Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
“Cities have become the basic platforms for global innovation and economic growth, supplanting the corporation as the fundamental organizing unit of the contemporary economy.” -Richard Florida
Richard Florida and Patrick Adler of the Martin Prosperity Institute here in Toronto have been doing some research on what they are calling “urban tech.” They define it as encompassing the following industry sectors: co-living and co-working; mobility; delivery; smart cities; construction tech; and real estate tech.
Here are the largest urban tech startups based on the amount of VC investment they have received:
Below is how the space breaks down by sector. Mobility / ride hailing is the behemoth, receiving 61% of all VC investment. Food delivery is next. And “proptech” is at the bottom.
Finally, here are the top “urban tech” cities. Beijing is right up there with San Francisco.
Landed is trying to solve this problem by offering downpayment assistance to “essential professionals” — starting first with teachers — so that they can buy homes in and near the communities that they serve.
The way it works is pretty simple.
They’ll contribute up to half of a traditional 20% downpayment — so 10% of the value of the home — in exchange for a 25% share in any future gains, or losses.
Put differently, for every 1% that Landed contributes, it takes 2.5% of any future appreciation (or depreciation). However, on an equity basis, they are actually putting up 50% of the required cash (in the maximum scenario) in order to get 25% of any future gains.
There’s no monthly payment associated with Landed’s money, but it does need to be repaid at the end of 30 years or when the homeowner exits the agreement, whichever comes first. Homeowners are free to repay Landed at any time should they decide to sell the property or they just want to pay them out.
Landed pitches the service as another version of “the bank of mom and dad.” And for many prospective homeowners, I am sure that it makes all the difference in the world.
At first glance, it would seem that each homeowner also benefits from a kind of positive leverage. They only put up 50% of the required equity, but they get to enjoy 75% of the potential gains. However, each homeowner is also responsible for 100% of the carrying costs.
I ran a couple of quick return scenarios, assuming a $500,000 purchase price and a 10 year hold, in order to test whether Landed or the homeowner would receive a higher IRR once the property gets sold.
I didn’t carry any transaction costs, but I did factor in principal recapture, as well as utilities, insurance, and maintenance.
My rough numbers suggest that it depends on the annual rate of appreciation. If appreciation stays close to the rate of inflation, it could tip in favor of Landed because they don’t put out any money after t = 0.
But at higher rates of appreciation, the homeowner starts to benefit from the favorable 75/25 split at the end of the hold period.
Either way, Landed is providing a service to people who may not otherwise be able to afford to buy a home. That has value. Here’s some more information on how it works, in case you’re interested.
$UBER went public on Friday. Notwithstanding the initial stumble, Uber will go down in history as one of the most lucrative venture capital investments of all time.
The stock is down from its IPO price of $45 per share, but at that price, the initial seed investment of $510,000 that First Round Capital made back in 2010 was worth about $2.5 billion on Friday.
Here is a list of some of the other notable investors from Uber’s seed round and what their initial investments grew to over the course of 9 years (chart from the WSJ):
Of course, for every Uber, there are many more failed companies. And for every investor who turns $5,000 into nearly $25 million, there are many more who decided to pass on the opportunity.
In the case of Uber, many early investors couldn’t see how the product could go mainstream. It initially started upmarket with limousines, which was actually a clever way to hack the chicken-and-egg problem that plagues marketplaces.
Many also wondered how many metro areas outside of San Francisco had the kind of urban density and supply and demand drivers to support this kind of a service.
Today, some nine years later and many billionaires later, lots of people — including myself — are still wondering: Will Uber turn out to be a great (i.e. profitable) business? Hindsight is always 20/20.
The word on the street is that Sonder — the marketplace for vacation rentals and competitor to Airbnb — is close to finalizing a $200 million investment round that would value the company at $1 billion.
I first wrote about Sonder back in 2016 after I met someone from their business development team here in Toronto. I have yet to stay in a Sonder, but I’ve looked at their rentals a few times.
One of the main differences between Sonder and Airbnb is that the former head leases their rental supply. And they do this by trying to go higher up on the food chain and partner with developers and real estate operators.
In this regard, they are similar to WeWork. And it allows them to sit somewhere in between Airbnb and a conventional hotel. The supply is distributed, but the service offering is more consistent.
Of course, this arguably makes their business model slower (they have to negotiate leases) and more costly (they’re committing to fixed costs). So it becomes a question of: How valuable is that consistent service offering?
Lately when I travel, I’ve been trending more toward hotels, as opposed to Airbnb-like rentals. I like the experiences that many hotels are now focused on creating and I like knowing that if my flight arrives late (in a place like Brazil), I’ll be able to get into my room.
This recent post by Sam Altman (of Y Combinator) on how to achieve outlier success was just passed around our office. And it’s so fucking good that I decided to regurgitate it here on the blog by listing all 13 of his thoughts along with some of his most salient points. All of the words below are his (not mine), but most of his words are missing. I wanted to make a more condensed version so that you could easily print out this post and affix it to your desk. I am about to do that. Thanks for a great post, Sam.
1. Compound yourself
I think the biggest competitive advantage in business—either for a company or for an individual’s career—is long-term thinking with a broad view of how different systems in the world are going to come together. One of the notable aspects of compound growth is that the furthest out years are the most important. In a world where almost no one takes a truly long-term view, the market richly rewards those who do.
2. Have almost too much self-belief
Self-belief is immensely powerful. The most successful people I know believe in themselves almost to the point of delusion. Cultivate this early. As you get more data points that your judgment is good and you can consistently deliver results, trust yourself more. If you don’t believe in yourself, it’s hard to let yourself have contrarian ideas about the future. But this is where most value gets created.
