From Lightspeed to AngelList: Jake Seid on his investment in Roofstock, and the future of real estate

Jake Seid spent over a decade as Managing Director at Lightspeed Venture Partners, and four years as President of real estate giant Auction.com (now Ten-X), before dedicating his time investing in the future of real estate (among other themes). In this interview, we go inside his investment in Roofstock, a real estate startup that just raised a $20M Series B from Lightspeed and others, to learn:

• Why Jake thinks real estate is the next big pillar of the economy to move online
• How Roofstock is making investing in rental properties as accessible as investing in the stock market
• How Jake leverages his experience at Lightspeed and Ten-X to bring value to startup founders

Julie Ruvolo: I want to start with your Google Images result. Did you have a prior life as a bodybuilder?

Jake Seid: That would be a fascinating blog post, “From Bodybuilder to VC,” but unfortunately that’s not me.

You are Jake Seid, the VC. You’ve had a long track record at Lightspeed Venture Partners, one of the top performing funds in Silicon Valley.

Lightspeed is a top fund: Cisco bought AppDynamics for $3.7 billion, Nutanix went public at $5 billion market cap, MuleSoft filed for IPO recently, and Snapchat just had a huge IPO. It’s a great partnership that works extremely hard for their companies.

What did you carry forward from your time there?

My eleven years at Lightspeed were formative. I joined when I was around 24, after running a successful product line at Cisco Systems. I learned a tremendous amount about how startups get built, how they succeed and where the potholes are.

I learned a lot about people as well. It all sounds very generic, but you start with great teams and very large markets, and from there, you look at other things, like business models: Do you have a model that has a chance of being a high margin business? A model where you can build barriers to entry over time, versus it becoming very competitive and having your margins get competed away?

After Lightspeed, you spent four years at Ten-X, an 800-person company that does billions in annual real estate transactions. Walk us through that transition.

Another thing I learned at Lightspeed, very large companies are built when you pioneer moving a pillar of the economy from offline to online: Amazon in retail, Google in advertising, Priceline in travel.

In 2011, the number of large, trillion-dollar-plus pillars of the economy that had not yet made their initial move online were fewer and further between. However, when I started looking at what other big pillars of the economy have not yet made that shift, I saw that real estate was one of them.

I joined Auction.com (now Ten-X) in 2011, which at the time had a large offline real estate business, but was looking to build on the auction experience and create an eBay competitor. I took the company in a different direction of building a vertical marketplace focused only on real estate transactions. My view was that being a vertically focused, two-sided marketplace (versus horizontal like an eBay) is just fine when you’re dealing with a multi-trillion dollar market.

Real estate is such a vast and diverse industry. I saw opportunities across many pieces of the real estate ecosystem that Ten-X was not focused on, and I wanted to start investing in that ecosystem. So I moved to the advisory board of Ten-X and now spent the majority of my time investing and advising.

You recently invested in Roofstock, an Oakland-based startup that is trying to make investing in single-family rental properties as easy as investing in the stock market. What is the opportunity, as you see it?

The founders of Roofstock, Gary Beasley and Gregor Watson, are a very dynamic team. They pioneered the “Own to Rent” category in the offline world, meaning that instead of finding a home to fix and flip it, you buy a home to rent it out for a long time.

Many people own stocks, but they don’t own real estate as part of their overall investment portfolio because buying an investment property is like buying a job: Somebody has to manage it. Even if you hire a property manager, somebody has to manage that property manager and deal with the inevitable things that come with owning and maintaining a home.

The key idea with Roofstock is to separate operating from investing and do for the real estate market what Charles Schwab did for the stock market. And when you do it at an institutional scale, you get a lot of efficiencies: You’re able to bring a lot of great talent to bear to manage your assets, manage the tenants, and deal with vacancies on behalf of individual owners. You get great insight into the properties that are coming onto the market because you own a bunch of properties, and you know exactly what’s going on in that market.

As an example of the scale of the opportunity, today there are about 12 million homes in the US that are owned for rental purposes. If you just make that process more efficient, it’s a big market, but there’s an opportunity to grow the market as well.

How did your relationship with Roofstock come together?

I knew of the founders and their good work in their previous company, Waypoint, from my time at Ten-X. Khosla Ventures introduced me to Gary and Gregor and we hit it off, so I joined as an advisor. As their Series B came together, we felt it would make sense to put together an AngelList syndicate to participate in the round that Lightspeed was leading.

Roofstock raised $20M for their Series B, led by Lightspeed Venture Partners, with participation from existing investors Khosla Ventures, Bain Capital Ventures, Nyca Partners, QED Investors and SV Angel. How much did you invest through your AngelList syndicate? Were the other VCs welcoming of your participation?

