A question I am often asked by my friends and colleagues outside of the venture world is “so, what do you actually do?” At Nine Four, I wear a lot of hats, which I categorize into 3 buckets – deal sourcing (finding deals), due diligence (evaluating those deals), and portfolio management (helping the companies we invest in grow). But it’s an interesting question. How does someone from the traditional real estate world end up in the fast-paced and entrepreneurial venture capital world? In a sentence – by bridging the gap through relationships. As the Kellogg School of Management (and HBS, among others) puts it, “relationships…can have a significant positive impact on fund performance.”
We’ve all heard some version of the saying, “who you know is just as important as what you know.” To a certain extent, this is true in every industry. Real Estate is especially known to be a relationship-driven business. As a broker, for instance, the more people you know, the more people you have the opportunity to sell to. As a property manager, for instance, the more vendor relationships you have, the better deals you can get for your tenants. As a developer, for instance, the more general contractors you have relationships with, the more bids you can pin against each other to get the best price to build your property. And so on and so forth.
In venture capital, having a vast network significantly improves your chances of sourcing the best deals. The best VCs invest in the best companies. In order to help them get access to the best deals, VCs must network to find the best founders. One of the worst things that can happen to a VC is that they didn’t invest in a great company because they didn’t even get a chance to look at the deal. In the short term, this is the most important thing because if you’re not seeing enough opportunities, you’re not picking from a collection of the best companies. To counteract that, it’s a good idea for VCs to speak to connect with not only founders but also other VCs and to use any tools at their disposal such as their school networks, their family and friends, Twitter, Slack communities, community events and conferences, etc.
Relationships are also an important, albeit less obvious, part of bucket 2, due diligence. To illustrate how, let’s use an example. Let’s say Nine Four Ventures is looking at a construction company whose customer is general contractors. To help assess the deal, Nine Four could gain insights and gauge interest from general contractors (either current customers or potential customers) by asking questions such as – does the technology solve a real pain point? How are things done now, at status quo? How much would they be willing to pay, if anything, for the product? This method, again, reflects a quick and large short-term benefit to the VC, as it helps them invest in the best companies (or not invest in one’s that they might otherwise have invested in).
Next, connections are important for funds who want to be strategic investors and get in the weeds to really help their companies grow. This is a bit of a longer-term approach, as the effects aren’t immediate because networks, as well as companies, don’t grow overnight. Instead, they take time. However, VCs can make a large impact on their companies by helping to make relevant introductions. These introductions may include potential customers, individuals with relevant industry expertise, potential new hires (i.e. CTO, CFO, etc), follow on investors who might provide capital or strategic advantage on the next round, among others.
Put these 2 industries – real estate and venture capital – together, and your relationships can more that significantly impact your PropTech fund’s performance. In my case, specifically, after working in real estate consulting for almost 4 years and helping over 20 of my clients (residential developers) with everything from site selection and construction through sales, I connected with companies and individuals throughout the real estate lifecycle. From financiers to developers to architects to contractors to electricians to brokers to marketing and PR agencies, I got a lot of exposure. These contacts are ones I’ve been able to leverage to help find new companies, exchange insights on new ideas, and grow our investments through adoption.
In this same vein, it is important to create connections so as not to be geographically constrained. Amazing companies are being built all over the world – look at Nine Four’s portfolio, for instance. We have companies all over the country, from Built Technologies in Nashville, Tennessee to Smart Rent in Scottsdale, Arizona. To that end, we are lucky to have boots on the ground building networks on the East Coast in New York, down the coast in Miami, on the West Coast in San Francisco, and in the Midwest in Chicago. Moving forward, we look forward to continuing to build relationships across the industry.