Ep. 39 Zach Aarons

Chris Rising (00:00:50): Welcome to The Real Market with Chris rising. I'm really excited about my conversation with Zach Aarons of MetaProp today. We really had a long conversation about VC and proptech, where the world's heading. I think you're all going to really enjoy it. So take a listen. Zach, I'm really pleased to have you here on the phone with me today.

Zach Aarons (00:01:11): Thrilled to be here, Chris. Thank you for having me.

Chris Rising (00:01:14): Yeah. Well, we've had a little bit of a slowdown on our podcast schedule over the last week or two as everyone can imagine. But I'm excited to talk with someone who is really at the forefront of what we're doing from work from home or how our buildings are adapting to a new world of technology and people's acceptance in using it. I'm really excited to hear about some of the things that you guys are doing, but why don't you give a brief description of MetaProp and what you guys are doing.

Zach Aarons (00:01:50): Sure. I'd be happy to. MetaProp is a early stage venture capital firm. We are based in New York city. We were founded in 2015 by a group of people with experience from the commercial residential real estate industries as well as the venture capital and startup technology ecosystem. We started the company because we believed there was a lack of translation between the tech community and the real estate community. We wanted to step in and become the connective tissue that would tether those worlds together. We've spent the past five years trying to do that through a venture capital business model. We raise money from the real estate industry. Our limited partners represent over 15 billion square feet of property globally that's owned, managed and serviced. We take that capital and we invest it into fast growing, scalable, early stage proptech companies. Those are companies that identify a particular bottleneck or inefficiency in a real estate process and seek to speed it up through software, hardware, internet of things, technology enabled service, a business model innovation.

Zach Aarons (00:03:27): We invest across asset types. We invest in technologies for the office sector, hotel sector, retail sector, industrial, single family, et cetera. Then we also invest across what we call the value chain. Which means we're not just investing in technology that benefits an owner of commercial real estate like you or a broker or a servicer. But we may invest in technology that benefits a lender, a loan officer, a title insurance agent, a general liability insurance underwriter, a plumber, a project manager on a construction job site, an architect, and on down the line. We believe today and we believed it five years ago when we started the company that almost every single process within real estate transactions could be expedited and made more efficient using purpose-built technology. Today we've invested in 75 companies out of MetaProp's three venture capital fund vehicles. We love what we do.

Chris Rising (00:04:38): Well, first of all, that was a great definition for what proptech is. I often will have people on and people aren't very specific about what it means. But just to clarify even further, have you stayed away from kind of last mile scooters or things to do with transportation? Is that outside of your definition of proptech or do you include something like that?

Zach Aarons (00:05:03): We have a constant debate internally on whether that fits within mandate or outside of it every time we see a deal in that space. We believe that logistics to an extent is proptech as it relates to primarily industrial and retail real estate. However, we've always taken the position as it relates particularly to scooter companies, that scooter companies were a little bit of a stretch for us. I think what's important for us in evaluating an investment, is can we add value beyond just writing the check. The ways we add value are we take this startup and we train them on how to sell their product, their technology into their customer in the real estate community. With a lot of these scooter companies, other than potentially doing deals with some parking operators we know, we didn't really find a nexus of how we could help them strategically. We've passed on the bulk of those deals, but we're opportunistic and we're constantly evaluating companies that we like.

Zach Aarons (00:06:23): Where we like the entrepreneurs and the products that sit maybe on the fringe of our mandate. At the investment committee, we actually have a rubric that we go through to determine before we make an investment like that, whether the company is on or off mandate and decide like that. We don't have a sort of firm line in the sand, but to date we have not played very heavily in logistics like that for better or for worse.

Chris Rising (00:06:56): You're one of the few proptech VCs that I've talked to who actually has a investment window for hardware. I mean, most people are very afraid of hardware for VC investments. Talk a little bit about how you look at that. I mean, I think you and I have talked in the past, we all agree with the Marc Andreessen quote that software is eating the world. But not many people want to venture into the hardware side.

Zach Aarons (00:07:23): Yeah. We have had success and failure in hardware in our investing career. We've invested in quite a few companies. I think one of our most successful investments in the hardware space was actually an LA based company or called Flo.

Chris Rising (00:07:48): They went well.

