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December 5, 2022

Podcast: The future of proptech and short-term rentals

In this episode of Fintech Thought Leaders by QED Investors, QED Managing Partner Nigel Morris is joined by Wander CEO John Andrew Entwistle, Summer CEO Paul Kromidas and QED Partner and Head of Growth Chuckie Reddy to discuss the future of proptech and short-term rentals.

Show Notes

Tune in to learn:


[2:11] Why Summer was created with the intention to buy a house that pays for itself.

[7:25] How Wander plans to institutionalize and verticalize a fragmented short-term rental asset class.

[10:11] The impact of a rising-rate environment.

[13:17] How companies like Summer and Wander offer an alternative to expensive home ownership.

[19:16] The differentiated value proposition of Wander Atlas as a real estate investment trust.

[22:40] The comparison with the single-family rental ecosystem of 2012.

[24:45] The importance of network effects.

[27:45] Balancing a tech-first solution while working backward from a customer problem.

[31:43] The different ways to grow a customer base.

[32:57] Building the character of a brand.

[34:25] How a strong brand can help build a sustainable moat for the business.

[36:08] The difficulty of taking apart the value chain and why that has limited institutionalization.

Nigel Morris is the co-founder and managing partner of QED Investors, a fintech venture capital platform focused on disruptive, high-growth financial services companies. QED has made numerous unicorn investments, including Credit Karma, Nubank, Avant, SoFi, Klarna, GreenSky and AvidXchange. Nigel is the Chairman of ClearScore and Mission Lane and serves on the boards of Red Ventures, AvidXchange and Zopa. He also serves on the board of ideas42, and Scotia’s Digital Advisory Council, and he works in an advisory capacity with General Atlantic and Oliver Wyman.

Prior to QED, Nigel co-founded Capital One Financial Services in 1994. Under Nigel’s leadership as President and Chief Operating Officer, Capital One pioneered an information-based strategy that transformed the consumer lending industry.Nigel grew up mostly in England and takes immense pride in the fact that he is at least half Welsh. He has an MBA with distinction from London Business School, where he is also a Fellow. He is an avid cyclist, but is happiest when he is at home in Virginia with his wife, four children, and three grandchildren.

John Andrew Entwistle is the founder and CEO of Wander. Wander is a platform vertically integrating the $100b+ short term rental market via a network of smart vacation homes in inspiring places that you can control from your phone. Prior to Wander, John Andrew co-founded coder.com, a platform that moves the development environment (where software engineers write code) to an organizations cloud infrastructure with large enterprise customers such as Goldman Sachs and Palantir. He was also a Thiel Fellow and 2022 Forbes 30 Under 30 recipient and grew up in the small town of Katonah, New York.

Learn more about Wander here.

Paul Kromidas is the co-founder and CEO of Summer, pioneering a new approach to unlocking nonprimary-home ownership. He is an accomplished operator and leader, with over a decade of experience growing and scaling teams across technology, real estate, finance, and strategy at Airbnb, Deloitte, Alfred, and Moody’s. Prior to founding Summer, Paul was a Product and Strategy leader at Airbnb, where he led the integration of Luxury Retreats and the creation of the Airbnb Luxe product. Paul holds a graduate degree from Columbia University.

Learn more about Summer here.

Chuckie Reddy is the head of growth at QED Investors. He currently serves on the Board of QED portfolio companies Mynd, Fraction and Wander.

Prior to QED, Chuckie spent his career in a variety of roles in financial services. His primary focus started in consumer finance but has more broadly extended to all corners of fintech and proptech. Chuckie joined QED after spending 17 years at J.P. Morgan in the securitized products group in the markets division of the investment bank. He ran the asset-backed securities special opportunities business primarily focused on principal investing.

Chuckie started his career at Capital One Financial working in the credit card division. He later transitioned to working in the corporate development group to expand Capital One’s footprint into new products. He went on to work in the mergers and acquisitions team focused on mortgage and auto finance.

Chuckie holds a BA in economics with a concentration in finance from the University of Virginia.

Full Transcript

Nigel Morris:

Hello and welcome everybody. I'm Nigel Morris and I'm the Managing Partner at QED Investors. We are a global venture FinTech specialist, focused on helping build disruptive companies all the way from pre-seed and all the way to IPO.

In today's Thought Leaders series, I'm joined by two incredible young CEOs whose companies are leading by example at the intersection of real estate finance and technology. QED has been really excited about the whole proptech space and has made 11 investments over these last few years. We've made investments in QuintoAndar and Easyknock. Mind, Sunday, House Canary, Proper, ROOF stock, Fraction, GetGround in the UK. We've invested in marketplaces, we've invested in people looking to release equity in their homes, but today's conversations focus in a niche space of the rental area. And we have with us today CEO of Summer, Paul Kromidas, and Wander's CEO, John Andrew Entwistle, who goes by John Andrew, and our very own Chuckie Reddy, who leads the growth fund for QED.

