Founder Story: RealtyShares
It takes a lot for a company like RealtyShares to get off the ground. The idea behind the startup is simple: you use the internet to frictionlessly match up people looking to invest in real estate with people who have credible development projects. The execution, however, takes monumental effort. We hear the word crowdfunding thrown about, but when you’re dealing with the kind of transactions the company facilitates, the tricky part is navigating securities law and a host of regulations. It isn’t easy, but if you can do it, the reward is a total market of more than $400B.
To learn more about the journey from startup idea to becoming a working company with satisfied customers, Bisnow spoke with RealtyShares founder and CEO Nav Athwal (standing in the office with Marissa Seto, Sidney Chapman and Melanie Fellay) and key members of his team for the story behind the firm. What kinds of obstacles did the team overcome? What does it take for someone to mature from a founder to a CEO of a larger company? What’s the strategy for growing in a state of heightened regulatory scrutiny?
The Lost Deal
It started in 2010. The sting of the credit crunch was still on people’s minds, and securing financing was incredibly difficult. Nav would know firsthand. He was a real estate lawyer by day, but had a keen interest in putting money into real estate. He’s purchased over $5M worth of real estate assets in his life.
There’s one deal he remembers well: He found it in a great location, and it was an all-around gem. But the banks were pulling back, and mortgages were taking up to six months to come through, so he decided to raise equity capital from friends and family. In 30 days, he tapped the whole of his network but just couldn’t do it. Nav lost the deal but realized there was opportunity in the market.
The idea for a crowdsourced way to raise capital for real estate deals slowly started to take hold in his mind. Soon enough he was in a law class taught by professor Bill Falik that brought together MBA, law and planning students to learn about the real estate development process. He hit it off with a fellow student, and pretty soon they were in his living room diagramming out what would eventually become RealtyShares. “We would literally spend nights and weekends in my living room with a whiteboard just mapping out different scenarios and seeing how this could play out,” Nav says.
A good thought, though, just isn’t enough. “We were a little naïve at that point,” he admits. “The first month is just really excitement around this great idea, and then reality kicks in when you realize there are all these barriers to creating a company: technology, product. I was an engineer formerly, but I never was a coder.”
So what does a startup do when it hits a wall? It starts digging under it. Nav worked with a freelancer to set up a landing page. “It was really about plopping up a landing page and seeing if anyone was interested in this product,” he says. The company also aggressively pursued customer development: Nav arranged a focus group, asking seven real estate colleagues their thoughts about the idea and website. All that feedback went into the landing page.
Yea, But Do You Have Any Traction?
Come 2013, RealtyShares was in full-fledged beta and trying to connect with the first 100 customers. Interestingly, when Nav (here with VP of commercial equity Brian Schultz) asked those closest around him, they were skeptical. “Even our friends and family were skeptical: ‘You don’t have investors yet. Do you have a functional website?’ I’m like ‘No, but you can be sort of our guinea pig.’”
A startup tends to take over all aspects of your life. Even though Nav was still working as a lawyer, he was taking phone calls with potential investors on the platform during his lunch break. Those early days were really something. “You do everything from stuffing envelopes to managing the product development to making phone calls to customers,” he says. “It was a lot of calling early customers and getting their feedback, telling them more about what we were going to do with this concept.”
Even in those early days, however, the company realized trust was essential. Nav says ethics can’t be compromised, especially when you’re dealing with people’s money. So risk management started from the first day. Even with two employees, RealtyShares was vetting and conducting checks.
It slowly started to dawn on the founding team that regulation and legal scrutiny were unavoidable. While the initial euphoria started to fade a little, they realized the company was essentially selling a security that opened up a Pandora’s box of legal worries. Nav realized the traditional “get big fast” playbook would have to be adjusted. It wasn’t enough to quickly get to market and find a fit.