Zach Aarons (00:07:50): Flo is a very interesting company that enables leak detection and plumbing health, I would say, within a plumbing stack in a building. What we liked about that company and companies like it was, we were seeing very compelling interest from the insurance community. It enabled the company to not have to spend a bunch of money on online direct to consumer advertising in order to sell and distribute the product. I think historically we have been wary of hardware companies that need to sell online, direct to consumer, because that's become very expensive. A lot of hardware companies saw early traction and then got crushed when the early adopters all bought the products and they were unable to cross chasm into the mass market. We're definitely wary and skeptical of hardware, but we do believe it has an important place in the proptech ecosystem. The fact of the matter is, you have a lot of systems in buildings where the software is essentially worthless without some hardware component that links up to the building system.

Zach Aarons (00:09:24): You can't just run software to analyze water flows within your building. Because water runs through pipes and pipes exist in the physical world.

Chris Rising (00:09:33): Yeah, that's a good point. A very good point.

Zach Aarons (00:09:38): But I would say because it is so challenging and because you have to build ... In a software company you just have to build software. In a hardware company, you have to build hardware and software and firmware. They all have to interact with each other and they all have to work. Then you have to sell and distribute it. It's always been a small part of our practice. I think we've probably done, out of the 75 companies, I think probably four of them are hardware. It's a small piece of our book, but we're definitely not as scared of it as maybe we should be, or as other VCs tend to be. But there's been big exits in the space that buttress a thesis, even direct to consumer. I mean Ring, which I would classify as a proptech company, that was a billion dollar acquisition to Amazon. Dropcam was bought by Nest, and Nest ultimately purchased by Google. There have been some encouraging hardware exits. But yeah, it's certainly, I would say our bread and butter is software as a service for industries within the real estate world that did not have a purpose-built software.

Zach Aarons (00:11:01): When I ask a participant in the real estate industry, "Well, what do you use for your business?" And they say, "Pen and paper, fax and Excel." Then that's when I usually say, "Would you like to try something maybe better?" But we're business model agnostic. We've had situations in the past with portfolio companies that have attempted to sell software as a service and the customers for whatever reason have balked at purchasing it. We pivoted those businesses successfully into technology enabled service businesses where they are effectively the service providers. Instead of selling software to title agencies, they become the title agency. Instead of selling software to appraisal firms, they become the appraisal firm. The benefit of that is you can control your own destiny a little bit more. The negative of that is a technology enabled service company will always trade in the equity markets, both public and private at a lower multiple to revenue or EBITDA than a true SaaS company would. Because the gross margins are going to be much, much lower in a tech enabled service business.

Chris Rising (00:12:25): Well, and I also think there's in the, when you're focusing on the hardware side of things and what exits are versus the SaaS world and any of the software world. You also have some big players who've been in the business for a long time that make it very hard for newer technology to break through, I find. I mean, I'll give you one example. Now I guess it is a long time ago, but it doesn't seem that long ago. But in 2012 when we first started really getting into technology and buildings, buildings didn't have fiber for the most part. If they had fiber, it was usually because they were a bank or something. But the building operations weren't running off of anything with fiber. You get to 2020 now, it's a much different world where changes in hardware that also have some sort of SaaS or some sort of software that goes with it is enabled in a way we just couldn't have done a few years ago. But I also think there are only so many valves.

Chris Rising (00:13:26): There's I mean, so many building things that are the physical hardware. The valves work in the way they've always worked. They just now are attached to software instead of just the engineer going through a checklist. Maybe I'm wrong, but I don't think the market is as big for hardware as it is for software. Am I right about that or what do you think?

Zach Aarons (00:13:51): Yeah, I would certainly concur with that. I mean, if you just look at the public equity comparables. I mean, the Post-Star, despite getting its stock price hit pretty substantially in the most recent downturn is still a $15 billion publicly traded company. Whereas, the largest pure play hardware company for the real estate industries is much, much smaller than that. You also have existing legacy players, OEMs for building management systems, elevator systems, turnstile systems that have vested interests in maintaining their technology as a walled garden. Not necessarily desiring to integrate with other systems in the building or other software components that the landlord or property manager may be utilizing to run the building. It's very hard to get an Otis elevator to talk to anything else within the building. Because of that, to your point, there's a limit still in what we as technologists and enthusiasts can do to improve the quality of experience within a building without replacing those OEMs. That's not going to happen.

Zach Aarons (00:15:27): I mean, when I talk to building owners, even the most experimental ones, they're still going to buy the elevators from the companies who've been making elevators for 100 years. They're not going to take a chance on that. Same with their core, they're still going to hire Johnson Controls or a Honeywell for their building management system. The risk on taking that type of risk on a startup is still probably too large right now. Until we see some movement there, I think you're going to see a lack of breakout success for a lot of the hardware companies.

