Episode 25: How property technology is changing - from VC funding to resident screening and beyond
How property technology is changing and what's to come
Snappt and what’s in store for 2023? [4:55]
- Roll out a new product, ID verification, which is state ID cards, passports, and driver's licenses.
- Expand geographically to all 50 states and Canada.
- Two new partnerships that will be exciting but as of now remains confidential.
What have VCs traditionally focused on when it comes to evaluating and backing a company? [7:20]
Note: Kyle's responses are his own opinions and what he looks for when investing.
- There are a number of factors to examine, but these are the top 3:
- #1: Revenue growth in terms of MRR (monthly recurring revenue) or ARR (annual recurring revenue).
- Want to see a consistent track up and to the right.
- Hesitant when a company has small MRR or ARR but is raising large valuation.
- Look for a correlation between valuation and MRR or ARR, depending on the business.
- #2: Customer acquisition cost (CAC), which is the cost that a company spends in terms of marketing dollars to attract a customer.
- Examine how much they spend to acquire a customer. Can click into this and also look at LTCV (lifetime customer value).
- This is a key metric!
- #3: Burn, how much are you spending relative to the money that you're taking in, and burn multiple, your net burn over your net new ARR. This is an important metric to understand the overall health and financial maturity of an organization.
- Take the numbers and divide them to get a fractional ratio.
- A ratio of one to 1.5 is great.
- A ratio of 1.5 to two, that's fairly good.
- Anything under one, which means you're taking in obviously more capital than you're burning or taking in more revenue rather, is phenomenal.
- Snappt is a 0.73 burn multiple, so the business is incredibly healthy.
- #1: Revenue growth in terms of MRR (monthly recurring revenue) or ARR (annual recurring revenue).
Will market uncertainty impact VC’s decision making processes? [11:20]
- Even a year ago, if businesses had hyper growth, VCs just kept fueling that with large rounds.
- Now, VCs are more conscious of where they're placing their dollars.
- Valuations are getting tighter and executives have to level set their expectations with their revenue valuations and revenue multiples as we look to 2023 and beyond, especially when raising early capital.
AI is an extremely hot topic. Will it continue for multifamily and property technology? [13:50]
- Conversational AI is the area for property technology.
- A primary area is the lead enrichment lifecycle and being able to nurture that lead without the touch of a human. This will lower the cost of leads to operators and ultimately drive competitive competition between whether it's ILSs or front end lead gen companies.
Potential multifamily trends for 2023 and anything you’re adding to your watchlist? [15:30]
- Big Data: This has been a theme for the past decade and will remain critical. Having a data strategy director or this type of role on staff is critically important.
- Short-Term Rental: This has a long way to go but AirBnB announced in November and initiative to allow long-term tenants to re-lease their apartments to short-term tenants. A lot more activity will be in this space and should keep a close eye on what that looks like both from a regulation standpoint and what technology could be applied to this sector.
- AR and VR Application: Not just for tours. Huge potential applications elsewhere like in maintenance. For example, things like maintenance requests and being able to facilitate work orders and walk a tenant through troubleshooting something in their apartment that's going wrong.
How do you define the resident experience? [19:00]
- Bucket it into three areas: pre-lease, during lease, and post-lease.
- Pre-lease is the tech that helps them find the apartment, that walks them through the screening and the application process. This is where Snappt sits.
- During the lease is the lifecycle of the lease, so making online payments, paying their utility bills, potentially sourcing things like housekeeping, etc. It’s everything that happens inside the home during the lease.
- Post-lease is probably the most ignored (tech wise), but this everything that gets the unit turned and ready to be leased again.
An industry veteran of more than a dozen years, Kyle has successfully helped grow startup companies and worked for some of the world’s largest financial institutions serving the rental housing market. Prior to joining Snappt as Vice President of Strategic Partnerships, Kyle held senior sales roles at Gartner, Experian, TransUnion and PayLease (now Zego). He is also an active member of the early-stage venture capital community, serving as a venture partner to multiple VC funds and syndicates. Kyle holds a Master of Business Administration from the University of Illinois and a Bachelor of Science from the University of North Florida.
