, and then we're interested in people actually doing stuff with real things. And then real estate is the industry with the greatest load of capital of any industry in any category. We're really interested in FinTech tools and we're interested in the way the capital markets are gonna evolve and like going back to true holds and long mark, what we were talking about before, like we're really excited and proud to be invested in a next generation asset management platform. People don't usually think of things like Blackstone, as being like a venture backable business, but I think we're asking like, why not?
Like why couldn't the next generation versions of those businesses be venture backable, particularly if they're [00:43:00] tech enabled and operate, differentiate around customer acquisition, around margin and around their, their fundamental operations and by that often operating and managing their assets themselves.
Brad Hargreaves: Asset management businesses can be very sticky, very high margin, great companies. Yeah, so love that you're doing that. One last question before we move into the lightning round. Five years out, we're having this conversation, obviously there's been a lot of changes in the prop tech ecosystem over the past five years, what changes do you anticipate over the next five years? Is it going to be as thrashy and up and down as the last five years were?
Clelia Warburg Peters: I think yes. I think there's gonna be a lot of consolidation. Extinction and consolidation on the operating company side, on both the operating company side and on the venture side, really.
So what I would anticipate is [00:44:00] that we're going to see a lot of later stage companies either consolidate or go out of business. Series B, series C plus a lot of m and a and that'll be M&A, like incumbent businesses acquiring things. It'll be M&A venture backed businesses rolling up into larger entities, then they'll just be businesses that go outta business. But I also suspect that five years from now there will be fewer specialist venture funds in the category. I think that the majority of funds in the category have strategic LPs, and the reality is that I think the capital for specialist funds from strategics is gonna dry up.
And they're also just to the point you made before, the best companies in this category don't lack for. Access to venture capital. And so what often happens is that specialists are more focused on [00:45:00] the company, end up with the companies that like couldn't, for some reason get generalist backing. And I just think that that's going to be a much harder category to be in.
It's one of the reasons why we've pushed so hard to say that like our peers are generalist funds, not specialist funds. And then I think we are gonna, unfortunately, for me, in some ways, I think, I really do believe my contrarian perspectives around where the opportunities are in this category are gonna be more widely held five years from now.
I think that five years from now, many more people are gonna be less focused on SaaS and more focused on whether it's hard tech, robotics, FinTech marketplaces, tech enabled services. But I think those will be some of the more significant value drivers in the category, and we'll see more and more focus on that.
Brad Hargreaves: I'm glad you brought up the point about strategics as well, because I did mention earlier it feels like the generalists have pulled back. The strategics are nowhere to be found. Yeah, they're [00:46:00] gone. Yeah. Like they left in summer 2022 and they have not returned and they've got a lot of problems on their own that many of them are dealing with that have nothing to do with leading venture round.
So I don't remember the last time I saw a true kind of big strategic led PropTech round. It's been a while. Yeah, so that's, I don't think that's coming back anytime soon either. I don't think it's coming back anytime soon either.
Brad Hargreaves: Yeah, I agree. So let's, let's move on to this little lightning round we did this last season.Excited to do it this season as well. Just a handful of questions that we ask. Pretty much every panelist, pretty much every guest here on the Thesis Driven Leader series. You ready? Let's jump into it. Geographically speaking, what is one city or place you would bet on? Yeah, I tried to come up with a better answer, but I'm a native New Yorker.
Clelia Warburg Peters: I'm long on New York. I love it. Speaking here from Chelsea, Chelsea Manhattan. I am [00:47:00] a, I'm a fan of New York too. What's your favorite app on your home screen? Yeah. Sadly it's. Uber, I think also Native New Yorker. You're such a New Yorker. I will, I do wanna share Whisper Flow, which is my, one of my new favorite apps, which is trying to replace the keyboard by allowing you to speak and doing an incredible job of translating speech to text.
And as someone who like just missed being a true touch typer, it's like amazing. Whisper flow. All right, I'll check it out. Dictation is not great, so if there's a better app for dictation, I'm all for it.
Brad Hargreaves: If you and I are recording this podcast in the 2030, so let's say 2035, what's the most important real estate tech topic we're gonna be talking?
Clelia Warburg Peters: I think energy infrastructure and climate resilience. It's a big [00:48:00] one. And the energy piece. I know people just used to say climate resilience, and now energy infrastructure.
Brad Hargreaves: That makes sense, given a lot of things happening right now. Clearly. Thank you so much for joining today. It has been wonderful having you on the Thesis Driven Leader series. Truly my pleasure. Thank you.
Clelia Warburg Peters: Thank you.
So really hope you all enjoyed that conversation with Clelia. I know I did. Next week we have another fun conversation lined up. Episode two of season two of the Thesis Driven Leader series will feature Roman Pedan, the founder and CEO of Kasa, one of the most successful, fastest growing short-term rental platforms out there.
Obviously, a lot has happened in the short-term rental ecosystem over the past four or five years. Excited to dive into that with Roman, one of the most thoughtful people I know in real estate tech. So tune in next week for that conversation with Roman.
—Brad Hargreaves
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