Chris Rising (00:16:16): Yeah, I think you're right on. I mean, I just know dealing with, whether it's Schindler or Otis or whoever, they tie you into very longterm service contracts requirements around their technology. When it comes to those vital life safety functions in a building, there's not much motivation to take a risk there. I hear you. I do think where software has been really helpful, has been with the technology around building management systems and having an open API and being able to integrate. But it's still, I agree with you, Johnson Controls isn't going to give up market share just for the sake of innovation, unfortunately.

Zach Aarons (00:16:55): Yeah.

Chris Rising (00:16:56): But let's turn a little bit here and just, how does someone who goes to Brown and then spends time and gets his MBA from Columbia ... Were you in the real estate school at Columbia, or did you focus on real estate? How did you get this interest in real estate proptech and not just being in real estate? Tell us a little about that.

Zach Aarons (00:17:23): I grew up in the business. My dad's been a real estate developer since I was born. When I was born, he was running what was called the Public Development Corporation in New York, which became what's now known as NYCEDC, the New York City Economic Development Corporation. He was in charge of all New York city's public development at the time. Then he went into the private sector and has been a real estate developer in the private sector essentially since I was born. I just turned 37 years old. I always grew up in the business. I went on my first visit to a job site when I was seven years old. I remember one of the foremen yelled at me because I wasn't wearing a hard hat and then asked if I had my union card on me. I was getting heckled on job sites from an early age. I really liked the business. I didn't feel a pull to get into it immediately.

Zach Aarons (00:18:34): After college, I worked on Wall Street in M&A for a couple of years. Then actually got recruited by an old friend of mine from summer camp to join him and launch a tech startup in the travel and tourism space. I did that for a while and we ran a online, offline walking tour company. While I was doing this, I started to get very involved with things like social media marketing, content marketing, influencer marketing, things that were just sort of burgeoning at the time. This was the last few years of the OTS as we say. I kind of hit a wall growing that business and decided I didn't want to do it anymore. I wound it down and my dad saw a lot of what I was doing on the marketing side and believed that there was an opportunity to leverage social media marketing for the real estate development process. Fundamentally, the entitlement process, to get support from the community members who weren't ordinarily engaged in the real estate process.

Zach Aarons (00:20:08): Folks who didn't go to the neighborhood council meetings on a regular basis in Los Angeles or the community board meetings in New York, but actually cared about what was being developed around them. We implemented a plan to market a potential development project through social media. That was my first exposure to the real estate business. Once I got brought in to the real estate business, I sort of fell in love with it. I started looking at other aspects of the business leasing, purchase and sale agreements, property management. I was able to work a little bit in every aspect of the business. Which was really, really valuable for my later career as a VC. Because I noticed problems and inefficiencies in pretty much every single real estate process. Over the seven or eight years that I was in the real estate business, I encountered probably 100 to 200 problems that I wanted to see solved and also got introduced to a lot of entrepreneurs who were looking to solve them.

Zach Aarons (00:21:35): Simultaneously to that, I was doing angel investing and was building up a book, primarily focused on what I knew in the tech world. Which was travel, tourism, walking tours, things like that. I was investing, this was the early days of AngelList. I was meeting entrepreneurs. I was getting networked in the Silicon Valley ecosystem and learning a ton. I was doing these sort of disjointed things simultaneously. Then I got the opportunity to go to business school of Columbia. At Columbia, I focused half my time, other than the core classes which you have to take, focused half my time on real estate and half my time on venture capital courses. One of my professors who's a guy named Stu Ellman, who is a founding partner at RRE Ventures, which is a large venture capital fund in New York.

Zach Aarons (00:22:38): He asked me what I wanted to look at for my final project and I gave him an idea and he said, "I don't like this idea at all. I think you need to be focusing on real estate technology because you know a little bit about the tech world and how the venture business works. You work at a real estate company and you've done all these things in real estate transactions." I sort of took that advice and then I very aggressively went after it and I started cold calling and cold emailing every entrepreneur I could find in the space, learning as much as I could. Then I sort of pivoted my angel investing book exclusively into what we now call proptech. I very aggressively did a lot of deals and I became the most active investor in the space globally. Then by 2015, I met my co-founder at MetaProp and he suggested that we team up together and kind of institutionalize what I'd been doing as kind of a side hustle. We started working together and the opportunity proved to be really massive and really compelling.

