Kylie Davis: (02:08)

Welcome to the PropTech podcast. It's Kylie Davis here and I'm delighted to be your host as we explore the brave new world where technology and real estate collide. I passionately believe we need to create and grow a strong sense of community between the innovators and real estate agents. And sharing our stories is a great way to do that. So the aim of each episode is to introduce listeners to a PropTech innovator who's pushing the boundaries of what's possible, and explore the issues and challenges raised by the tech and how they can create amazing property experiences.

Kylie Davis: (02:39)

But in this episode, my guest is Chris Rolls, entrepreneur and CEO of PropTech venture capital company PieLAB, who has been an active observer and investor in PropTech innovation for the past 10 years. Chris?

Chris Rolls: (02:51)

Yeah. About some.

Kylie Davis: (02:54)

Yeah. And during this time, he's seen some extraordinary changes, which we're going to discuss today. So Chris Rolls, welcome to the show.

Chris Rolls: (03:02)

Thanks for having me on board, Kylie.

Kylie Davis: (03:03)

My very great pleasure. So Chris, in the PropTech podcast, we always start with an elevator pitch and I'm sure as a VC you're very familiar with an elevator pitch. So what's the PieLAB elevator pitch?

Chris Rolls: (03:15)

Sure. Hi, I'm Chris from PieLAB venture partners and we invest in property that sits in and around the real estate industry, particularly in residential. So we have a portfolio of investors that collectively represent about 7% of the entire real estate industry. So if you've got a great PropTech business or idea, we'd love to have a chat to you.

Kylie Davis: (03:36)

Fantastic.

Chris Rolls: (03:37)

[crosstalk 00:03:37].

Kylie Davis: (03:39)

Very good. And I think almost in under 10 seconds. So you wouldn't have been cut off because of time constraints. So we were talking before just about how many PropTechs that PieLAB has had a look at. What's that number?

Chris Rolls: (03:54)

So good question. Actually, we looked at this morning in our weekly sort of tactical way that we do every Monday morning. And the total number, to date, is 482 businesses that we've reviewed over the last probably two and a half to three years in this fund.

Kylie Davis: (04:12)

Right. Wow. What is PropTech? How much has the industry grown?

Chris Rolls: (04:20)

So two different questions, what is PropTech, first of all. The problem with PropTech is that the definition of PropTech, depending on who you ask, is very broad. I mean, the best definition that I like is the one that sort of says that PropTech is any sort of business providing a technology solution that sits in and around all of the process that is building, renting, buying, selling or moving in real estate.

Chris Rolls: (04:53)

Now, the reality is that applies to most commercial and residential. We tend to focus more on the residential side. But worldwide, PropTech typically incorporates both. So that's probably, I think, the best definition of what PropTech is. That's what PropTech is. What was the second part of that question?

Kylie Davis: (05:12)

How much has the industry grown?

Chris Rolls: (05:14)

The industry has grown massively. I think probably the biggest year in PropTech was probably 2017, where if you've ever been to any sort of property technology conference, you would have seen the graphs of growth of investment into property technology. And it sort of went from being a couple of hundred million dollars a year in sort of '14, '15, '16 it was, I think, a billion, '17 it was 3 billion. And the problem is beyond that, it got so big and so hard to count that no one's really sure. But estimates at the moment are somewhere around sort of eight to $12 billion a year are now invested in businesses that have some of PropTech focus. So massive growth over the last five years. And we believe that growth is probably going to continue.

Kylie Davis: (06:06)

Yeah. So before you mentioned that there was 482 projects that you guys have looked at in Australia, how big is the VC forward in Australia at the moment? Is there any insight into that?

Chris Rolls: (06:18)

Yeah. So the answer is we're a specialist property technology investor, so we run the real estate industry venture capital funds. That's the fund that PieLAB Venture Partners runs. And we're the only pure PropTech investor that has a fully functional fund. There are other PropTech investors but they may not be specialists. So they may be agnostic, they may invest across all industries, but they happen to invest, in addition to other industries, in PropTech.

Chris Rolls: (06:50)

There are a couple of PropTech funds that have started to raise capital, but to my knowledge, none of them have actually closed a fund and started investing on a wide scale. Having said that, it's probably been six months since I've circled back to them all. It's actually quite a small community in terms of the specialist PropTech investors, and we often invest together, so it's quite a collaborative type thing. So some of them may subsequently have closed those funds and now be open to investing.