And gentlemen, big, big thanks for joining us today, and let's start by, if we can, by just learning a little bit about each of your businesses. And in a couple of brief minutes, if you could give a summary of what your business is trying to do, what problem you're trying to solve, how technology enables it, and what the future might hold. So maybe if I might, Paul, if I could kick off with you. Just give us a brief sense of what Summer does.

Paul Kromidas:

Thanks Nigel, and thank you all for having me today. Summer was created to help you own a home that pays for itself. It's a pretty outlandish tagline, but we are building what we believe to be true there. Essentially taking all the risk out of owning a second or investment or vacation property here. Through technology we help you acquire, furnish, design and manage that home and take on all of the pain points in that process for a consumer.

How it really works is if you're interested in buying one of these homes, you come to us, we underwrite you, we underwrite the property, we make sure that both of those are great, and we go out and actually buy the home for you with an all cash offer. In return, you pay two things. One is a refundable deposit similar to a down payment, and the second is a monthly payment similar to a mortgage. Both of those are less than what you'd typically be required to pay if you were going out and getting a mortgage on this property on your own.

In return for that, you get four things. One, you get to go to the home, or any home in our entire network whenever you want to go with no blackout dates. The second is you get our professional property management revenue management services when you are not in the home. So again, you're going to the home and enjoying it, and when you're not there, you're not thinking about it. Third, you get an interior designer and a budget to furnish and decorate the home. We'll work with you on that. We want to get it to a place where it's got its maximum rentability and has excitement from folks on the outside who are coming into the home. And then fourth, you get the exclusive option to buy the home at a preset price for up to three years.

If you choose to buy the home, we actually take the entirety of the initial down payment or deposit, and 50% of all of the monthly payments and convert them to a discount on the purchase price should you decide to buy it. It's how we can actually tell you that in a lot of cases, you're earning more equity into the home than you would be with a mortgage, because through the first few years of a mortgage, you're mostly paying interest in very little principle. If you choose to walk away, you actually get the entirety of the upfront payment that a deposit back in full, truly no questions asked. We keep the entirety though of the monthly payments just like you would've been paying essentially for staying in an Airbnb for three years or a short term rental.

So, that's essentially the business. And what we're trying to do out of that is whether you buy it upfront with us or a month in or two months in, or whether you buy it three years in, get people to the point where they're comfortable, they've A, fallen in love with the home, and B, see how these homes generate yield and bottom line for them, and get these many sort of cash flow businesses up and running that we're spinning off to customers and letting them run with while we continue to manage those homes for them over a longer period of time.

Nigel Morris:

Well, I don't know how our listeners are reacting to this, but I think it's brilliantly elegant, Paul, in that it takes away the hassle of buying.

Paul Kromidas:

Exactly.

Nigel Morris:

It gives the homeowner the optionality. You take away all the aggravation of renting and of organizing, and you provide somebody to help them decorate the place to optimize utilization. But what strikes me about it is in its elegance is how complicated it is. And you are creating a category here, aren't you? Your model is not a refinement on an existing model. I mean, I know your background was Airbnb, I think, but how do you build a category here and how much of it is going to be taking this, as I said, symmetrically brilliantly elegant model and making it so people can really understand it upfront?

Paul Kromidas:

It's a great question, Nigel. I think that it's interesting. There's bits and pieces of our business that maybe you can point to. There's other sort of rent to own or least to own players, more focused on primary homes at a different price point, the Davvies and the Landis' of the world. There's other folks in the home space or fractional ownership players, they're like Picasso, but ours is truly, I think in a category it's own, like you're saying, we think that's an exciting thing. We think that that's something that a lot of customers come to us and they have that same reaction, I've never seen anything like this before, this is really interesting. But the education piece is the most important part in the sales cycle. Most folks come to us with, I'd say 85, maybe 90% of it figured out, but the sales process is more educational than a traditional sales process.

You take them through the pillars, we help you acquire, we help you design, we help you buy it, we help you furnish and manage it. And once they get those pillars, they get that when they come to us, and then we dig in on some of the details similar to peeling back layers of the onion, like, Well, what's my HPA? How much am I buying this for three years from now versus buying this today? What do you think about in terms of a take rate on the nightly rate once I buy the home?

These are sort of the questions that folks want to dig in on. And as long as you have the answers to everything, which we clearly do, we've done a lot of thinking on this. The product kind of sells itself once people get it. So. I think we just want to do the best job we can up funnel in our marketing materials and educating you around those broad pillars, and then get you into the funnel where we can talk you through the details.