Zach Aarons (00:23:54): I was able to thankfully because of some of my projects in the real estate, I was able to transition out of some of my real estate projects and move into doing the proptech venture capital stuff at MetaProp full time. It was kind of a weird circuitous evolution. But coming out of Brown, I mean, I didn't really know what I wanted to do. I majored in ancient history in college. I didn't have much of a business background, but I learned a lot on the job and I'm an intellectually curious person. I also listen, and this is what I tell ... I get approached by a lot of people who are just starting their careers. One of the things I tell them is, know whose advice to ignore and whose advice to take. That's a really hard thing to know. But I just got lucky. I took the advice of Stu Ellman who said, "Focus on this real estate technology." Zach Aarons (00:25:04): But I also had a lot of people giving me advice like, "Proptech is never going to be big enough to support a career. No one cares about this stuff. No one has any idea what you're talking about. You shouldn't be doing this." I ignored all the advice and went after the advice that I got from Stu. Time will tell whether that was the right decision or not. But it's certainly been a really rewarding experience thus far.

Chris Rising (00:25:46): Well, talk us through. You decided, "Okay, I want to institutionalize this. I want to raise my first fund." I mean, I think anybody who's done any fundraising around the fund business, whether it's VC or real estate funds, knows that the first fund is the hardest and it takes a lot longer than it does for people who have a track record. Talk about how you and your partner got together and what the strategy was to raise the money. How big was the first fund, and kind of what was the term length of that and all, and what has been some of the successful stories out of it?

Zach Aarons (00:26:17): Yeah. We set out originally to launch an accelerator. We didn't really plan to do a formal venture capital fund. We went out to everybody we'd met. My partner had been a partner at Cushman & Wakefield for many years. He had a lot of connections in the real estate business. I had a lot of connections in the real estate business. We reached out to everybody we knew and we asked them if they were willing to be a mentor in our accelerator program. That was a really easy ask because we weren't asking them for money. We were just asking for a little bit of time here or there to spend time with the startups. The original plan was we were just going to do a small accelerator and we were going to fund the first batch of startups just ourselves. Because it wasn't a ton of money and we weren't going to take a ton of startups. It wasn't like a ton of startups we're falling all over themselves to join an accelerator program that didn't exist.

Zach Aarons (00:27:31): We had to beg the startups to join just as much as we had to beg the people to become mentors and ultimately finance the thing. We launched the accelerator, we launched it around Labor Day of 2015. The mentors that we had recruited, they started spending time with these companies and they fell in love with it. It was the favorite thing they did every week and they became obsessed with it. They came to us, a lot of them came to us and said, "We really want to be putting money into these companies. But we don't know which ones are good. We don't know which ones are bad. We don't know which ones are applicable to us. We need a filter. We need a curation effectively." We said, "Okay, well, let's just raise a fund based off that pent up demand." The first fund was a couple million dollars, and it was really just friends and family money from the real estate industry. It was people who had a bee in their bonnet who really just wanted to hang out with startup entrepreneurs and help them, and wanted a little skin in the game.

Zach Aarons (00:28:54): We raised that money. Then we decided we weren't just going to run an accelerator program, although we still do run the program. We have about five or six companies per year. But we decided we were going to open it up and there were so many opportunities for us to invest in proptech startups globally. We invest in about 32 companies out of that fund. We deployed the capital in about a year and a half.

Chris Rising (00:29:26): What was your average check size?

Zach Aarons (00:29:29): It was between 25K to 100K. We were essentially writing angel checks into rounds. It was easy to navigate because there weren't a lot of people with expertise back then looking at these deals. We had such a small check that we weren't muscling out anybody. The entrepreneur could kind of sneak us into any round. That fund is doing very well. Today we've returned a good amount of the capital through distributions, through exits. We have very, very impressive multiple on invested capital numbers. We have some really, what I would think are category defining companies out of that fund. We have companies like Side, which is one of the fastest growing virtual digital brokerages in the country. Companies like Spruce, which is a very fast growing tech enabled title agency. A company like Bowery Valuation, which is a fast growing technology enabled commercial appraisal firm. We invested that capital well, we diversified it. The traction from that enabled us in 2017 to raise our first institutional vehicle.

Zach Aarons (00:30:56): That was what we call fund two. That was a $40 million vehicle. The LPs, investors, in that fund were large global real estate firms primarily, on the landlord side, broker side, property manager side. We kind of graduated from friends, although quite a few friends and families still participate with us to this day. Then that fund we completed investing initial checks at the end of last year. We're now investing out of our third fund. We've evolved over time to write larger checks. We've evolved over time to occasionally lead investment rounds and take board seats and sort of hold the water in a deal.

Chris Rising (00:31:58): Have you moved a little bit outside of the angel position and more into a little later stage? Or are you still doing this around an angel investment?