Kylie Davis: (07:20)

Right. Why is PropTech so important at the moment? Why should we all be paying attention to it?

Chris Rolls: (07:26)

I think we should be paying attention because PropTech... I mean the property industry, and everyone knows, it's big. It's very big worldwide, especially depending on what you do and don't include. But property touches everybody on a day by day basis in some way, shape or form, whether it be where you work, where you live, where you play. So property is very big.

Chris Rolls: (07:51)

And it's had very little disruption. It's had very little change from a technological perspective. The way that we transact property has not changed much. And that's been for a number of reasons. So if you look at certain industries, for example, telecommunications [inaudible 00:08:09] enormous change over the last 20 years [inaudible 00:08:14] industry. All sorts of industries have gone under enormous change. Sorry? Yeah, the media.

Kylie Davis: (08:19)

Media.

Chris Rolls: (08:19)

Yeah, media is a big one, right? Enormous change. But property fundamentally hasn't had enormous change. The most visible change in the property industry, where a consumer might have gone to a newspaper previously to buy a property, they now go online. But fundamentally, that's probably more of a change in the media industry than it is the property industry. How you actually buy that property [inaudible 00:08:43], transacted, renters, et cetera, et cetera. Once you've found it, really hasn't changed that much. And so it's a largely untouched industry and that's why it's changing so rapidly now.

Chris Rolls: (08:56)

The second reason, other than it being big and untouched, is that there are starting to become a lot of interest from big tech. And what I mean by that is Google, Apple, Amazon, Facebook, the multi-billion, in some cases, trillion dollar companies are looking at property and saying, "How do we get our share of that market?"

Chris Rolls: (09:19)

And the most overt, obvious example of that, is the rise of the home smart speaker. I mean, home smart speakers, a lot of people go, "Oh, it's just an extension of Google search." If that's the case, you kind of wonder, well, why are Apple and Amazon in there? It's not at all it's just an extension of their search, it's their way of getting inside the home in order to get a share of the wallet that people spend in their living environment. And that's obviously an enormous multi-trillion dollar market. So that's another reason why it's very much on the radar at the moment and has been growing at the rate that it has.

Kylie Davis: (09:57)

And there's so many elements of it too, isn't it? There's that Google home in... Well, the Google inside your home, which is sort of heading towards internet of things and voice activation and smart homes. And then there's also all of the issues around the transaction and property management. What are the big trends that you're seeing that in Australia the problems that PropTechs are trying to solve?

Chris Rolls: (10:23)

Sure. Look, there's lots of them. If I were to say there's some things, one of the big things and one of the areas that we've looked at very closely is the property management model. Now obviously it's something that's close to my heart. As you know, my previous business was quite a large property management business. So it's a space that I personally understand.

Chris Rolls: (10:45)

But that is an area we've been looking at heavily. And the reason behind that is... And that is that most people in the residential real estate industry in Australia would acknowledged that the property management process is broken. And what I mean by that is that tenants are unhappy with the service, landlords are unhappy with the service, property managers are unhappy with their jobs and the stress that's involved in providing that service. Real estate principals are unhappy with their property managers who are providing the service to the unhappy tenants and landlords. The system broken.

Chris Rolls: (11:16)

What's interesting about that is that that actually creates opportunity. It's a space that is rapidly changing. So if you were just to look at, for example, the process around tenants and how we look at tenants, there are lots and lots of small PropTech business that are focusing on aspects of the tenant process. It might be applications, it might be tenant payment processing, it might be utilities, connections for tenants, it could be insurance for tenants.

Chris Rolls: (11:48)

And in each of those areas, and that's just four or five of many, there are multiple businesses doing things in that space. So that's a really interesting area in the real estate industry, particularly in residential where the industry is not looked at tenants really as a source of revenue other than potentially them paying their rent, which really the landlord is your source of revenue because the rent goes to the landlord, the landlord pays you out of that rent for looking after a property. No one's been looking at that. And that's certainly changing.

Chris Rolls: (12:23)

That's a thing that we've been looking at, and one that I think is fairly new. Certainly five years ago there was far less emphasis on what tenants in the residential setting were doing. That'd be one area. Other areas, certainly one thing that we shown a lot is the portal debate; can you overthrow the dominance of realestate.com and domain.com? I've got no idea of how many businesses that we looked at that are trying to do something in that space. And so that's a very big area. Actually no one's come up with a good solution yet. And a me-too product. So just doing the same thing, in my view, is not going to work. You've got to come up with something different.