Nigel Morris:

I love it and I love it that the consumer has the option so they don't feel like they're having to make any kind of huge decision upfront that could backfire on them. Thank you, Paul.

Paul Kromidas:

Exactly.

Nigel Morris:

John Andrew, tell us a bit about Wander, W-A-N-D-E-R, and what you'RE looking to create with your startup.

John Andrew Entwistle:

thanks for having me as well. Yeah, today the short term rental market or vacation rental market is relatively fragmented. You have these booking platforms like Airbnb Vrbo, underneath that you have your property managers like Vacasa or otherwise, and then obviously you have your owners and the hosts.

Basically what Wander is trying to do is verticalize and really institutionalize that asset category. So everything from downloading our app and booking one of these incredible properties to our hotel grade management, to now even owning a piece of that portfolio through Atlas as an investment product. And so we really feel like with those efficiencies, you can deliver a really great experience. When you own the hardware and the software, you can really tightly integrate the two, and yeah, it leads to a great customer experience.

Nigel Morris:

And how much of it, John Andrew, does the opportunity emerge because people want to work on vacation and they want a great computer, and they want high speed internet, and they want a printer, and wrapping a luxury brand around people now wanting to work when they take great time off with their families?

John Andrew Entwistle:

The way that I sort think about the space and really these locations, is that people want to use them for all types of reasons, whether you're going out with your friends or it's to get away and work on a novel or otherwise. I think that remote work is obviously a trend that has taken a very large part of the population out of the office. And so when you think about hospitality, it's really important for the spaces to be conducive to that. And so that is definitely something that we focus on, an amenity that we make sure is present.

Nigel Morris:

Well, John Andrew, I have your website up on my iPad and I'm just looking at some of these properties. I was actually in Joshua Tree just last week, which was a fabulous place to visit. I see you've got a place there in Yucca Valley, and then you have a place on Palomar Mountain in San Diego, which is a wonderful climb for any cyclist out there. What are you finding in terms of which properties are the most popular, and have you found some properties that are less so?

John Andrew Entwistle:

The whole point of Wander is to really ensure that a user can't book a bad property on Wander. So it's sort of an open ended question, I guess more related to my favorites would certainly be Wander Bandon Dunes. It was one of our first properties and yeah, it's just a truly, truly magical experience.

Nigel Morris:

Magical, I love those words. So Paul and John Andrew, thank you for that. Now, we're all worried about interest rates and it's on everybody's minds. It's changing the shape of so many of the businesses that we're invested in, some of them benefiting from rising rates, some of them being hurt by rising rates in many first and second order ways. Paul, how do rising rates impact your business?

Paul Kromidas:

It's a great question and we get that a lot. I think there's really two lenses to look at it. There's through the customer acquisition lens in how rising rates are impacted there, and then the business unit economic side. From a customer lens, it's actually been good for us in a lot of ways, so it's making our product more appealing. If you're on the gradual ownership track, which is what we call our rent to own model, and you're renting to own there, you're excited about building value into a home through this flat monthly payment while deferring that high interest rate cost on a mortgage right now for up to three years. You're getting to see how the home performs, you're getting to see if you truly want to commit to it or not, and getting in and paying a flat monthly fee that is offsetting and negating your need to pay very high interest rates from a consumer perspective right now.

On the flip side though, what's been very interesting is, we have the track on the other side which we call immediate ownership, which is like, Hey, I don't really need this rent to own product, I actually have my financing ready to go, or I have cash in my pocket ready to go, but I love that Summer has this acquisitions engine which identifies the best properties in every market, this design and furnishing engine, which designs them to sort of a great short term rental aesthetic that's going to do very well, and then this property management and pricing engine on the back end.

Those folks are still coming through very strongly in the pipeline, and I think what they're thinking about there, is that prices are beginning to come back down to earth. Some of the markets we were in and have been in, specifically, I think Miami is one where prices were just astronomical last year, and now they're coming back down to reality. Even though rates are very high for them as a consumer, the appeal of a home at a great price that cash flow is above its cost, is very valuable in today's economy. They're thinking about, Well, if I'm making money even at high interest rates, I can always refi down the line.

So that's been very appealing for them as well, and then I think generally speaking from a business perspective, a unit economics lens [inaudible 00:13:11]. Go ahead.

Nigel Morris:

I was going to say, it's always heartwarming, Paul, to hear people in the proptech space talking about unit economics. I think in so much of fintech, if you don't have a really solid understanding of your own unit economics, just like flying a helicopter without dials that enable you to fly the thing, it's great to hear that. So it sounds like there's some pushes and some pulls, but your fundamental belief here is that your business will flourish in a multitude of different interest rate environments?