Zach Aarons (00:32:07): We've always invested stage wise from we say idea to series A. We will still invest when it's just us, the entrepreneur and a whiteboard. We can invest a couple hundred thousand dollars into a round like that. Then we can also invest when a company is hitting product market fit and we can write a $2 million check into a larger sort of series A round. Our preference is to play as early as possible. Especially if software, we believe we have an information arbitrage and could really help these companies grow. If it's a more complex technology, if it's something like heavy robotics or 3D printing or hardware, we're probably going to want to wait to see if the tech actually works. And if there's traction and we're willing to pay a higher price for a series A in a company like that. But if you plan on launching a technology enabled service or a software as a service company or a software enabled marketplace, we want to be the first money into a deal like that.

Zach Aarons (00:33:18): We want to be compensated for our risk obviously with a fair valuation. But that's where we thrive and we believe, at least as it relates to our competitive set, that we do the really, really early stuff better than anybody else in the world.

Chris Rising (00:33:38): Well, let me ask you this. How big is MetaProp now? How big is the team? Well, how big is the team? Let's start with that.

Zach Aarons (00:33:48): We have 13 people currently on the floor.

Chris Rising (00:33:51): Then how do you all ... You're in proptech, you're very focused on technology. What's kind of the backbone for how you all operate. Is there a software you use, I mean, are you a Microsoft Windows 10 kind of backbone company? Or are you guys Google or how do you guys operate with 13 people?

Zach Aarons (00:34:11): Yeah. We do everything. We underwrite every deal in a back room with an abacus and it's been very efficient. No, I think up until very recently it was a joke kind of around the office that we were investing in some of the most cutting edge tech in the world, and we were managing that process with email. It just wasn't right for our brand. It really was our ... The junior folks at our firm are even younger than I am, who really took us to task and said like, "We got to beef it up." We started using nothing crazy. We're not Correlation Ventures. We don't have a special algorithm that helps us determine whether we should do a deal or not. But we use a purpose-built CRM for the VC industry. It's called Affinity. It's extraordinarily powerful. I love using it and I'm in it every day. We use Superhuman for email tools. We use-

Chris Rising (00:35:41): I have to admit, I was an early adopter on Superhuman and I think it's a nice product. I've actually stopped using it. I just-

Zach Aarons (00:35:48): You churned?

Chris Rising (00:35:50): I told them I'll go back to it, but I'm a little older than you are. There's no way to make the font bigger without making the whole screen bigger. I'm like, "Dude, I just can't work with that." I would do so much off my iPhone. I just can't do it. It's a great product and I think Spark is another product that's great and similar to that. But I've actually kind of just gone back to Gmail. But I think Superhuman is wonderful, Affinity is great. Are you guys using any project management software? We live our whole life on Asana and our company rules emails for the outside world. But anything on the internal has to be brought into Asana.

Zach Aarons (00:36:34): Yeah, we use Slack and we use Airtable to keep track of our portfolio. Then we have a lot of ... Then we do use Google Docs a lot. On the fund admin side a lot of our portfolio companies use Carta. We have a couple of ... We have a purpose-built sort of investor relations portal that our fund administrator Aduro uses. We've significantly beefed up our internal technology operations, but it certainly could be improved still. When I'm trying to sell myself to an entrepreneur in a deal or I'm trying to raise money from an LP, it's not something that I am bragging about.

Chris Rising (00:37:32): Well would you consider your guys, that your team, is paperless? Are you using Box or Google Drive, something like that? Or do you guys still use a lot of paper?

Zach Aarons (00:37:41): We're totally paperless. We use Dropbox, we use a Google Docs, we use Airtable, we use Zoom for conferencing. Yeah, we're totally paperless except for the stuff we absolutely have to print. Yeah, absolutely.

Chris Rising (00:37:59): Yeah. How are you looking at ... We're in this fracture in the world? I mean, this is a podcast that will be played later. But here we are at the end of March 2020, the world is on lockdown. How are you finding for your team its effectiveness with all these technologies and effectively working from home at this period of time?

Zach Aarons (00:38:23): Yeah. I think our team has really inspired me. They've really stepped up. Everybody is on Zoom. We're trying to ... My partner has been really good at getting everybody to feel personal connections. We still do a lot of non-group chats, just impromptu phone calls to each other. We share without getting too personal. We want to be respectful of people's privacy. But we've taken the sharing experiences. What did you do yesterday? Sharing that as a group, it can be really powerful, it can help people feel more connected in a challenging time like this. But yeah, I don't know what we would do without these technology tools right now to stay on top of our work. But we are. We are still executing. We're still doing everything we were doing a month ago. Maybe it's a little slower, maybe it's a little more fraught, maybe it's a little more challenging. But the team continues to execute. It's been amazing to see it.