Chris Rolls: (13:07)

And so that's a big area of focus and one that the real estate industry is very open to supporting if someone can come up with a model that works. So they'd be a couple of things. There's probably five or six different things that we've been focusing on.

Kylie Davis: (13:21)

What about in that property marketing space and not necessarily just with the portals, but with PropTechs that are looking at improving how agents either mine their data, execute their marketing, the rise of AI too?

Chris Rolls: (13:44)

Absolutely. I mean well we've recently made an investment in sort of a business called AIR, which is artificial intelligence for the real estate agent, particularly around how do they help agencies more effectively make use of their data. It's a big space. And the reason it's a big space is that one of the things that makes the real estate industry attractive to these large organisations like the Googles and the Facebooks is just the sheer amount of data that is here. So collectively, if you took the Australian real estate industry, there's arguably billions of dollars worth of data, yet it's all owned in tiny little fractional amounts by all of the individual sales people and agents. And no one's actually been able to create any value out of that, certainly not any significant value.

Chris Rolls: (14:39)

Here's a classic example. The data that the real estate industry had 20 years ago is what enabled realestate.com to create an eight, 10, $12 billion business. And the real estate industry had that data and wasn't able to organise themselves well enough to use that data because that data is effectively who's listing, when are they listing, and what do they need to advertise in order to list it? And that data was basically taken by the real estate agents, provided to the online portals, and as a result, they've created billion dollar businesses and the real estate industry, as a whole, has remained largely a cottage industry.

Chris Rolls: (15:13)

And so that's an example of the industry having data, not being able to get organised in a way that has allowed them to use it effectively and hence giving it away to other players that have taken advantage of that space. So certainly artificial intelligence around data is a huge area. And how you can use that data to market effectively is also a very important space.

Kylie Davis: (15:37)

Yeah. What do you think the real estate agency of the future looks like? How big is it going to be? Are we moving towards... You mentioned before that we're a cottage industry at the moment, do you think we're going to see the rise of bigger agencies that can organise themselves more quickly around some of these big things and what kind of services do you think they can offer?

Chris Rolls: (16:05)

Sure. I think two things. Firstly is that no one really knows for sure. I'm just having probably an educated guess, but here-

Kylie Davis: (16:15)

Crystal balls are very welcome. That's okay.

Chris Rolls: (16:17)

Crystal balls according [inaudible 00:16:17] Chris Rolls. And that crystal ball, for me, is a scenario where the real estate agent of the future... Well the industry has consolidated, so we see less middle-sized businesses. And while we'll still have individuals running micro businesses, they'll predominantly be working from home and outsourcing large functions of what they do.

Chris Rolls: (16:45)

And interestingly, there'll be much more efficient than what they would be able to have been at the moment or in the last five or 10 years because of the advent of subscription based software. So once upon a time in order to run a property management business you had to subscribe to on site server based software that was expensive to implement and instal, et cetera, et cetera. And now that's no longer the case. You can sign up to services that are cloud based property management provided services for $100 a month and manage 100 properties on there. So the cost of that software has plummeted.

Chris Rolls: (17:21)

But that'll be actually much more efficient. However, to really take advantage of some of the nuances in the real estate industry, and a big one is the geographical nature, how do you get people from place to place? Organisations are going to have to be big. And I'll give you an example of that. If you picture the traditional suburban agency as the majority of them look at the moment. So the majority of real estate agencies at the moment are in a model where there's sort of a principal who probably sells and has a handful of sales people working with them and those sales people might be three or four or maybe five. But the bulk of the sales are probably made by the principal and one, maybe two, either of those sales people. And there'll be managing a handful of properties. They might be managing 200 to 300 properties or probably 100 to 300 properties.

Chris Rolls: (18:09)

And what's interesting about that is that they might be operating in a suburb, let's call it Paddington. So maybe an inner city suburb. For them to go and manage a property that is 10 kilometres away is very inefficient, and the reason it's inefficient is because the cost of the drive time of people going backwards and forwards to that property, increasing traffic burdens, et cetera, et cetera, make that not particularly profitable, even if it's only 10 kilometres away. Whereas the large agency that manages property 10 kilometres away but also has another two or 300 properties in that location that's 10 kilometres away, has much better of economies of scale.