Marketplace businesses have additional challenges mobile consumer apps don’t: the company should develop both sides of the market. A team should make sure sponsors and investors on the platform are sufficient. Marketplaces become true forces only when the member pool is sufficiently large. Until then, you’re pretty much alone. Nav acknowledged this difficulty from the start: “There are some great benefits, but to get the place where marketplace business actually scales, it takes a long time. So there was never a moment where I was like, this is going to be the next Facebook.”
Slowly, the small team started to see some results. “We had really positive customer feedback even when our customer base was tiny,” Nav says. He was particularly encouraged by the high repeat rates on the platform. Once people came on board, they stuck around doing multiple deals. Despite some early hitches, the news was encouraging, and Nav was ready to kick things up a notch.
Make It Big
So what does an entrepreneur do when he thinks he’s got a winning concept but isn’t absolutely sure? If there’s a need for it, Silicon Valley usually comes up with an answer: accelerators. Startup accelerators have grown to become important parts of the venture ecosystem. An accelerator will introduce you to investors or customers in exchange for an equity stake. It’s a way for an entrepreneur to grow a company really quickly.
“We always knew we wanted to go this venture route, because this business is something I think really scales,” Nav says, reflecting on the decision to take RealtyShares into 500 Startups, an accelerator led by Dave McClure.
The Mountain View–based incubator provided the first official offices for the founding team. At 500 Startups, the team was given four months as part of a program that had $35k to build and test the business model. The most important resource the young company received was advice. “The most important lesson I learned from the advisers and mentors was I need to be very transparent,” Nav tells us. “You’re dealing with people’s money, you’re building a marketplace that’s going to transact millions and potentially billions of dollars, and the need to be transparent along the way with customers is something that we’ve always kept in the forefront since early days.”
Transparency also meant an absolute commitment to compliance. Nav remembered a story from the early days of peer-to-peer lending. Two companies, Prosper Marketplace and Lending Club, competed to be the dominant player in the space. While Prosper was first out of the gate and the initial leader, it didn’t work with regulators as quickly as Lending Club did. The result was a cease-and-desist order that threw Prosper into second place and cost it market dominance. While Nav acknowledges compliance can sometimes be burdensome, especially given the recent issues surrounding Lending Club, he was laser-focused on being in regulators’ good graces. “Yes, there are times when compliance is going to suck, it’s going to limit what you can do, but you’re building a company that will be much healthier by adhering to rules.”
With an idea that was slowly gathering steam and a home to call its own, the company started to take off. RealtyShares impressed enough people to attract the first $2M seed investment from General Catalyst. “Nav and his team are building a category-defining company serving a massive and inefficient market. The RealtyShares product offers a delightful experience for both investors and real estate project sponsors," says General Catalyst Partners venture partner Niko Bonatsos. “We have been partners with Nav since 2014, when we were fortunate to have led RealtyShares’ first round of funding.”
Becoming a big company meant playing nice with a very established legal framework. The company’s first hire was an in-house counsel with 20 years of experience in these kinds of matters. “We want to build a great business, but we want to do it without breaking things, including raising any sort of red flags in the regulatory framework in which we operate,” Nav emphasizes.
Pretty soon RealtyShares-funded deals were finding their way into the market, and people began to take note. “We were looking at a deal in my old job and saw something called RealtyShares in the capital stack,” says director of investments Mark Masterson. He started conducting more research, and that led to a phone call with Nav one Friday. “He explained what he wanted to do with the company, and I was really sold. Coming from an investment background, online syndication for friends-and-family-sourced equity seemed like a no-brainer.”
Apex Renovations president Ben Walhood was an early believer. In 2014, he became a full-time investor focusing on fix-and-flip and fix-and-rent projects. “I called up Nav to talk to him about his company. Something about working with a crowdfunding platform really appealed to me,” Ben says. “I’m able to get the money to fund my deals, RealtyShares is able to make a buck and the lenders are able to get involved into at least diversifying into real estate."
