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The unicorn itself is a myth, but proptech unicorns do exist in the real world of New York City real estate technology. And, though they are almost as rare as the creatures are in mythology, those that do exist have gotten a leg up from being based in New York.
The Big Apple’s combination of huge real estate, financial and talent markets has given birth to proptech unicorns such as digital mortgage platform Better.com; Bilt Rewards, which offers a pathway to home buying through rewards points; and commercial real estate leasing and marketing platform VTS.
While proptech unicorns can be found elsewhere, America’s largest burg can boast about its blessing of such billion-dollar companies.
Manhattan-based Valon, a software company for residential mortgage servicing, is one such unicorn. Founded in July 2019, the company attained a $1 billion valuation in 2002, said co-founder and CEO Andrew Wang, who ascribes its growth in large part to its headquarters’ location.
“Basically, our staff is in two locations,” said Wang. “Technology is predominantly located in New York and in the Bay Area, and operations is predominantly located in Phoenix.”
The main factor in deciding to headquarter Valon in New York was to emphasize its technological sophistication, he said.
“The bigger thing for us is that when we built the technology, one of the things we wanted to really show people is that technology could be much better, as opposed to employing a very different sort of geography or talent base,” Wang said. “By operating in Phoenix, we are running the same set of operations with the same sort of talent base and cost associated with Phoenix, which is where a lot of the other big mortgage servicers are. So it was really to make sure you can do apples to apples.”
New York, though, offered what Wang described as “a better ecosystem” with talent better equipped to understand financial technology and proptech together.
“If you think about where companies thrive, it’s really where there’s a lot of customers and demand,” he said. “Ultimately, New York is the real estate capital of the world and also the financial capital of the world. Between those different things, the desire and the need for this type of technology is most prevalent and openly sought after in New York. So the willingness of people to think about and to work on this type of problem, and to invest in them, is mostly in New York relative to the other cities in the United States.”
The reservoir of talent in New York is a key factor in Valon’s growth, said Wang.
“We needed three specific sets of expertise,” he explained. “One set of expertise is technology, having an engineering background and understanding how to build systems, because ultimately you’re building a robust financial infrastructure. So building it with the correct engineering practices is really important to make sure that you have a stable, long-term, reliable infrastructure.
“The second part is you want someone with a mortgage background, because your clients are mortgage customers, whether that be mortgage funds or mortgage originators. You need to talk the mortgage lingo. And then the third part is you need someone who, quite candidly, understands consumer regulation or financial regulation with respect to consumer finance, because what you’re doing is a regulated activity, which requires you to understand the rules, laws and regulations. I just happen to be someone who had all three of those backgrounds.”
Because the mortgage servicing industry is heavily regulated and complex, there were already legacy technologies that were outdated and needed to be disrupted, chiefly because very few technology startups had focused on building infrastructure for the space, according to Wang.
“We are the first to get this far,” he said. “There have been a couple of early stage technology companies over the years who have tried to get into the space, but most stopped or failed to get to where we have. They decided to pivot, or wind down, or to sell the company. We are the first company that has gone to a place where we do truly end-to-end servicing across all parts of servicing for agency mortgages.”
Of course, Wang needed others to build Valon into a unicorn.
“Our team is a little over 300 right now,” he said. “Half of that is technology and other related functions, and the other half is operations. But a way to think about this is that we run roughly three times the efficiency of a traditional servicer when it comes to the amount of operational staff you need. We have a large technology department relative to the size that we operate at because we’re spending a lot of money and resources in order to improve our technology and build the technology of the future. But, when you look at how efficient we are and how much progress we’ve been able to make, I think the easiest way to think about this is the fact that the average service has about 750 loans per person. We have close to 2,000.”
Earlier this month, Manhattan-based EliseAI, an artificial intelligence-enhanced communications platform for the housing industry, achieved unicorn status after closing a $75 million Series D round. The company’s growth is firmly rooted in New York, said Minna Song, co-founder and CEO of EliseAI.
“New York is a great real estate capital,” said Song. “I think there are pros and cons of that, actually, but a big reason why we moved to New York is just how much real estate there is here, in addition to how much talent there is. I think there’s two or three hubs of talent: San Francisco; obviously, New York is the main East Coast hub; and then Boston, if you’re in biotech, which we are not. So those are the main reasons we’re in New York.”
Along with New York’s huge real estate marketplace, Song pointed to the number of high-quality academic institutions, particularly Columbia University and New York University, both leaders in conversational AI. Both feed the real estate industry’s talent pool.
In addition, with venture capital firms like Manhattan-based, early-stage investor MetaProp, which has an accelerator for pre-seed and seed-stage startups, founders can find a high level of support from the city’s robust proptech ecosystem, Song said. Such growth has helped nascent companies grow in what is now recognized as the proptech capital of the world.
Song also notes that the diversity of New York City’s real estate stock, from the skyscrapers of Manhattan to the mix of commercial and residential in the other boroughs, aids startups in learning to deal with a variety of customer demands.
“The rest of the country works a little bit differently from New York, but I think in terms of different sizes of portfolios, different types of landlords, it is pretty diverse and interesting,” she said.
Song hasn’t found, however, that being in New York gives EliseAI a particular boost from the investment community.
“Our investors have actually been largely strategic investors at the beginning, people who had used the technology previously and wanted a part of the future of it,” she said. “All of our other investors have come not from New York City-specific investors, but the lead of our seed round was in New York — a group of angel investors.”
New York’s proptech investor base is broad and deep, said Valon’s Wang.
“There are a bunch of funds and then some New York VCs,” Wang said. “A good example of this would be AlleyCorp, which is run by Kevin Ryan. But I’d say it’s institutions like Rithm and investment banks like Jefferies, as well.”
As for the challenges of dealing with investors as a unicorn company, it’s not much different from earlier stages, said Wang.
“I’d say meeting the expectations of investors is always a very hard thing, because they have a lot of growth expectations for you, and so I wouldn’t say in any way or form that we’ve made it,” he said. “I think you always raise the stakes as a company whenever you’ve gone to a certain level. The next expectations are headed at you or expected of you. If you think about when you start off as a company, there’s no expectations, but you got to get a foot in the door. And, so, you get a foot in the door, and once you get a foot in the door, they’re like, ‘Well, you’ve got your foot in the door, you should try to make something of it.’ And then you get that to work.
“So it’s a long-winded way of saying it never ends, but that’s part of the journey of building a startup. It helps to be in New York for this type of business, because they get it. Their problem is, ‘Can you build the product?’ Not, ‘Do I understand why you’re doing this?’”
Philip Russo can be reached at prusso@commercialobserver.com.
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