Paul Kromidas:

Definitely. We've taken the steps on our side to lock in scalable financing at good rates while we continue to prove out our operational track record as a business and keep those rates down and continue to actually grow with that. And we've also looked into slightly raising prices as well to make sure that we're doing the right thing both by our customers and by building the business. But we feel very good about all of the levers at play and actually think our business plays very nicely in this sort of counter cyclical environment we're in right now.

Nigel Morris:

That's right. So let me bring in Chuckie. Chuckie, a QED partner, a dear friend of over 20 years of me and Frank at QED, now running our growth portfolio and very involved in our proptech efforts. Chuckie, before I bring John Andrew to talk about his business and the interest rate environment, what's your sense of the overall backdrop, Chuckie, and how rising rates, perhaps moderating recently, but rising rates nonetheless impacting the whole proptech universe?

Chuckie Reddy:

Yeah, we went through a number of years where interest rates were very low, as you mentioned, and there was a tremendous amount of prosperity, whether it was in the stock market or other wealth creation efforts throughout the economy. And that led to a lot of people being able to afford second homes and being able to go on vacation much more frequently. And they also dovetail that with what happened during COVID around remote work, as John Andrew referenced, there was a tremendous demand for vacation properties and vacation rentals. And that part of the economy is slowed, and that's because both of a recessionary impact that's upon us. But like you said, also high interest rates. So the cost of home ownership, whether it's in single family homes or buying a condo or buying a vacation home, is tremendously expensive now. And so the alternative is to spend less days in some of these rentals, and both Summer and Wander offer that as a product for customers who want to do that.

And the other thing is, to Paul's point, if you want to buy your house, you're at local highs on mortgage rates, why would you want to lock in your mortgage now? Why not take the optionality and over the next three years find the right time to lock in your mortgage rates? And in the case of the Wander properties, these are properties that most people likely won't be able to afford as a second property that stay in these properties. And so to be able to go to a house that will cost two and a half, 3 million dollars, as John Andrew says, a magical experience, and be able to work from there for three or four days is really a fantastic product for most people to be able to experience that luxury.

Nigel Morris:

I'm looking forward to doing that on Palomar Mountain. I think that that's right, Chuckie. There's a huge amount of wealth that was created in the last few years in terms of residential property in particular. I just looked at the Fed data, the house prices were up about 30% in the last year to 27 trillion dollars. So there's a lot of money that's in real estate and people are looking to be able to monetize it and leverage it in various ways. And one way is clearly being able to access these kinds of experiences, if you like.

But talk to me a little bit about the debt markets, because if I understand correctly, to the extent that you are buying the homes, Paul or John Andrew, then you are having to finance them in the marketplace, and there's a lot of people very nervous about what the future looks like there. So what have you seen in your conversations with the debt suppliers, Chuckie?

Chuckie Reddy:

It's been very interesting. I think that this is an asset class, which is very much in its infancy, but it rhymes very well with several other types of asset classes, and one of those being single family rental. And that is an asset class which has a tremendous amount of capital that's been put towards it since the inception of that business in 2012. And the 10 year journey, which I started on very early as one of the pioneers, has been a very interesting journey and has come to a place where you can get really good leverage. And by that I mean high leverage but not too high of leverage for the purpose of being able to absorb home price declines and get to a cost of funds that make sense, but more importantly, having scalable financing.

And so what we've done with both companies here, is spend a tremendous amount of time talking to international investment banks about providing leverage and being able to use the balance sheets more effectively. And I believe both companies, and they both have different strategies, will end up being capital light models over the next year or two. And you can see that very publicly with Wander on Wander Atlas, and we're working with Paul's company to be able to do that over the course of the next year.

Nigel Morris:

Thank you, Chuckie. It sounds like you are pretty sanguine about that, and the models like this are not going to be too impacted by the vicissitudes in the debt market. John Andrew, what about your business? How impacted is it by macro trends?

John Andrew Entwistle:

I mean, ultimately interest rates are like gravity, sort that Warren Buffet quote. So, when you think about it from that perspective, you can have to think about, okay, what are our unit economics? What's the yield that these properties are generating? And then how much cushion do we have as rates continue to rise?

When we started the company, we did not start it with this assumption that interest rates were going to stay at zero forever. And so we really modeled and thought about what it would look like as interest rates rose to 1, 2, 3, 4, 5% plus. The benefit in Wander's case is that these assets have such high yield, that we have quite a bit of cushion. Now obviously if the Fed goes and raises interest rates to 12% or something, then there's going to be quite the conversation.

But with that being said, I don't think that that's a real risk. And as Chuckie also talked to Wander now starting to take the steps towards being entirely asset laying and allowing our users to become owners in these properties and share in these high yields, really protects the business in the sense of if interest rates did rise to such an astronomical level that we couldn't go and purchase properties efficiently, then that's really what you would see is Wander stop purchasing properties.

