by Pete Flint, Managing Partner
Silicon Valley has long championed the belief that software and algorithms alone are sufficient to innovate traditional industries. However, as innovation further penetrates our daily lives and activities, increasingly the category defining companies are those that have access and capabilities that go far beyond software. It is these capabilities that enable a wildly better user experience and build long term defensibilities. I saw this close up as the Founder and CEO of Trulia which alongside Zillow (which it later merged with) transformed access to real estate information. Now as investors at NFX, my Partners and I are seeing a increase of startups emerge that we call “software-plus”. We saw this with Ribbon which is launching today. It’s a real estate tech company that we invested in in the fall of 2017 alongside Greylock, Bain Capital Ventures, and NYCA.
The impact of a software-plus approach is immense — Ribbon, for example, is uniquely positioned to bring together software, capital, and local agents to take the hassle and uncertainty out of the single most important financial decision of our lives.
As Founders ourselves, we think the software-plus approach is an important development for the startup community so we wanted to share Ribbon as a case study for other Founders.
Here’s how software-plus supercharges Ribbon:
- Cutting through complex markets. While technology has made great strides in modernizing the real estate industry, the actual transaction is still as slow, painful and uncertain as ever. In fact, in some ways it is even slower. It now takes the average home buyer 25% longer to find their new home, 73% of millenials think it is too hard to get a mortgage so they rent, and 1 out of 4 people cite just the paperwork of a mortgage to be the single most challenging part of their home buying experience. While change is inevitable, the scale and complexity of certain industries requires an unusual approach.
- Getting at the real problem at hand. Investor and institutional capital has taken advantage of the transaction complexity experienced by the everyday consumer who needs to secure a mortgage. Combined with financing challenges and home price appreciation, this has made home ownership increasingly impossible for many Americans. Today’s home ownership rate is fallen to 64.2%, which hasn’t changed in 50 years. It’s not a demand issue, it’s a practical issue for many prospective homeowners.
- Empowering customers with choice. By taking a software-plus-capital approach, Ribbon empowers home buyers not only to have a modern, technology-powered experience, but moreover to compete with all cash offers and to close quickly with full transparency. The team has secured real estate capital to enable over $2 billion in transactions this year.
- Restoring sustainable communities. Buyers are now able to actually compete, real estate agents are able to provide their customers with an unfair advantage, and sellers can have the assurances they need to be able to graduate to their next home purchase.
We believe companies that take the approach of investing in people and homes versus buying houses, will serve our local communities and form the neighborhood fabric that makes people happy. This is precisely the vision and philosophy at Ribbon and we stand behind this consumer-first approach.
In addition to their software-plus approach, here are the tipping points that led to our partnership with Ribbon:
- They are building a network effects company in a $30 trillion industry. There is still so much innovation lacking in real estate, so the opportunity is massive.
- They move quickly and think big. The team has secured real estate capital to enable over $2 billion in transactions this year, they already launched in their first market, Charlotte, NC, they’ve closed brokerage partnerships, and have developed a pipeline of $15 million in home transaction volume in the last 30 days.
- The team is stacked with talent, expertise, and a deep-rooted hunger to transform real estate. This is a team of experts with deep knowledge of technology, financial services, lending and real estate who care passionately about the mission and opportunity. They have built market leading companies and overseen the purchase and sale of over 10,000 homes throughout their careers. We come from notable brands such as: LendingClub, Twitter, Spotify and Invitation Homes.
- They are passionate about solving their customer’s problem. The Ribbon team doesn’t believe that sellers should be forced to sell their homes for massive discounts to institutional capital as the only source of certainty. A 15% discount (typical investor discount) can be more than 50% of a seller’s equity value. Ribbon’s believes that their customers deserve better.
- Ribbon is a people-first solution that empowers communities, not a pure algorithm designed to displace agents. Ribbon is not a real estate brokerage, but works with your local agent, not an algorithm or call center helping consumers get the best advice and the best deal.
- They’ve built a solution that is easy to use for buyers, sellers, and agents. Ribbon takes the hassle out of the whole experience, simplifying and often handling things like valuations, offers, capital backing, inspection, repairs, and on-time closing.
Across every single industry, consumers not only deserve better — they now demand better. We believe “software is eating the world” was just the beginning of industry modernization. In large part, the next phase of transformation will be led by software-plus startups, which are better positioned to provide end-to-end solutions and truly effect change. If you are a founder building such a business with a bold ambition in other industries then we’d love to hear from you.