Chris Rising (00:39:48): Yeah. We've had a very similar experience and I think there's a lot of etiquette around using Zoom and other things that people have developed. There's discipline about how you have an effective meeting. Look, this may be premature to ask this question, but what's your take? I mean, there's a whole Twitter verse out there who's growing that people will never need an office again and everyone's going to work from home. Obviously someone who owns a lot of office, I listen and I have some strong feelings why I think they're wrong. But what's your take? You're investing in things in companies that need a canvas like our office buildings. Do you think offices are going to go away and people will just work from home from now on?

Zach Aarons (00:40:38): I don't. I think that it's been proven that teams are most productive when they have flexibility. That's flexibility to work from home when they need to, and that's flexibility to go to the office when they need to or should be. There are certain, I would say, productivity sprints and spontaneous bursts of creativity that are just much more challenging to accomplish when you're on a Zoom. Before all this started, for example, with my own team, other than our weekly ... We have a weekly fundraising meeting. We have a weekly investment committee meeting and we have a weekly standup call. Where everyone shares the top three things they're working on. A lot of my employees were like, "Can I get a one-on-one meeting with you every week." I pushed back pretty hard on it and I said, "If we're all doing our job in the office, we should be able to just accomplish an immense amount just talking impromptu almost every day. Then we won't need to have all this time where we're scheduling meetings and then rescheduling and things happen. Let's see how ..."

Zach Aarons (00:42:10): We've gotten some amazing productivity out of just being in the office, having a spontaneous five minute conversation around the water cooler, iterating on something. Pulling somebody in who has expertise in a particular area that's literally in the room next door. As opposed to having to call them or Zoom them when you need their opinion on something. There are so many occurrences of that. I don't believe that office culture is going away at all. I think it's just changing and I think it has been changing, and this is going to accelerate that change. Much like a lot of real estate processes have been gradually going virtual over the last 15 to 20 years, and this event will accelerate those. It's not like virtual tours for real estate didn't exist last month. I can name you seven or eight companies who were around last month and they're still around. But their businesses are skyrocketing right now. I think this will accelerate trends that were, I think, moving arithmetically are now moving exponentially. But time will tell, but [crosstalk 00:43:47]-

Chris Rising (00:43:46): Yeah, I think-

Zach Aarons (00:43:47): ... way. No, I don't think all your buildings are going to be empty any time soon.

Chris Rising (00:43:53): Well, I agree with you. I'll just hit on a couple things. I mean, I've said to a lot of people that I think this is the end baby boomer mentality of work. That somehow you have to be in an office at 6:30 or 7:00 in the morning and stay until 7:00 at night, and that means you're a good employee and all that. I think that thinking is dead now, and I think this killed it. I think certain things in the law that people said you have to have, I'll give you an example. I had to drive from Pasadena to downtown this morning because we're closing a loan. I had to sign tons of documents. The fact that I had to do that with a notary there, is stupid and ridiculous. It's because some older judge or someone in the case law, the lawyers were like, "Oh no, you can't do DocuSign or Adobe Sign." That's going to change radically. But I so agree with you that ... I found the last two weeks that my days are so much longer work from home because everybody has to schedule a call about every little idea.

Chris Rising (00:44:54): We've instituted just open mic on the Zoom for twice a day so people ... Trying to simulate a water cooler. But none of it is the same. I think what I see happening is what technologies are going to allow us to do is not have to spend time in traffic, not have to spend time that's wasted. Because we can get work done that's trackable that will be the same thing as the office like it used to be. But what I think it's going to do is it's going to really hone in on the creative time. That people will say ... I mean, nothing replaces having my senior people in a room once a week for 90 minutes talking about all the problems. That allows us to go have freedom outside of that. I think we're on the same page on this, but let me ask you this. Forgetting that the last two weeks that happened, it's very hard because it's a very tough time in our culture and our society and our cultures are being challenged. But just kind of in general, if we didn't have the last two weeks.

Chris Rising (00:45:49): If you were to pick out two or three areas where you see proptech over the next few years having its biggest impact, what areas are you making bets on right now?