Nigel Morris:

Very good. So Wanda Atlas then, John Andrew, is giving people who are part of your network, giving them the opportunity to participate in owning the properties. Is that right?

John Andrew Entwistle:

Yeah, exactly right. So Wander Atlas is the first vacation rental REIT, as far as we're aware, which is what the lawyers make us say.

Nigel Morris:

So, John Andrew, say that again. What did you call it?

John Andrew Entwistle:

It's the first vacation rental REIT, but as far as we know, because we can't prove negative, so leave it to the lawyers there. But in any event, yes, it allows our users to own a piece of these properties. And again, really starting to institutionalize this asset category and have access to a supremely a pretty high yield and also really high quality assets. Most of these different investment products are just a random collection of real estate, whereas with Wander and Atlas, it's truly handpicked high quality homes in the best neighborhoods and otherwise, obviously ran by professional operators as well.

Nigel Morris:

So you can build the brand around this luxury experience at Wander, and then folks who experience the properties and enjoy them, then they can opt in, if you like, to having some ownership in the real estate?

John Andrew Entwistle:

Exactly.

Nigel Morris:

But that's not ownership, John Andrew, in a particular property, it's in the gestalt of the property?

John Andrew Entwistle:

Exactly right. So that's across the portfolio and there's a few reasons for that. Obviously you have diversification and otherwise, which is really important to us. The other interesting thing that you hit on is really the network effects that start to happen. A user stays at a Wander, is exposed to Wander Atlas, and of course it's kind of the most fun way to diligence an investment product. Obviously they then go and invest and more investors means more locations, more locations means more users, which then turn into more investors, and so on and so forth. And so you start to have your really nice network effects, which we're of course already seeing.

Nigel Morris:

So, word of mouth being very important there. And I'm sure you're collecting statistics on how your renters enjoy the experience. Is there any data you can share? Net promoter scores or any other sense of how much people love the experience?

John Andrew Entwistle:

Yeah, absolutely. So we're very, very fortunate that our users continue to love the experience. We have a 94.6% customer satisfaction rate. For context, birthdays in America is about 89%, so it's kind of nice. You should enjoy it more than a birthday, which is fun to say.

Nigel Morris:

A really nice score. So both Paul and John Andrew, to really take a step back, what you are doing is, through different approaches, you're giving people the opportunity to be able to, on a very risk free way, a very custom way, be able to enjoy a second home experience. I think that's just incredibly powerful. Do either of you know what percentage of American households have a second home?

Paul Kromidas:

About 5%.

Nigel Morris:

5% Paul?

Paul Kromidas:

65% would like to have one. I was going to say 65% would like to have one. Probably more than that, to be honest.

Nigel Morris:

So a huge untapped pool of people who have the means and have the interest if you had a turnkey bespoke way of being able to get people into those homes. That feels really good. So, this is pretty nascent, it's 5%, right? It's hardly penetrated and I'm sure it's pretty dominated by the elite economic classes. Chuckie, what has to happen for this to become much more mainstream, where we might have 10 or 15 or 20% of people having second homes? How do you think about the macro there?

Chuckie Reddy:

Yeah, Nigel, I think about the macro a little bit more than just the short term rental spaces as an asset class in general, more so than just second home ownership. And like I referenced earlier on the financing, it's very similar to making the comparison to single family rental from 2012. That was an incredibly fragmented market with Mom-and-Pop Investors being the primary source of single family rental product. It's very similar to what John Andrew just described today. As you think about Airbnb host, there really is an institutionalized product. There really aren't that many brands that are trying to attack the short term rental category. That's why we picked both of these companies, because brand is so important in hospitality to be able to understand what that brand promise is, what you're going to be delivered when you get there. And also the ability for each customer to be able to choose throughout the network and as these networks scale and build, to be able to go all over the world and stay in the same branded house and feel the same.

In fact, in a Wander house you show up and your technology works in any Wander house, it's completely integrated. And so that's one of those features that as both networks spelled out, to be able to scale that, is going to be quite interesting. And we're very, very early innings in short term rental becoming institutionalized. And we could see what happened in single family rental where it went from zero homes effectively, to about a million homes over the course of 10 years. And that'll give you a sense for how many homes can be part of these networks going forward.

And through that process, in Summer's case, many will become homeowners, but hopefully many of them will also be able to take that excess capacity that they have and put it back into the system, so that way that actually helps the overall system not required that many more homes to be built and allow more people to, whether that's go on vacation or work remote in the case of Wander, the shared services model is really interesting, something that Uber and Lyft started the journey on mobility, and it's something that we think Wander and Summer are going to really capitalize on and provide a great experience to a lot more families that would otherwise wouldn't have access.