Chris Rolls: (18:46)

One of the things I think [inaudible 00:18:48] is agencies being either larger or potentially even outsourcing aspects of that work to organisations who have been able to gather the density of properties in a particular area in order to provide certain services. So we'll see things like the outsourcing in property management of routine inspections. I think we'll see, further down the track, the outsourcing of open for inspections in the sales space. Now, a lot of traditional real estate agents would say, "You could never sell a property and outsource your open for inspections because that's where you meet buyers." And I would argue that that's actually already happening around the world. So never say never. Sure it's not going to be tomorrow, but certainly over the next few years that's going to happen.

Chris Rolls: (19:28)

And as that happens, what's going to happen is the price of delivering that service is going to drop. So it's going to cost less for agents to sell a property and manage a property. And that cost saving is going to be passed onto the consumer. So agents eventually are going to have to outsource things like that in order to be able to compete. So I think we'll see larger agencies, we'll see less middle-sized ones, we'll still see the micro ones, and we'll see a massive outsourcing. And when I say outsourcing, a lot of people sort of think I mean outsourcing to the Philippines in terms of back office administration, I'm not talking about that, what I'm talking about is outsourcing everything.

Kylie Davis: (20:03)

This is gig economy stuff.

Chris Rolls: (20:05)

Yeah, absolutely. Outsourcing. We already outsource maintenance, so what difference would it be if we outsourced routine inspections? I mean we already outsourced smoke alarm inspections, what is the difference? What if we outsourced the trust accounting? What if we outsource the marketing? We already outsource taking photos, why don't we outsource the writing of the blurb and the text that goes with taking those photos when we're advertising properties. And I think we'll see that en masse. And the real estate agents will really focus on the customer relationship, building and maintaining that relationship, and delivering the service from a people aspect. That's my crystal ball.

Kylie Davis: (20:40)

Fantastic. That raises a few questions for me. In that kind of a scenario, do you see that being a little bit like what happens currently in the US, where an agent hires a desk in some of the bigger agencies like RE/MAX and, I think, Coldwell Banker and all those guys do it more? In fact, the agency functions are also outsourced in a way.

Chris Rolls: (21:03)

Absolutely. What's interesting is it's almost... We talk in the real estate industry about disruption. And in a lot of cases, that's almost the disruption to the middleman, which is the principal. The principal organises an environment for a sales team as an example, and is almost like a middle person between the sales team and the consumer providing various products and services. That model where you see almost salespeople deciding I don't need these services that my principal currently provides, and looking and saying, "Well, where can I get a desk? Where can I subscribe to software myself that is cheap, but is able to do the job on a small scale? And how can I cut out the cost that at the moment is somewhere between 20 and 40% of my commission?"

Chris Rolls: (21:57)

What's interesting, if you have a look at it, the percentage of commission that is going to real estate principles has come down over the last 10 or 15 years. When I first started in the real estate industry, the real estate principal was taking roughly 50% of the commission back. And what's happening? The commission pool. And what's happened over time is as competition has come in to the service that the principal provides, their share of that commission pool has slowly declined. And it went from sort of 50 to 40, and everyone got up in arms and got upset when RE/MAX came in and promised to only take 30%. And now 30% is looking pretty generous because there's models out there where people will only take six and 7%. That's almost the disruption of the real estate principal. And I think we'll see things like that with increasing frequency in the future.

Kylie Davis: (22:50)

And I guess that disruption of the principals then starting to move up towards disruption of the franchise as well, isn't it? The traditional franchise groups.

Chris Rolls: (22:58)

Absolutely. I think the franchisors are going to need to really reinvent themselves in order to remain relevant in the future. And I think the reality is they know that. And probably the biggest risk to franchisors, in the future, is the transition of businesses to the next generation of business owners. I could be wrong on this statistic, but if I was to take a guess, and if you looked at the average age of principals that are in a franchise group versus the average age of principals that aren't, the average age of principals in a franchise group would be a lot older.

Chris Rolls: (23:37)

Their belief potentially that the value of a brand is probably higher than the belief that sort of younger principals, potentially even sort of the millennial principals that are coming along, they're looking to say, "Well, I can create my own brand. What do I need to do that? I need some social media, I need some basic marketing experience that I can find online or I can outsource somewhere else and I can create it myself."