Zach Aarons (00:46:04): We have a lot of investments that we're doubling down on. I think any company that can reduce in person friction associated with real estate transactions per your example of wet signatures on loan docs, we are very, very bullish on. Any company that, for example is doing inspections of property using computer vision and artificial intelligence rather than a human being having to go to the job site. Any company that is doing virtual appraisals, any brokerage that's built in the cloud instead of in physical retail locations. Those, again we're going to see an acceleration of those trends and we're thankful that a of our portfolio is really well positioned to take advantage of that. We're also grateful that we don't have a lot of exposure to some of the companies that are going to be hit the hardest. A lot of rent arbitrage companies are getting hit quite hard right now.

Zach Aarons (00:47:23): Yeah, I think any company that has technology mainly focused on automation of tasks, mainly focused on computer vision, artificial intelligence, machine learning, those technologies will thrive in this new environment because people are still going to want to transact. They're just going to want to do it with less human interaction and less physical interaction with the brick and mortar. If you're a contractor and you have to physically walk into a house, touch somebody's countertop to get a sense of how much you would bid to renovate that kitchen. Would you rather put yourself at risk to catching a deadly pathogen? Or would you rather just have the bid done through a scanner and software that can automatically spit out what the bid would be, what the bill of materials would need to be, et cetera, et cetera? I think people are going to gravitate toward option B.

Zach Aarons (00:48:39): But I don't know. In these things, you always see an overcorrection and then you see a reversion to the mean. I think we're going to see a few months if we come out of this thing, we're going to see a few months of overcorrection to what I'm talking about. Then you're going to see a mean reversion. I was on the phone with one of my portfolio CEOs last night, for example, and he was saying, "Yeah, open houses are still going to happen. There're just going to be a lot more hand sanitizer." You have a lot of different opinions right now and you have people saying, "Yeah, they'll still happen, but with fewer people and more hand sanitizer." Then you have some people say, "Well the open house is totally dead. It's all going to be done virtually. No one's going to show up. Everyone's going to be doing it on their computer and people will buy a house sight-unseen. I know it's not my job necessarily, Chris, to know the answer.

Zach Aarons (00:49:36): It's my job to back financially and emotionally and strategically to back the companies that are best positioned to take advantage of both of those trends. Because the real estate market is so big and so idiosyncratic that both of those things can be true. In one geographic territory for example, open houses could be completely obliterated and everything's done virtually. I want to be investing in a company that does the best virtual open house. Then in some company, in some geographies, open houses could be just as popular, just with more hand sanitizer and people standing six feet away from each other. In that case, I want to back the best company positioned to thrive in that environment. I'm pretty careful with caveating a lot of my sort of big bold predictions. But that doesn't stop me from making them. Since we started the firm, I've been predicting that we're going to be 3D printing buildings on Mars since 2015 and that hasn't happened yet, unfortunately. But I see it every year.

Chris Rising (00:50:48): But I'd like to see them doing it in certain neighborhoods. I think we would ... But let me ask you this. I tend to be more on the commercial side, so my questions tend to go there. But I really do appreciate what you're talking about with virtual open houses and such. Two areas I want to hit on as we talk here. Two years ago, three years ago, all I heard from the VC community was the impact that blockchain was going to have in terms of fractional ownership of office buildings and how it was going to democratize the world. I haven't really seen it. I've made some of my own personal investments and that hasn't worked that way. What are you seeing in that regard? The influence of blockchain and fractional ownership?

Zach Aarons (00:51:43): I haven't seen any proliferation of that at all and I'm very grateful that we didn't make any investments in the space. We were tempted in sort of at the height of it, 2017. We just closed our second fund. We had a lot of dry powder for blockchain, fractional ownership startups. They all wanted crazy valuations and so we walked. That turned out to be the right decision. In 2013, I became involved in what was then called the International Real Estate Bitcoin Association. I've been for years, a big believer that blockchain would transform the real estate industry, and sort of the title transfer would be much easier, less friction, et cetera. It hasn't happened yet and I think it will happen sometime in my lifetime, but I'm not willing to risk my LPs capital on it right now. I would say is where I'm at with that. The most sort of interesting blockchain stuff I've seen as it relates to real estate has actually been supply chain related technology for tracking materials going onto your job site. That's been way more interesting to me than any of the fractured ownership stuff on the blockchain side.

Chris Rising (00:53:12): I don't know about you, Zach but I've got two 15 year olds and a 10 year old and my wife who works at Gensler, and so our broadband gets hammered sometimes. I just switched back over to cellular, I apologize. We'll be able to edit in there. But I was really interested in hearing what you were saying there about you're involved with the International Bitcoin and you're a believer in it, but it hasn't happened yet. Maybe we can just pick up from there. Zach Aarons (00:53:38): Yeah. I'm a big believer that eventually blockchain will revolutionize the real estate industry, but it's not going to be on my firm's dime. Because I just don't know when it's going to happen and I haven't seen it happening yet. I'm reluctant to commit my LP's harder earned capital to it.