Nigel Morris:

Okay, cool. I think that's really helpful. Paul, do you feel like you have the same kind of network effects at play with Summer that John Andrew referenced a little bit ago?

Paul Kromidas:

Yeah, definitely. It's interesting, that's probably one of the biggest things that stands out once folks get into the funnel is, oh wow, wait, I can go to my home that I'm owning for 1, 2, 3 months a year, but I can also go to your home, Chuckie, and not that you have this home on our platform yet, but let's imagine your home in Miami during our Basil, or Nigel's home out in California and stayed for a week while they're not in the property. This ability to live across a network of homes while owning actually a real piece of real estate and differentiating that just a bit in terms of the experience but also the value in terms of ownership, has been hyper appealing to a lot of folks.

And the last piece I'll say on this is besides the sort of tried and true customer acquisition tools of paid marketing, really meeting someone at the point of intersection on their desire to own one of these homes, we've seen this very interesting flywheel where we've had a few folks now early on come stay in one of our homes via Airbnb booking. We list our homes on Airbnb and Vrbo as well as being able to directly book them through Summer, not knowing it was very early days of our platform, not knowing entirely what Summer had been doing or does, rent their home, get into the home, feel the four walls of the home, scan the QR code for wifi, and all of a sudden they're getting hit with a Summer email around, Wait, you can buy this home and here's how much it's going to generate you on an annual basis. Oh wait, that's the home I'm sitting in right now.

And actually, two of those folks converted to actually buying the home with us within 30 days, which is a very interesting flywheel to sort of, that Venn diagram of Airbnb guests and people who want to own these homes, maybe is more overlapped than any of us think.

Nigel Morris:

How about that, yeah. I get the flywheel phenomenon. And a lot of people in fintech venture talk about embedded [inaudible 00:29:33]. And when you mentioned there that you had people in your flow who said, Look, I just want to buy the property. Does that mean there'll be opportunities for you to embed financial options? I'm thinking of particularly purchasing the property, but also home equities down the road, insurance, other products?

Paul Kromidas:

100%. That's certainly a big focus for us over the next year, I'd say, is either finding the right partners for some of those items within our business, or potentially doing them ourselves. But it's definitely going to be a focus for us going forward.

Nigel Morris:

It's a great way of monetizing, Paul. When we look at some of the, particularly the marketplaces that we've invested in, I'm thinking of Loft and Quinto Andar in particular, in Brazil. The embedded finance plays are incredibly powerful economically and great value for the consumer, because it can be done in the decisioning flow.

Thank you for that. So I want to switch gears a little bit. I want to talk a little bit about how tech enabled are your businesses, ie. could your businesses have existed 10 years ago? And to what extent are you tech first in leveraging your business and to what extent are you working backwards from a customer's need in order to get into single family rental and/or to get into rent to own? So John Andrew, I think you have a deep technology background, how much of you are tech first and how much of you are the consumer's problems first?

John Andrew Entwistle:

Yeah, so when you look at the consumer problem, at least in our use case, really the only solution to solving it is to verticalize. When you verticalize the industry, you're able to drive a better customer experience and really tightly integrate. We like to use the example of how Apple owns the hardware and the software. And when you do so you can really make that magical experience and then of course own the cash flows and all those different benefits.

So when you look at a fragmented industry and then you look at the opportunity to verticalize, you have to ask yourself why hasn't this been verticalized before? And the short answer is that it's very difficult. There are a lot of existing manual processes, or lack of software or otherwise. And so by default you have to unlock some type of efficiency to be able to effectively verticalize and create an ecosystem around the product set. And so that's really where the technology comes in. So you work backwards from this user problem, or this goal, and then you have to be able to innovate to pull it off and solve the problem.

So in Wander's case, it's really a cohesive ecosystem from the moment a user books a home through our platform to being able to turn on and off the lights right through their phone, or access the Tesla in the garage, all the way down to right through that same platform, being able to buy a piece of this network of properties, and eventually be able to apply their dividends directly to booking properties in the future or otherwise. So to answer the question, the actual underlying real estate and the ownership of it is a small piece of the puzzle that's a requirement to deliver the customer experience that we want to, rather than really the goal of the business.

Nigel Morris:

Well put, well put. And Paul, if I threw the same question at you, how would you answer it?

Paul Kromidas:

It's remarkable actually, there's a lot of what John Andrew said that's applicable I think to both of our businesses. The idea of whether or not a company like ours should own real estate or not own real estate, it's, I'm a product guy by trade. My last profession before starting Summer, and I think starting with the customer problem here, the user problem, there are barriers to getting into this. It's very difficult, there's a lot of risks. Owning homes as part of that and building the technology to be able to break down those barriers, is what creates value for those end customers and is what creates value for those end consumers. And it's not as simple as just saying, Hey, we're buying X or we're buying Y, we need to be doing the things within our business that are going to allow us to move more efficiently through acquiring these homes and bringing them up to speed on the market, getting them furnished, getting them renting and getting them back to a customer in a tech efficient way.

