Inside the Deal is a new series where we interview the syndicate leads and entrepreneurs behind some of the most high-profile, invite-only deals on AngelList.
- Why he thinks Clutter is leading a new generation of tech-enabled real estate companies
- How he’s used AngelList to deploy $20M in capital across 65 deals in the past three years, without raising a fund
- How he gets deal flow on the ground, from VCs and from corporates
Julie Ruvolo: Clutter just raised back-to-back rounds with Sequoia: a $9M Series A in October and a $20M Series B this April. Co-founder Ari Mir called you an “early believer” after you invested in the seed round. Why did you invest in Clutter?
Brendan Wallace: I had gotten to know [co-founder and CEO] Brian Thomas through relationships I had in LA. The idea resonated with me because it reminded me of other companies out there like MakeSpace and Boxbee but I liked that they were focusing on a different approach.
Instead of just trying to expand the universe of self storage customers, Clutter is focused on doing what public storage does for its existing customers — but better. They are going after long-term stored items like sofas, tables, beds and major household items people rarely move.
I saw Clutter as beautiful because of two advantages traditional self-storage doesn’t have:
- Better customer experience — It’s unquestionably better to have someone come to your home, pick up your stuff, barcode and photograph it than lugging your stuff to self-storage on your own.
- Cost advantage — Because Clutter picks your stuff up for you, they can store it in remote locations and pack it super-densely. And they have no physical capacity limits; they can grow to unlimited scale while keeping costs low.
As you think about companies re-imagining space, you have to think about the response an incumbent competitor could have. For Clutter, it’s a unique business, because the incumbent (say, Public Storage) has no competitive response other than basically copying Clutter.
The hotel companies, by contrast, actually have some competitive advantages over an Airbnb booking, but in the case of self-storage, Clutter presents a better solution in almost every dimension: cost, customer experience, capital efficiency, and scalability. That excited me.
I think Clutter will be a generational business in self-storage.
I think Clutter will be a generational business in self-storage. They are right down the fairway of a new breed of lean, mean technology-enabled real estate companies. And Brian is an aggressive, bright, thoughtful CEO with a big vision. We were the first AngelList syndicate to invest in their seed round. They’ve since raised $9M with Sequoia last October, and another $20M round with Sequoia this April.
I heard Sequoia wanted the whole round.
They did. That’s the limitation of deal-by-deal situations.
Clutter is one of sixty-five real estate investments you’ve made in the last couple of years. What’s your investment thesis?
Clutter is emblematic of our broader investment thesis. And AngelList has provided me a platform to articulate an investment strategy around a particular sub-sector of technology where I and my co-founder Brad have had a lot of experience and success: the collision of real estate and tech.
Software is not just encroaching on frontier industries like social media, advertising and content that are digital native; it is also now encroaching on old world, asset-heavy industries, brick and mortar industries.
It’s a huge opportunity: Real estate today represents 13% of US GDP. It’s a $40T asset class, larger than debt equities. And it’s one of lowest IT spenders, by far.
After selling Identified, I saw there was not much real estate technology expertise in the Valley. They are totally different universes.
Recently, as the real estate asset class became institutionalized, best-in-class operators began to look to technology to gain an edge. Buying and selling, underwriting and managing assets with technology can give them better margins and can have dramatic impacts on value.
In corporate enterprise technology, you have a lot of step function changes from Excel and paper ledgers, to on-premise enterprise software, cloud-based enterprise software, mobile, data-driven, etc. Each step up that curve you have incremental ROI because of efficiency changes. Each innovation creates a marginal ROI.
In real estate your baseline is zero or very little technology so the conversion is from Excel or paper ledger books to a true cloud-based, data-enabled, mobile-forward technology. So the ROI is off the charts.
How did you start investing?
My background is in real estate at Goldman Sachs and Blackstone. In 2008, real estate wasn’t doing so well, so I did business school at Stanford. There I did an about-face and started a data/analytics company called Identified. We raised three rounds, more than $30M and were acquired by Workday in 2014. So I have this hybrid view of the world, working in this old world, asset-heavy industry like real estate, and working in tech.
After selling Identified, I saw there was not much real estate technology expertise in the Valley. They are totally different universes. I was fortunate to have a foot in both industries.
How do you get into deals? Why do founders take your money?
The short answer is hustle.
I have three deal flow channels:
- Bottom-up — Having a strong ground game, knowing everything happening in real estate tech, having CEOs you’ve invested in spreading goodwill, being known as a value-add investor.
- Horizontal — VCs are now sending me deal flow when they look at real estate tech. So we get a decent amount of horizontal deal flow.
- Top-down — Because we have relationships with big institutional owners in the real estate industry like REITs, we get deal flow that the industry titans, major office landlords and major hotel and mall companies are seeing.
That deal flow mechanism is our special sauce. We can triangulate the industry with deal flow the traditional way, with a good ground game, with our peer set and also with the old world industry players.
Why did you start using AngelList, and how have you leveraged the platform?
I started using AngelList because I wanted to operate like a micro-VC without raising a small fund. I wanted the flexibility to invest very proactively in companies I liked and knew I had good access to and to be able to do deal-by-deal investments.
I started with very small deals, and to give a sense of where we are now, we’re about to close two separate $5M investments on AngelList. I don’t know who the biggest investor on AngelList is in terms of total deal volume but with those deals, I’ll have done $19M–$20M through the platform.
But I’ve been more and more active, and have gone from doing deals as small as $100K–$200K to deals that are up to $5M. That is pretty unique. AngelList has enabled me to scale that way, build amazing relationships with investors, and demonstrate a track record, access, and the ability to add value. It’s been a proving ground to demonstrate our thesis works and we are capable investors. AngelList is where I earned my stripes as an investor.
Looking ahead, where are your sights set?
I’ll to continue to do a lot of deals on AngelList. I’m also thinking about raising a fund.
The beauty of AL is it’s deal-by-deal, but that’s also the challenge. You have to have a real hustle to get the deals done. You have to sell the opportunity to your investors and deal with smaller investors that sometimes may be delayed on closing or have certain last second questions.
But I would recommend it to anyone who has a unique point of view on a sector or strategy and is looking for a proving ground to test that thesis. AL enables you to do that. It gives you ability to have upside economic interest, influence and control in companies in your space and it provides the flexibility to be very nimble and look at different size and stage deals without having operational obligations or liabilities to dedicated LPs. It’s kind of a hybrid. You can do what you need to do to prove you’re right about your thesis but you aren’t encumbered by operational issues, which I think can plague small funds.
AngelList has some disadvantages, like the lack of management fee income, but all things considered I think more would-be micro-VCs will migrate to using AngelList syndicates instead. I was able to deploy close to $20M in a year on a deal-by-deal basis with deal-by-deal carry and total flexibility.
And without spending all that time fundraising.
That’s the beauty of AngelList: once you prove you have a good track record and deal flow, investors will start committing in lockstep with you. It’s a really special platform.
To invest in Brendan’s syndicate: https://angel.co/brendan-wallace/syndicate
Originally published at blog.angel.co on April 28, 2016.