Kylie Davis: (24:07)

Yeah. The other thought that hit me as you were explaining this brave new world of real estate was that it did sound a little bit grim in that everything is about the margins and the revenue coming in, contracting in the traditional model. How do you see the future of real estate making money? Is it only going to be through contracted margins or are there other services that real estate is going to be able to offer that's going to be part of that revenue stream?

Chris Rolls: (24:37)

Yeah. Well, the first thing that to understand is that the contraction or the democratisation of goods and services, meaning that they eventually become free, is not just something that's happening in the real estate industry, it's happening everywhere, all over the world, in every single industry. In fact, I heard a speaker recently talking about, as a big call, but a very credible guy in tech circles, he said, "No matter what business that you are in, the core products or service that you provide, the revenue you generate from that will eventually be zero."

Chris Rolls: (25:14)

That's really interesting. If you look at it and you sort of think, well if you're in the analogue film processing business like Kodak was, well that's true. If you're in the DVD rental business, like Blockbuster was, well that's true. If you are in the music industry, well that's true. A lot of people would look and go, "That's never going to happen to the real estate industry." But I'm pretty sure that's what Blockbuster and Kodak and all those other companies thought as well. They thought that was never going to happen to them. And the reality is it's happening to industries all over the world. So the question is not whether it's going to happen, it's what do we do about it?

Chris Rolls: (25:58)

It's arguably grim, but it's also arguably a big opportunity because if the technology is evolving that enables you to implement technology that allows you to operate at a lower cost than your competitors, then that's a massive advantage if you are quick to adopt and to change your business model. And companies have done that. Lots of companies have done that. I mean some really good examples are, I mean, IBM is a classic example. I mean, everyone knows IBM and they're a consulting firm, but they started as a company that manufactured PCs back in the day when PCs costs six, seven, $8,000. And they saw the cost of those PCs coming down rapidly and then becoming a cheap consumer good. And as a result, they changed their business model.

Chris Rolls: (26:51)

Companies like Berkshire Hathaway, the world's largest investment firm, did the same thing. They were a company that made textiles, made fabric, and now there are $250 billion company that invest in other companies. Apple did the same thing. I mean, they were in the computer manufacturing and software business, and they transformed themselves by taking over the music industry, and then the telecommunications industry, et cetera, et cetera. So this has happened before, and it's going to happen again, and it's going to happen the real estate industry. What we don't know is how long it's going to take and how do we best adapt to that.

Kylie Davis: (27:23)

So what do you think some of the services are that agents should be or could be looking at, especially through the lens of some of the PropTechs that you've seen, that would help them bring in new or different revenue streams to what they are currently relying on?

Chris Rolls: (27:39)

Yeah, sure. The place to look is where we have a natural advantage that we haven't taken advantage of. So getting back to sort of where we started at the start of the conversation. If you look at the tenant, the humble tenant. Now that humble tenant spends a lot of money, earns a lot of money. Interestingly, we know everything about that tenant. We know more about tenants than any other industry. Before they even become a customer, we ask them where do they work? How much do they earn? Show us your last tax return. Give me 100 points of ID. Give me three references. Show us your previous rental history. We know more about a tenant before they even become a customer than pretty much anyone else knows in any other industry, yet we take no advantage of that.

Kylie Davis: (28:30)

Because they treat them like dirt.

Chris Rolls: (28:30)

Sorry?

Kylie Davis: (28:31)

And then treat them like that anyway.

Chris Rolls: (28:38)

[inaudible 00:28:38] right. Now that is [inaudible 00:28:40] Opportunity. And that's why there's a whole bunch of PropTech firms working on that opportunity. But if you're kind of a tiny, small little startup PropTech business, you haven't got access to that data. You're actually coming at it at a disadvantage, whereas the incumbents in the industry have that advantage. They have all of that data, the question is what do they do with that data, and how can they utilise that? Is that data useful to finance companies? Absolutely. Is it useful to insurance companies? Absolutely. Is it useful to marketing companies? Absolutely.

Chris Rolls: (29:16)

So how is that data useful and how can we utilise it effectively? And also how can we collaborate as an industry to not have happen what happened 10 years ago or 15 years ago with the media companies taking over the data that sat in and around who was selling a house and who wants to know about it.