Chris Rising (00:54:00): Yeah. What about crowd funding and such? I mean, I made a bet early on that. That business totally changed. It went from kind of hoping everybody could fund an equity piece of a deal I wanted to buy two kind of eREITS. Do you think there's another life for crowdfunding platforms?

Zach Aarons (00:54:24): I think a lot of the big institutions are going to try and do their own and access retail. Jamestown interestingly launched their own crowd funding platform recently. We'll see what happens there. We haven't made investments in it at MetaProp. I had a pre-MetaProp personal investment in a crowd funding business that failed. We've stayed away from it. I don't know how scalable it is, honestly, at the retail level. It makes sense theoretically, but I think in practice has proved too challenging thus far. But again, time will tell. I think both blockchain and crowd funding, it's like those things are kind of obviously the future. But how far in the future are they? Even though I play at the seed stage, the stuff I invested has to start working within 12 to 18 months. I can't pump money into a company for seven years before I start seeing traction. The challenge for me is-

Chris Rising (00:55:46): You're not a biotech firm.

Zach Aarons (00:55:48): Yeah, that's right. I got to be ahead of the market, but I can't be far ahead of it. Because then if there's no adoption, I lose everything. That's one of the challenges for me, is being slightly ahead of others but not too far ahead. Sometimes that's been beneficial for us, sometimes like, "Wow, you were so lucky getting into this sector." I'm like, "It wasn't lucky it was all a thesis, but thank you." Then sometimes it's like I backed something that seems really obvious to me and it just doesn't get the adoption that I thought it was going to get for a variety of different reasons [crosstalk 00:56:30]-

Chris Rising (00:56:30): Yeah. Let me ask you ... Not that you have to relieve or tell us any secrets or a secret sauce. If you had to pick one area that we kind of talked about areas that people thought were hot that aren't. What's something that you think just when you're looking at kind of where the puck is going, is going to be something, an area you think will be big that people really have not even thought about right now?

Zach Aarons (00:57:03): I think one of the most interesting areas that we're looking at a lot and things are starting to happen is payments in the construction industry. I think the flow of money from the bank, to the developer, to the CM, to the GC, to the sub, to the laborer is so slow and so broken and so antiquated. If you look at the number one reason why construction projects are almost always over budget and over time is because we can't get money to people fast enough and they walk off the job. That's the sector we're spending an immense amount of time researching right now.

Chris Rising (00:58:04): Are you going to personally go to all these subs and unplug their fax machines?

Zach Aarons (00:58:10): It's already started, man. I'm already-

Chris Rising (00:58:12): I hope so.

Zach Aarons (00:58:15): ... working on it. I'm already working on it.

Chris Rising (00:58:15): I tell you, my biggest frustration is not really the contractors, it's the subs. Who have worked one way forever and grandpa is still kind of in the business, and this is the way we've always done it. But that's where I think the dislocation in the last month or so is really going to make a difference. That the last bastion of the kind of 1980s way of working is going to be forced out because you can't be there. Well, let me ask you before we wrap up. You have three kids and you live in Brooklyn. How does maintaining a family life with all the stress and work hours? Is there anything you do around technology to give yourself a break? I know my audience is always looking for the next great hack. Do you have anything for them?

Zach Aarons (00:59:07): Well, I just started my sons on a couple of educational apps. I'll share those with the group. I'm not an investor with any of them. They're not proptech, they're ed tech. I just downloaded Scratch for my seven year old and he loves it. He's starting to learn coding. It's so cool 3D games. I downloaded for my younger son, who's four, I downloaded in this app called HOMER. Which teaches you how to read in a really fun way. Then for both of them, I downloaded a math app, which is called DragonBox. For the younger one it's more like arithmetic type stuff. For the older one, it's a sort of early geometry and algebra and they both are loving that. If I give them that for a little bit of a time, it enables me to steal a little bit of time to do podcasts and a lot super essential tasks.

Chris Rising (01:00:20): That's great. Thanks Zach. That was a great conversation, I really enjoyed it. For those who want a little more information on Zach and MetaProp, please go to their website. Don't forget to follow The Real Market with Chris Rising on any of the podcast platforms, Apple or any of the others. Follow us at Twitter. My Twitter handle is @ChrisRising. Thank you for listening. I really appreciate it.