One of the things that we really, I think, zone in on here, and our big focus for 2023, is our acquisitions process. I think that's sort of a differentiator in our side. Certainly being able to take someone's knowledge and of the earning potential of an asset before anyone has actually purchased it, and be able to understand whether this is a good investment or not from a consumer perspective, we can source and guide folks to the best homes in the market instead of letting them go and have to worry about whether that home is an asset that rents well, after the fact. So bringing that data upstream for them through technology is where we really look at our leverage.

Nigel Morris:

And with that data you can create much more visibility and help people understand what the monetization economics would look like on a custom basis. But I'm really struck here by, much of your building businesses out of the ground initially is going to be word of mouth and the network effect that you've both talked about, but at some point you have to look to be targeted in acquisition.

So John Andrew, as you build out more Wanderers, I think you call them, did I read that you have a hundred thousand of them? How do you scale from a hundred thousand, and what are the mechanisms by which you will grow your customer base?

John Andrew Entwistle:

Yeah, absolutely. The way that I like to think about user acquisition is that multiple streams feed into, eventually, a roaring river. And so when we go through and look at our attribution across different channels, really what you see is users heavily focused on research and bouncing around, from hopping on your Instagram to looking at the property page, looking at some reviews, all these different aspects that come together. And so really in our case, it's about investing in these various channels and growing them so that the rivers or the streams in this case, turn into rivers, which then eventually turn into hopefully an ocean.

So we'll sort of see how that continues to grow. The nice thing in our business case is that the short term rental market is absolutely massive. You have tens of millions of users. I think it's like a hundred billion dollar plus market, so we're still relatively small. And so that kind of gives us the comfort of knowing how much further we have to go.

Nigel Morris:

I keep coming back to the brand imagery that's so important in your business, John Andrew and Paul. How do you want the character of the brand Wonder? What do you want it to feel like?

John Andrew Entwistle:

Yeah, it's interesting that you say the word feel, because that's what's behind every great brand. When we were thinking about this company and really this mission, we wanted to be an experience that truly resonated with users, and that reflects in our user stories. People teaching their toddler how to snowboard for the first time, or posing to their girlfriend, or just sitting by the fire with their friends. And so it was important to us to pick a brand that would really be boundless in that idea and to continue to evoke those emotions, not to evoke emotion to evoke emotion, but to really have the user understand what this company was all about and the actual end effect of the product.

So yeah, you're absolutely right that it's extremely important to us, but we more focus on sharing that experience and the emotion as opposed to saying, Hey, here's this product, please buy it.

Nigel Morris:

I love that. I love the linkage of emotion and feel there.

Paul, how important this brand and what does Summer brand going to, what do you want it to represent to your users?

Paul Kromidas:

Yeah, similar to what John Andrew said, it's vitally important. It's something I learned firsthand when I was at Airbnb, seeing how they built that brand. Not only is it important for customer acquisition and how you think about your customers interacting with your brand and your product, but also it can be a moat as well. We want Summer to be something that's warm, that's inviting, that synonymous of quality, joy, opportunity, access to real estate. It's something that people want to be a part of but doesn't feel out of reach for them. I think that's really powerful within what we're trying to build. And early on we've gotten that feedback from our customers. The best quotes I get and the best emails I get are from customers saying, It felt too risky before, but you've removed all the risks. This was a dream of mine and you've made that come true. Things like that, it's what makes it great.

Nigel Morris:

Well, I love the dream come true thing. And if only 5% or 6% have second homes in the US, then there's so much opportunity to embrace a much larger population with these services. And many of them are going to think it's out of my reach. And I think that what both of you do is provide a way for people to be able to test and experience their way into a second property in a way that takes away risk and gives them marvelous experiences. That's really exciting.

Chuckie, for you. As I'm listening to Paul and John Andrew, it strikes me that these are pretty complicated businesses to build out of the ground, you've got to get the tech right, we talked about that. A lot of logistics involved with renting and the services around rental. You've got to really articulate explanations about how these complex structures work, particularly with Summer. And you've got to really focus on your unit economics and how you're going to finance the debt side, but you've got to get all these things to work.

Chuckie, as you look at businesses like Summer and Wonder, how hard is it to do what these guys are doing?