Who We Are
A few weeks before Nav sat down for our chat, the RealtyShares team held an all-hands meeting. This gathering was different from the usual update, however. Employees sat around a whiteboard and talked about the company’s culture. They wanted to figure out what values the company was actually living. “We wanted to see not ‘what do you think culture should be,’ but ‘what do you see as the culture in your day to day?’” Nav says of the meeting’s objective.
The meeting proved just how far along the company had come in a few years. At its most basic, a shared culture speeds up decision making and ensures an implicit understanding of goals and methods. Getting it right is a make-or-break issue for a company.
So what was the culture at RealtyShares, and how did it plan to keep it alive? Nav believes culture isn’t an imposition but a shared experience created and owned by all workers. “The way I frame it is your earliest employees are essentially founders. They join very early when there’s no culture yet. The culture is whatever the CEO is doing,” he says. “The earliest employees have been very critical to developing the culture. Those earliest hires are the most impactful on the culture, because they’re helping build it.”
The company believes in placing humility and transparency at the forefront. As CEO, Nav is concerned with making sure the gap between aspiration and reality is as small as possible. “If you’re saying these really well-meaning things and not living up to those things, that’s not your culture. That’s what you say your culture is, but your culture is drastically different. You have to take action on the culture,” he says.
Being a custodian of the company culture means careful oversight of hiring. Competence issues are fairly easy to deal with in Nav’s judgment. “You know after a month or two months that a new hire is just not delivering the kind of output we expected. That’s an easy decision,” he says. The harder part is dealing with a mismatch in culture. “This really intelligent, capable person isn’t living up to these core principles. That’s a much harder decision.”
The company has tried its best to prevent a mismatched hiring, screening for fit early on in the interview process, Nav says. “It’s so important to do that vetting on the front end and ask the right questions to make sure that at least you have a strong belief they fit within a culture, because that’s a harder mis-hire to digest.”
How has it been for Nav learning to manage a large and growing team of highly talented people?
“It’s a very humbling experience,” he tells us. “This is my first time in a large team. I’ve managed people before as an attorney, as an investor. I had property managers I managed. But never such a high-intelligence, motivated team.”
That’s not to say the journey was absolutely smooth. “I think the biggest lesson that I’ve learned is, don’t hire just for IQ,” he says. “I think a lot of early founders make the mistake of hiring the smartest people without thinking about do they also have EQ? Can they deal with people, can they manage people, can they motivate? We made some bad hires during our very early days, where we hired some really intelligent people that had their own agenda that was in front of the company’s agenda. That’s a major lesson.”
The other component of a successful hiring decision is how the new employee can add to the company. “Hiring the best people is going to put you head-and-shoulders above the competition,” Nav says. While some might see this as intimidating, he takes the opposite view. “There are very few things I can say I’m the best at in this company because of the caliber of talent we’ve hired. My job is to hire the best people for the role so with each hire, we can elevate the company to the next level.”
Nav embraced the idea that the CEO role is that of a basketball coach rather than a micromanager. “We have Jordan, we have Pippin, we have Kerr. Everyone in this company should feel informed, feel like they know why they’re here every day and what they’re building towards. My job is to find the best people and align them towards a common goal so we can really move this company forward.”
Nav wants his startup to be the next big thing and deliver on its promises. As with many entrepreneurs, RealtyShares is his passion. “It’s funny, the year we were formulating the idea behind RealtyShares, I got married,” he says. “I have my marriage with RealtyShares and my marriage with my wife, and she is amazing and supportive, so it worked out.”
“As an entrepreneur, as a CEO, as a founder, you have to be very committed,” Nav says. “I wake up in the morning thinking about RealtyShares, I go to sleep and I think about RealtyShares. I think the commitment of a CEO has to be the strongest in the company, and that’s how you motivate the rest of the team. Even when I’m on vacation, RealtyShares is still on my mind. This is the hardest I ever worked, but it’s been a lot of fun.”