Kylie Davis: (29:38)

We don't have a great history though as an industry of collaborating around common projects, are you seeing anything in that space that makes that more likely now or?

Chris Rolls: (29:49)

I think there is much more of a willingness to collaborate now than there was historically. And that's partly born by experience. I think it's well trodden argument that we had the opportunity as an industry to take advantage of that $10 billion opportunity, and we let it slip through our fingers.

Chris Rolls: (30:11)

And that's even demonstrated in some of the industry attempts to create their own portals, et cetera. And the problem with those is they've been largely flawed not just because we couldn't get everyone to agree, but they'd been largely flawed because the product that was being offered to the consumer wasn't any better than what REA or Domain were providing. So we need two things to happen. We need a product that is better or a service that is better than what's out there at the moment depending on where we're going to generate this revenue from.

Chris Rolls: (30:44)

And once we've got that, I think it's much easier to generate industry collaboration now than what there was previously. I mean, if you look at just at PieLAB Venture Partners, well we are a fund that is effectively funded by roughly 7% of the industry. So our investors control roughly 7% of all transactions and property management in Australia. Now all of those people invested together, that would have been a big call to have put that together 10 years ago. I don't think we would have got acknowledgement that there's A, that opportunity out there, and that B, by working together some of these agencies could potentially take advantage of that.

Kylie Davis: (31:21)

Do you think too that we've been trying to solve the wrong problems as a collective? Because I don't know of any buyers or sellers that lie in bed at night thinking domain and REA just really don't cut it. It's only real estate agents that are unhappy with that service. But in lots of ways the services succeeded because it's not targeted at agencies, simply benefit from the audience.

Chris Rolls: (31:45)

Absolutely. I mean if you look at it, what's good about that service? What's good about that service is it's really good for consumers that want to buy a house. If you want to buy a house, I mean... You could hate realestate.com.au with all your mind, but if you want to buy a house, you've got to use it. It's a cool product. You can't deny that. It is good for consumers when they want to buy a house. Now [inaudible 00:32:09] to say it's not so good for consumers that want to sell a house, but if you want to sell a house, you've got no choice but to use it in order to find the buyers that want to buy a house.

Chris Rolls: (32:19)

I think you're right. I think one of the things that technology has done really well is it's focused on what consumers want. Uber is the classic example. We all hated the taxi experience. There's nothing good about catching a taxi. In fact, they're all better now than they used to be. But I remember, obviously, even as, as recently as seven or eight years ago, if you wanted to catch a taxi from Brisbane city to somewhere past nine o'clock at night, it meant you waited in a taxi line for half an hour. Half an hour minimum.

Chris Rolls: (32:54)

Now, that problem has largely gone away because of the likes of Uber and DiDi and Ola and all those different companies. They solved a problem. They solved the problem that people wanted to know where the taxi was. They wanted it to be cheaper. They wanted it not to smell. They wanted one to be available. Now, I open my Uber app and if I have to wait more than three minutes, I'm unhappy. It's kind of like, come on, Uber, that's just not good enough. I'm going to go and see what DiDi are doing. [inaudible 00:33:25] oh, there's one, it's 30 seconds away. But that transformed [inaudible 00:33:30].

Kylie Davis: (33:34)

Sorry, schnauzer incident.

Chris Rolls: (33:36)

[inaudible 00:33:36].

Kylie Davis: (33:38)

We'll start again, Charlie. Sorry about that. So as an industry, we need to start to think of it's a matter about the problems that we're solving and trying to solve [inaudible 00:33:47] as opposed to our own if we're going to collaborate in this space. Do you think that's a fair comment?

Chris Rolls: (33:52)

Absolutely. I mean, real estate agents don't like realestate.com because it's now so expensive to advertise on there it's affecting our commission. And ultimately if the consumer, the person who's selling their house, only has $20,000 to spend, and 10,000 goes into REA, well the other 10,000 comes to us. I mean, if they're going to spend 20,000 anyway, they've lost the money. They don't care where it goes, one way or the other. And that's what we've got to think about. REA occurred because they thought about it from a customer's perspective, how can we improve our service to customers in a way that is also beneficial for us as an industry?

Kylie Davis: (34:32)

So [inaudible 00:34:34] to move on to, because as I understand it, you're a VC and Australia's first residential VC, but there are a lot of accelerators that are in the market now. Like in the last 12 months, we've seen sort of suddenly a lot pop up in that PropTech space. So even you guys, I guess, are being disrupted. How do you feel about that? What's your approach to it and how are you guys adjusting?