It was pretty straightforward. I typically try to put together something that is not going to take ownership away from the guys who are leading and trying to get ownership but also makes sense from an AngelList syndicate perspective, regarding not being too small. In a $20M round, something in the order of 6 figures isn’t a big enough bite to get anybody worried.

I’m relatively new to AngelList — I’ve been investing on the platform for eight months or so. I think a lot of VCs and entrepreneurs have an initial concern about AngelList like, “Oh, my confidential information is going to get broadcast to the world. People might think of starting or investing in a competitor, and I don’t want that.” I think AngelList’s early days were more about casting wider nets.

Whereas now all of the deals on AngelList are private by default.

It seems like it’s become much more of a private fundraising platform, as opposed to a public one.

Are there any parts of the AngeList platform that have been particularly useful for you?

One thing that’s very useful is the trust that AngelList has built up with regards to the vehicles that they structure. As an example, when you pull together investors for a deal, nobody’s asking to read the LLC agreement or make changes to the agreements.

If you’re an individual investor putting together special purpose vehicles, it can be a lot of headache for both the lead as well as the syndicate investors to understand each and every LLC that’s put together. Because AngelList has brought standardization to this, it gives everybody comfort and makes the process smooth.

The other great thing about AngelList is that it allows people to go beyond their typical network of investors and expand their syndicate base. It allows people with capital to find people doing interesting deals, and take part when they might not have been able to in the past.

What’s your approach for working with founders you’ve invested in? Anything you carry over from your time at Lightspeed and Ten-X?

When working with a CEO, I can help to bridge the Board-level perspective of the VCs with the day-to-day operating environment that CEOs live. Both CEOs and VCs know that I don’t bring an agenda when sharing my point of view. So if there is a difference of views, I can be a neutral third party who has sat in both of their seats. Also, given I don’t take Board seats, CEOs often feel comfortable previewing things they want to discuss with their Board/VCs, and I can pressure test their thinking before they go into the Board meeting.

I think it’s key, though, not to force advice. I have regular dialogues with the CEOs I work with, but it’s on their terms and timeframes.

I can also be very helpful in team building, which is critical at the early stages since it sets the DNA of the company. At Ten-X, for example, I recruited Board members like Kevin Johnson, the newly named CEO of Starbucks, and advisors like Deep Nishar, the longtime SVP of Product at Linkedin.

Hiring people out of top companies is often the trickiest because you’re trying to do the work of separating the individual’s specific contribution from the momentum of the company they’ve been a part of. I can support the CEO to figure out if the candidate is the right person to help them solve what they specifically need to be solved.

Beyond real estate, what are some other areas that you are excited about investing in?

Fintech is an interesting segment and a natural extension of the real estate focus. I’ve invested in mortgage, specialty finance and payment related companies.

Vertical SaaS is also interesting: The notion that industries that didn’t adopt software in the old, on-premise model, are now adopting software for the first time. Look at Dealertrack — they recently got acquired for $4 billion. Twelve-plus years ago, VCs wouldn’t have thought about building a business around selling software to auto dealers. SaaS enables rapid growth in verticals, and there are other segments that are going to get opened up and have first order opportunities.

Machine learning is another key trend. I view it as almost a fundamental architecture change, and when that happens, you can rethink key software segments: SFA, CRM, customer support, HR, etc. to be architected with machine learning from the ground up.

Fintech and machine learning may seem overhyped, but because they impact trillion-dollar-plus markets, I view us as being in the early innings of a multi-decade transformation. Amazon, for example, was started almost 25 years ago, and you still have multi-billion dollar exits from innovative e-commerce companies.

Where is this headed for you as an investor when you look ahead at your trajectory? Where do you think the VC model is headed?

I started venture investing in 2000, and the venture model, industry, and competitive dynamics have changed a lot since then. Venture has disrupted itself, in some ways. What AngelList is doing is very innovative, and it has had its influence on the market.

I think the key dynamic that I see changing is that companies, both consumer and B2B, will look cross-border sooner versus later. Lightspeed was very early in China, and it was almost like silos: There were China companies, and there were US companies, and the two worlds didn’t interact. As we look forward, those silos disintegrate, and companies on each side of the ocean take advantage of not only their home market but the other big market. I think that trend only grows more pervasive going forward: Investors with cross-border expertise and resources will start to differentiate themselves.

As for myself, it sounds trite, but I’m passionate about working with great teams who want to change the world. I think that’s a lot of fun. So my plan is to continue investing, and AngelList is a great platform for doing that.

To invest in Jake Seid’s syndicate, visit: https://angel.co/jake-seid-1/syndicate

Originally published at blog.angel.co on March 20, 2017.