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Welcome home Multifamily pros to the Resident Experience Podcast Episode 25 where we're talking with Kyle Nelson, Vice President of Strategic Partnerships at Snappt. Today we're chatting about how PropTech is changing and what's in store for operators in the coming year. What do venture capitalists examine when evaluating PropTech startups? What's in store for artificial intelligence and multi-family? And what other resident experience technology applications should we keep an eye on this year?
Well, today we answer these questions and more. I'm Yolanda Muchnick, your podcast host, and I'm excited to chat with Kyle Nelson, Vice President of Strategic Partnerships at Snappt. Snappt is the leading provider of verification of income and fraud detection for residential real estate. Today, we're digging into what's in store for Snappt and the broader PropTech community.
Kyle, welcome to the show.
Thanks so much for having me, Yolanda. How are you?
I'm good. I'm good. Actually, so fun fact for our audience, Zego was originally called PayLease before we rebranded about four years ago, and I believe you were actually employee number 12 at PayLease. Is that correct?
Yeah, that's right. So I actually came over by way of the OCS acquisition, the industry leader in convergent billing, utility expense management way back when. And after the acquisition, I was the first employee to move from our Chicago office to San Diego. So I actually credit PayLease with bringing me out to California where I have now laid roots with my wife and newborn son.
Okay, so moving into our discussion, why don't you tell our listeners a little bit more about your background and your industry experience with multifamily?
Yeah, absolutely. So I've been involved in the service side of the property management sector for a little over a dozen years. I started interning in college at a company called Waste Reduction Consultants. That company was acquired by CAS Information Systems. Then I began working full-time at OCS, then PayLease, and in 2016 as we started to position PayLease to sell to Vista Equity Partners. I had an opportunity to join TransUnion and work in their rental screening division. So super exciting opportunity that I ended up taking. And that was kind of where I first got my exposure to the screening and application side of the resident lifecycle.
And from there I went on to work for another credit bureau for a little while and I also spent some time out of industry and it took me leaving the industry for a number of years to realize ultimately that I wanted to come back and cement a role long-term in PropTech. So I actually worked for Gartner Global Research and IT consulting company for three and a half years after I concluded my MBA. And so middle of last year I was approached by Snappt with an opportunity to join as Vice President of Strategic Partnerships and I started to enroll about eight months ago.
Awesome. And so you just mentioned you're at Snappt now. Can you tell me a little bit more about the company and the solutions you provide and also how does it fit into this broader tech landscape?
Yeah, absolutely. So Snappt verifies the authenticity of financial documents for property managers and landlords across the United States, ultimately to prevent applicant fraud and reduce bad debt and mitigate evictions. So fairly simple concept. We sit adjacent to the tenant screening process and work hand in glove with operators and applicants to ensure that things like bank statements, pay stubs, tax transcripts, investment accounts, ultimately that they're all authentic during the application process. So we are at the front end of that resident life cycle. So that's what we do.
Nice. And so 2023 just kicked off. And I'm curious what's in the cards for Snappt this year? Is there anything you guys have in the works that you can share? Talk to me a little bit about your roadmap.
Yeah, so 2022 is a phenomenal year for us. Our property count grew over 300%. We nearly doubled in headcount. It was phenomenal. So we're off to a really strong start already for 2023. I think when I look at our growth, I'm kind of going to bucket in a few different areas, but we want to launch and we will be launching some complimentary products. So our core business is document verification. One thing that I'm really excited to share is that we will be starting to get into the ID verification, so that's the business of state ID cards, passports, and driver's license. So verifying the authenticity of those, not just through the leasing cycle, but also in office to protect the leasing staff during tours and what have you.