Chris Rolls: (34:57)

Well, very much around collaboration. So we were looking at actually running an accelerator in the real estate space. And for those who aren't aware, accelerator's really an organisation that provides assistance to small businesses in a particular area to help them grow. Now the reason we were looking to do that is we want to invest in businesses that are kind of past a certain milestone. Ideally for us, they've got $1 million in revenue, they've got product market fit, which means they've got real customers, not just ones that are brother in laws and cousins and uncles, et cetera, et cetera. And they need to obviously be in that PropTech space. And so we looked at it being one way to, A, generate deal flow, so opportunities for us to invest in, and two, a way to help businesses that were too small but that we liked their idea but were too small for us to invest in.

Chris Rolls: (35:49)

Now as it turns out, a bunch of accelerators are coming to the Australian market. One of them, NAR REACH, which is from the National Association of Realtors in the US, RealTechX is put together by Taronga ventures. And we looked at it from the perspective of, well we don't really care if you run one or not, we were looking at it from a deal flow perspective. What I'm advocating for the real estate is industries that we've collaborated.

Chris Rolls: (36:14)

One of my colleagues sits on the committee at NAR REACH to choose who goes into the programme. So looking at all of that deal flow. We've spoken to Taronga about helping at some of the events that they're running for the group that goes through that acceleration programme. So it's very much a collaborative exercise. But you're right, it's a scenario where if you go back two years, there were hardly any PropTech specific [inaudible 00:36:43] in Australia. Probably only one was the Stockland BlueChili one. And now there's three in the market, which from our perspective is fantastic because it grows more PropTech businesses, which gives us investment opportunities.

Kylie Davis: (36:57)

I guess what we're seeing though Chris, though that's a great point is, but what we're seeing is that the residential accelerators or the residential programmes all kicking at that 1 million plus level, whereas in the commercial PropTech space, we're seeing more work being done with the kind of startup with those that are smaller than that and looking at how they help them grow from kind of concept, adapt to viable product and then viable product onwards. Do you think that maybe that's one of the things that the industry should be collaborating around is how do we actually pick the eyes out of some of the best ideas and then nurture them up to a million so that then they can go forward faster?

Chris Rolls: (37:35)

So different accelerators in the residential space will look at businesses that are below the 1 million mark. In fact a lot of them will. I do agree with you that in the commercial space they're typically taking ideas that are much younger. And I think that's partly because in the commercial space, a lot of the accelerators are in partnership with existing real estate investment trusts and commercial organisations that are very large. And they'll throw a few million dollars at programmes like this in order to see something come off. And they've kind of written off the money to some extent anyway. They're not looking necessarily for a commercial return, they're looking at it more from what's my strategic return here? How do I get access to new ideas and be first when these things come about?

Chris Rolls: (38:24)

Whereas in the residential space, if you look at the accelerators in one of the residential space, they're typically run by funds or organisations that have a mandate to generate return on investment, which means they need a commercial return from them. So I think that's probably why, but you're right that there is certainly a perspective out there that in the commercial PropTech space you could potentially get into some of these accelerators with not much more than sort of a developed idea.

Kylie Davis: (38:57)

I just wonder if that's maybe where the residential spaces may be lacking some imagination or that whole concept of strategic advantage rather than immediate financial return.

Chris Rolls: (39:10)

Yeah, potentially. As I said, that's an issue around the fragmented market [inaudible 00:39:16] and the local real estate agent aren't going to tip $1 million into a potential strategic opportunity that's probably likely to amount to nothing. But in a multi-billion dollar real estate trust, you will. It would be good if that was the case, but it's not so [inaudible 00:39:35] with that.

Kylie Davis: (39:36)

Yep. So there's lots of Aussie startups or PropTechs that are actually doing really well in the US now because of the NAR programme. Like [MyAgent 00:39:45] is the latest one to join BoxBrownie and ActivePipe. Why do you think they are going so well? What is it about Australian PropTechs that [crosstalk 00:39:56] do well in the US?

Chris Rolls: (39:58)

Well so the Australia real estate industry is actually, funnily enough, quite advanced from a property technology perspective. ActivePipe and BoxBrownie are both in the NAR REACH programme because we introduced them. I think that was probably just coincidence, particularly on the behalf of both of those examples. We happened to be an investor in ActivePipe and we knew Second Century Ventures who run the NRH programme. And we'd also been talking with Mellon, the guys from BoxBrownie.