Chuckie Reddy:

Very hard. The logistics piece alone could be its own company. And so, thinking about building effectively multiple companies to be able to take apart the value chain that you just talked about, there's several features here. And I think John Andrew talks about it as verticalization, Paul talks about it in different components of his business. It's incredibly difficult and I think that's part of the moat here. And to John Andrew's point earlier, that's the reason why there hasn't been institutionalization. Data, as Paul uses it, the Wander OS as John Andrew uses it, those are critical elements to being able to execute on this strategy, like pulling in the capital, getting the logistics, making sure the product is perfect, getting the brand right. And then you have to find the customers.

Those are all incredibly difficult things to do. I think both of these companies have really shown quite a bit of metal in being able to get to where they are and to be able to produce a great experience for their customers.

Nigel Morris:

I'm often remarking when I talk to people I know about businesses that become successful, the new banks, the Credit Karma's of the world, where we've had a chance to help them on their journey a bit, that people think that they're a two year overnight successes. And these companies take a decade to build out of the ground and to get all these bits right. And if you get any one of them not right, then your business is going to be massively hamstrung. So it's like 0.9 to the power six. Every 0.9 has to work in order for the business to be successful.

Chuckie, this one for you, then I'm going to come back to them. If you look forward three, five years into the proptech space, in particular into this vertical, how will it be different? What's your expectation? Prognosticate a little bit.

Chuckie Reddy:

Sure. Yeah, I think even just looking at these two companies, I think there'll be a tremendous amount of properties on both platforms. I think the space will continue to grow away from these two companies as well. I think customers are becoming much more accustomed to wanting to find high quality properties when they go for short term rental. I think this period of time when it's going to be challenging to buy properties outright, is going to abate and alleviate. And I think that this is a moment in time where, particularly Summer, can capitalize on that phenomenon.

I think Atlas will be quite large, and I think it'll be a really big ethic class that develops and a really interesting kind of new capital market vehicle, if you will. But I do think that short term rental is going to become much more part of daily life. It's already been increasing tremendously, you heard John Andrew quote some of the statistics. And I think that's why hospitality is so afraid, because people are moving away from staying in hotels. They want more bespoke experiences, they want to be able to cook their own meals, they want to be able to spend more time with friends in a shared space.

There's so many trends that are going very much in the direction of this type of experience, and I think in the two companies we have here, we're addressing it in two different price points in two different populations of people. And I think as both businesses expand their footprint, I think they're going to find that they're going to be able to touch a lot more customers throughout both the country, and hopefully the world.

Nigel Morris:

Thank you, Chuckie.

The last thing to you, John Andrew, then I'll go to Paul. What does Wander look like in five years? Where would you dream that it will be?

John Andrew Entwistle:

It is certainly where I spend most of my time thinking, as Chuckie is well aware. Ultimately the end vision is to build the infrastructure for people to experience the world. So you're looking at tens of thousands of locations across the globe, millions of users, hopefully tens of millions of nights stayed across the portfolio. You're looking at an asset category that through Atlas and otherwise, has truly been institutionalized and made accessible to really everyone who wants to own a piece of it. So there's a lot of other different things that we'll be unlocking and expanding into soon, and really, really excited to share that. But everything is sort of in that effort.

Nigel Morris:

Very good.

Paul, what would you add?

Paul Kromidas:

Similar to John Andrew, spent a lot of time thinking about this as well. Five years from now, I think we want Summer to have written a story of access and opportunity, and really democratizing access to something that traditionally was experienced by a very small amount of people, second homes, vacation homes, investment properties. Make that make sense for more and more and more people. And that means thousands of people owning homes that are generating money for them in their pockets and they're able to experience that with their families and pass it down through generations. And even more that can come in and experience one of our homes and stay in them and hopefully get to buy one themselves one day around the globe.

Nigel Morris:

What a great final set of comments, gentlemen. Really, I'm just really struck by two big things here. As we close, one is, when you talk about inclusion and democratization and taking away the friction, this is really a meta phenomenon with fintech, and we passionately believe at QED that we're in chapter two of a fintech revolution, not in chapter eight. And we're just beginning. And when I see businesses like yours coming out of the ground that are going to promote that democratization, provide access, inclusion, give people better and wonderful experiences with models that take away uncertainty where the economics really go round, I think that's just fantastically exciting. And for me, it gives me wind in my back, that there's so much more to do in fintech and so much opportunity.

The second thing to do is just to salute both of you, that what you are trying to do is really hard, I do agree, Chuckie. Very few businesses are really easy and nobody's route to success is ever linear. You'll face amazing challenges, you're facing them anyway. And I just have such admiration for people who build stuff out of the ground and put your bodies through what you're doing with your co-founders and your teams. So, we at QED salute you and we just have had a blast doing this.

Thanks for your time. Chuckie, thank you for joining. John Andrew, you're a gentleman. And Paul, really appreciate it. I will leave it at that. Thank you very much, and talk soon.