So very excited about that product launch that'll be coming in Q2 and it's kind of a natural evolution for our business. We will be expanding our geographic coverage right now. We verify financial documents in all 50 states. We will be expanding to Canada in 2023, so super excited about that.
And then I'd probably be remiss if I didn't talk about our partnerships vertical that I lead. So we will be launching with two, if not three, very large property management softwares by the end of Q2. Can't say who just yet. But we're super excited about that because it's going to provide our clients the opportunity to use Snappt within that software application and ultimately the relationship will still stay with their software provider. So essentially the software becomes a value added reseller of Snappt within their workflow. So I'm incredibly excited about that opportunity. It will allow us to solve this tremendous problem in property management that is applicant fraud at a much larger scale and ultimately reach more clients being a one to many type of reseller. So those are three things that I'm excited about for 2023 and we're looking to take our business.
Awesome. And that definitely sounds like a really neat model and I look forward to following you throughout the year and seeing how all these come to fruition.
Yeah, me too.
Okay, so far in our discussion we've touched on your role with Snappt, but I know that your background with venture capital in this industry is really pretty broad. In fact, I know you helped seed Rentgrata, which is Zach Sloan's company who we recently had on the show, and I really enjoyed my discussion with him. I'm curious, in the PropTech space, what have VCs traditionally focused on when it comes to evaluating and backing a company?
So I'll just kind of preface this with my day job is working at Snappt as Vice President of Strategic Partnerships, but I'm heavily involved in the venture capital community. I sit on three different, what we call, venture capital syndicates as a venture partner. So I'll help with due diligence, deal evaluation, deal sourcing, things of that nature. And I've been doing that for about five or six years. So I do make a handful of angel investments every year. I don't operate on a fund or anything like that. These are my dollars that I've earned just like anybody else that I'm choosing to invest in early stage, pre-seed series A companies that I believe in.
And so I'm going to just talk to the metrics that I look for. Now, these aren't maybe what best practices are in terms of every VC, but I think it should at least provide the listeners a foundation for what VCs are looking for.
So I'll start with revenue growth. And that can be in terms of either MRR or ARR. There's going to be a ton of acronyms here by the way, and I'll explain every one, but that's monthly recurring revenue or annual recurring revenue. And so with revenue growth, you want to see that there's a consistent track that's up into the right. And so I always get a little skittish when I see companies that have really small MRR or ARR numbers but are raising at huge valuation. So there has to be a correlation between the valuation and kind of the MRR or ARR, depending again on the business. So revenue growth is something significant that I look for.
Then I turn to customer acquisition cost or CAC, C-A-C. And that's really just exactly what it sounds like, the cost that a company is paying in terms of marketing dollars to attract that customer. And so I'll look at the customer acquisition cost and ultimately how much is that company spending to acquire that customer? And we could double click into that. And there's LTCV, which is lifetime customer value and a whole other host of things. But at its core, customer acquisition costs is a very important metric that I personally look at.
And then finally, again, there's a number of these, 10s, 20, 30, 100s but these are just the top three that I look at. And the third would be burn and burn multiple more specifically. And so the burn is really how much are you spending relative to the money that you're taking in And a burn multiple is your net burn over your net new ARR. And so if you take those numbers and divide them, you typically get some type of fractional ratio. And so a ratio of one to 1.5 is great. A ratio of 1.5 to two, that's fairly good. Anything under one, which means you're taking in obviously more capital than you're burning or taking in more revenue rather. That's phenomenal and that's like your VC darling.
And one of the reasons why I joined Snappt is when I came on board to Snappt, and I think where we ended 2022 is we have a 0.73 burn multiple. So the business is incredibly healthy financially, and I look at burn multiples when I'm investing in a business. It's a very important metric to understand the overall health and financial maturity of an organization.
Awesome. Thank you. I feel like I just got a little crash course in VC101, going back to business school a little bit. I love that answer. Thank you so much.