Chris Rolls: (40:28)

Generally speaking, the technology that runs the Australian real estate industry is relatively advanced particularly in the property management space, but also to some extent in the sales space. And I think while our industry is much smaller than the US industry, the US industry is very fragmented as well. And in fact, businesses often operate kind of at a sales person level.

Chris Rolls: (40:53)

So as you were talking about earlier, you've got a lot of these micro businesses that are a sales person and two PAs and that's the business. And that's the level at which software is sold to. Whereas in Australia, it's sold to the organisation level. So to the principal who might have a team of 10 sales people, and that's a much easier sale in a sense that you sell at [inaudible 00:41:17] real estate principal and you get 10 subscribers. Very often in the US, stick on the sales front, you sell it once and you get one subscriber or maybe two. And so that makes it easier to do businesses.

Chris Rolls: (41:29)

I think that's potentially one reason. On the property management front, our technology, I think, is more developed from a residential perspective here because property management is seen as a real legitimate industry. Whereas in the UK and the US it's kind of seen... Well in the US it's not even part of the brokerage industry, they're actually their own cottage businesses, often mum and dad businesses of 5,000 properties. And then in UK, it's kind of seen as a part of a real estate agency but the important bits in their mind are the leasing. Is the leasing process. And so they're very focused on leasing process, which funnily enough is handled by the sales team. It's not handled by the property management team in a lot of cases over there. And so the industry just have different dynamics. And I think that's why, I'm not 100% sure, but that would be my guess.

Kylie Davis: (42:27)

Anyone trying to innovate in Australia is dealing with at least six to eight different sets of rules that affect their technology in terms of the real estate regulation in every state and territory. So if you can invent stuff that is going to cope with that, then probably just scaling that by 50 States or whatever is not such a big deal at the end of the day. If you can [inaudible 00:42:50] that.

Chris Rolls: (42:50)

That's actually a really good point. One of the upsides of having such a dysfunctional state system that we have in Australia. I mean, anyone that has any level of rationale would believe that the whole idea of state governments in Australia is ridiculous. But I guess the fact that these small property businesses deal with the dysfunction of different rules for every population group of two or three or 5 million people going to the US where you also have to deal with a whole nother bunch of legislation. You do that once in California, you get access to a population that's bigger than the whole of Australia. So it's seen as a small hurdle I guess.

Kylie Davis: (43:34)

Yeah, I guess so.

Chris Rolls: (43:34)

[inaudible 00:43:34] done that.

Kylie Davis: (43:34)

Well look, Chris, I'm conscious of the fact that you have to jump on a plane very shortly. So I wanted to thank you so much for talking about innovation and VC and accelerating our PropTech here in Australia. Chris Roll, thanks so much for your time.

Chris Rolls: (43:49)

Thanks for having me, Kylie.

That was Chris Rolls, CEO of Australia’s first proptech VC, PieLab, who has a unique big picture view of the innovation going on in residential real estate. His observations about the volume of proptech businesses that we’ve seen startup in the Australian industry - 482 at his last count - and the increase in the amount of funding that is now available demonstrate that the innovation is here to stay and is likely to only get faster.

But what we’re seeing in the proptech accelerator space is that yes, there are new schemes out there to grow residential proptech - like PieLab and the new NAR Reach program, but these are all kicking in once businesses have revenues of around $1m. Unlike the commercial real estate space - where major companies are now funding programs to nurture early stage startups, residential real estate funders have a much lower risk profile.

What’s your view on that? Chris believes that the residential real estate industry needs to come together to innovate and build technology. Do you agree with that or do you think perhaps that big players in residential real estate should in fact be following the commercial example and getting involved earlier in the equation?

Now if you have enjoyed this episode of the Proptech Podcast, we would love you to tell your friends or drop me a line either via email, LinkedIn or our Facebook page. You can follow this podcast on Spotify and we’re now also on Google.

I’d like to thank my audio support, Charlie Hollands and the fabulous Jill Escudero and our sponsors, Beepo - making outsourcing easy and HomePrezzo, creating marketing content from your data and Smidge Wines, official wine of the proptech community.

Thanks, everyone. Until next week, keep on propteching!