So there's definitely some uncertainty in the market right now, and I'm curious if and how you think this might impact VC's decision-making processes.
So I mean, there's a ton of uncertainty in the market. I think in from 2020 to 2022 or midway through last year, it was kind of like the blank check philosophy. If businesses had hyper growth, VCs just kept fueling that with large rounds. And I think VCs are tightening up and really looking at where they're placing their dollars. There's not a lot of ... we call it dry powder anymore. There's still some, but that's capital to VCs need to deploy because they're operating on a fun basis. So there's not a ton of that around that I'm seeing at least relative to the PropTech space anymore. So VCs are more conscious of where they're placing their dollars.
And overall, I think valuations are just getting tighter. The days of 50 or 100X revenue multiples are gone. That may be a little bold of me to say, but I certainly wouldn't be giving businesses those type of valuations. I think everyone's coming down to earth a little bit more and high single digit low teen valuations are becoming back to the norm just as they were in 2015, 2016. It was really in kind of the last five years when these valuations went crazy. And so I think boundaries and executives just have to level set their expectations with their revenue valuations and revenue multiples now as we look to 2023 and beyond, especially when they're raising early capital. So I don't think raising these very large pre-seed and seed rounds is normal ... I never thought it was normal, quite frankly, but be that as it may, I think everyone just has to, I'll say it again, come back down to earth and understand we're in extremely volatile times and we just kind of have to adapt accordingly.
Well said. So AI. AI's been a hot topic in the industry for several years now, and all indicators are that it'll stay hot. I mean, I don't know who's not talking about AI right now. Even right now in our marketing organization, we're talking about how can we make use of AI. So we can talk a little bit about AI in this question. I'm also curious, are there any other emerging technologies out there that you've seen that you might believe they could garner as much attention as AI now or in the future?
Yeah, I love this question actually, and I'm so glad you brought it up. I think AI has a number of different avenues. One application of AI that I feel strongly about for at least the PropTech sector is the conversational AI. It's truly exploded over the last, I think six months with kind of the evolution of ChatGPT, which I'm sure you're familiar with. So I think that is going to enhance a lot of different aspects within PropTech. And so primarily the way I see it is the lead enrichment lifecycle and really being able to nurture that lead without the touch of a human, I think will help one, lower the cost of leads to operators and ultimately drive competitive competition too, between whether it's ILSs or front end lead gen companies. So I'm incredibly excited about the opportunities for conversational AI to apply to PropTech over the next 18 months. I think it has a really bright future, and we're going to see a lot of it in terms of chatbots and application within everything within the lead to lease lifecycle.
Got it. And so late last year, we did a lot of brainstorming as an executive leadership team and some of our market predictions for where we're headed this year in multifamily, some of those included increasing consolidation of PropTech companies and also a heightened focus on big data. So I want to talk a little bit about what are your thoughts on both of those as potential trends to keep an eye on? And then as a follow-up, I want to know is there anything else you'd add to your 2023 watch list?
Yeah, well, I think you guys hit a nail on the head with regards to big data. That's not going away, and only ... I mean, arming data and the whole philosophy of having a DNA strategy not just as a PropTech vendor, but also as a PropTech operator, whether that's your data lake strategy or what have you, I think is incredibly important. Those type of roles, whether it's data strategy director or whatnot, is just incredibly important to have on staff. Data is the new oil. I'm not the first person to say that. That's probably been the theme for the last decade or so, and it's so true. So I think you guys are spot on with the heightened focus around big data.
I'd also say adding to that list ... I love the short-term rental space. Personally, I think it has a long way to go. There was a huge announcement by Airbnb that was made in November where they'll start to embed their technology and allow long-term tenants to re-lease their apartments to short-term tenants. So I'm really curious in keeping a very close eye on what that looks like both from a regulation standpoint and what technology could be applied to that sector. So we've been all been talking about short-term rentals, but I really think in with the dawn of gig workers and that sort of thing. We're going to see a lot more activity in that space. So I'm tracking it super closely, would encourage others to do the same.
And then I'd also probably say the AR, VR application, not just for tours ... there's a few companies that are doing this extremely well, and of all of them, I think they're that application being able to virtually tour an apartment on a Sunday when a leasing office is closed or at 10:00 PM at night after you're done with your day at work and then apply, that's just opening up huge doors for the application process and making it so much easier for prospective renters to ultimately sign leases.
So I love that application but I think we're going to see more in terms of AR, VR as it relates to things like maintenance requests and being able to facilitate work orders and walk a or a tenant through troubleshooting something in their apartment that's going wrong. So I think there's a huge application that some people just aren't even thinking about that we could apply that technology in the home after. They're like ... AR, VRis huge on the front end right now. I think we're going to start to see it move more into the home in that part of the resident journey. But those are two areas that I would continue to keep a close pull on, in addition, obviously to big data and what you've already mentioned.
Interesting. Totally agree with you on both. Really, really, really neat areas to keep an eye on. Okay, Kyle, so I can't leave this conversation without asking our podcast namesake question. That's all around resident experience. So how do you personally define resident experience and where might you fit a solution like Snappt into this concept?
Oh gosh, great question. So when I look at resident experience, I think I'm bucketing it in three areas. There is everything that happens pre-lease, everything that happens during the lease, and then there's this whole world that I feel is probably the most ignored of what happens post-lease. And so that's kind of how I look at the resident experience, is you have technologies that help them find the apartment, that walk them through the screening and the application process. That's where Snappt sits, by the way. We can come back to that.
Then you have everything that the resident interacts with in the home and during the lifecycle of their lease, making online payments, paying their utility bills, potentially sourcing things like housekeeping and whatnot. Those are all everything that happens inside the home during the lease. And then the back half of that is everything that they do to either find their next apartment home or potentially they build credit then by paying their rent to then go buy or purchase a home or obtain a mortgage. There's everything that happens once the resident has decided to exit the home. That I feel that's probably the most ignored part of the resident life cycle today, is getting ... and then getting that unit turned and ready to be released again.
So when you ask what does resident experience mean to me, I think looking at it in those three buckets is probably one way to do it. And Snappt sits adjacent to the screening process. So we're ultimately validating the authenticity of the financial documents during the screening process to ensure that the person is applying with real financial documents and that the leasing team can have a high degree of confidence that person's income is what they say it is. So that's kind of where we sit is that front end piece of it. But again, I think there's a lot of companies that are doing great things and innovating in all three sectors, so ...
Right. So final question for you. It's an easy one, but I'd love to ask it to all our guests because we know that great people know other great people. So I'm curious, do you have any recommendations for a future guest on the show?
Yeah, absolutely. So I've worked with a number of operators that are truly best in class over my career, tens, if not hundreds, and it's been really great. Two people that I would encourage for you guys to reach out to. One is Garish Shehani out of Chicago, Illinois. He's a Chief Operating Officer at Trilogy Real Estate Group. Tremendous technologist, investor, and operator. Trilogy manages and owns and operates a little over 6,000 units. I think they've been an incredible purveyor of technology in the tenure, 12 years, that I've been working with them. So would encourage you to reach out to Garish.
And then Dana Cardell from Wood Partners. She just accepted Executive Vice President of Operations role over there. She's had a tremendous career throughout property manager management, all on the operations side, and I think she has a tremendous and fantastic eye for the next best thing in PropTech, so she could be a really interesting person to talk to as well.
Wow. Thank you. We're definitely going to reach out to both. Thanks so much.
Kyle, I so enjoyed meeting you and chatting with you today, especially learning that you're a former PayLeaser. I'm excited for our listeners to enjoy this episode, and thank you so much again for coming onto the show.
Absolutely. Thanks so much for having me, Yolanda. Take care.