3. Learn to think independently
Entrepreneurship is very difficult to teach because original thinking is very difficult to teach. School is not set up to teach this—in fact, it generally rewards the opposite. So you have to cultivate it on your own.
4. Get good at “sales”
All great careers, to some degree, become sales jobs. You have to evangelize your plans to customers, prospective employees, the press, investors, etc. This requires an inspiring vision, strong communication skills, some degree of charisma, and evidence of execution ability.
Getting good at communication—particularly written communication—is an investment worth making. My best advice for communicating clearly is to first make sure your thinking is clear and then use plain, concise language.
5. Make it easy to take risks
It’s often easier to take risks early in your career; you don’t have much to lose, and you potentially have a lot to gain. Once you’ve gotten yourself to a point where you have your basic obligations covered you should try to make it easy to take risks. Look for small bets you can make where you lose 1x if you’re wrong but make 100x if it works. Then make a bigger bet in that direction.
6. Focus
Once you have figured out what to do, be unstoppable about getting your small handful of priorities accomplished quickly. I have yet to meet a slow-moving person who is very successful.
7. Work hard
I think people who pretend you can be super successful professionally without working most of the time (for some period of your life) are doing a disservice. In fact, work stamina seems to be one of the biggest predictors of long-term success.
8. Be bold
If you are making progress on an important problem, you will have a constant tailwind of people wanting to help you. Let yourself grow more ambitious, and don’t be afraid to work on what you really want to work on.
9. Be willful
People have an enormous capacity to make things happen. A combination of self-doubt, giving up too early, and not pushing hard enough prevents most people from ever reaching anywhere near their potential.
10. Be hard to compete with
Most people do whatever most people they hang out with do. This mimetic behavior is usually a mistake—if you’re doing the same thing everyone else is doing, you will not be hard to compete with.
11. Build a network
Great work requires teams. Developing a network of talented people to work with—sometimes closely, sometimes loosely—is an essential part of a great career. The size of the network of really talented people you know often becomes the limiter for what you can accomplish.
12. You get rich by owning things
The biggest economic misunderstanding of my childhood was that people got rich from high salaries. Though there are some exceptions—entertainers for example —almost no one in the history of the Forbes list has gotten there with a salary.
You get truly rich by owning things that increase rapidly in value.
13. Be internally driven
The most successful people I know are primarily internally driven; they do what they do to impress themselves and because they feel compelled to make something happen in the world. After you’ve made enough money to buy whatever you want and gotten enough social status that it stops being fun to get more, this is the only force I know of that will continue to drive you to higher levels of performance.
Earlier this month it was announced that the on-demand electric scooter and bike startup, Lime, had closed a $310 million series D round. This values the 18-month old company at around $2.4 billion and brings its total raise to $867.1 million. For comparison, Bird — its main competitor — has raised around $400 million.
These numbers should tell you about the kind of growth that the “micromobility” startup is seeing. They are now in 15 countries and its riders have taken over 34 million trips. In the last 7 months alone, the company reports that it has seen a 5.5x increase in ridership. They are seen as an affordable last-mile solution. Supposedly 1/3 of its users report an income of less than $50,000 per year.
Lime entered the Canadian market last fall via Waterloo. They have yet to expand anywhere else, though I suspect we’ll see them in Toronto this spring/summer. One of the barriers is that their scooters (with airless tires) aren’t equipped to deal with snow, so they currently pack them up during the winter months.
This is in addition to the regulatory challenges they are facing in cities all around the world. But like Uber, I am sure there is a compromise to be had.
Bloomberg recently published a good summary of Zillow’s business and their move into algorithm home buying and flipping. (They are trying to avoid the “flipping” moniker because of the negative connotations associated with it.)
Zillow started buying homes directly from owners last spring. They charge the seller between 6-9%, so more than using a typical agent, but inline with their competitors. There’s clearly a segment of the market willing to pay a premium for the added convenience.
The thinking used to be that discount brokerages were the way to disrupt the housing market. This is the opposite strategy.
Interestingly enough, Zillow felt that they needed to make this pivot with their business model. It used to be about selling ads. They were definitive in that they were not a disruptor of real estate agents.
But now:
If getting an offer from an iBuyer became a crucial step in the selling process, they worried, Zillow could lose its audience and its advertising base. What’s more, market researchers kept finding that consumers said they’d pay a modest premium to get a cash offer. “People expect to press a button and have magic happen,” says Rascoff, a 43-year-old former Expedia executive who’d earlier started the travel search engine Hotwire, which he sold to Expedia for $700 million. Getting into the business of buying homes directly, Rascoff says, was “the only way to remain in a leadership position.”
Here is a map of the companies in this particular space and the cities in which they operate:
Some investors aren’t sold on this strategy and have begun short selling Zillow (according to the Bloomberg article). I keep getting the sense that there’s a greater end game in the cards here. It is about building up A (algorithmic home buying and flipping) in order to unlock B.
But what’s B — a new end-to-end transactional model for the housing market?
Over the weekend I received an Amazon Echo as a gift. I set it up in my kitchen on Sunday morning and had it playing music and telling me the weather in no time. I also setup a couple of “routines” so that when I say things, such as “good morning”, it cycles through the weather, the news, and some other things that I might find valuable at the start of my day. It is pretty neat.
The truth is that I have actually been avoiding voice assistants since they were first launched. As much as I consider myself an early adopter, I have been generally uncomfortable with the idea that my voice commands, and perhaps other things, are being stored by Amazon. There are ways to delete that history, but I am not yet sure if that’s enough for me. Am I going to be served an ad because of something I mention in my own home?
Now that I’ve been trying it out for a few days, I will say that it is incredibly useful. I immediately see the value. I use it to control some of my lights. I ask it things when I’m cooking and my hands are dirty: “Alexa, how badly are the Raptors going to beat the Bucks this Thursday?” And I use it to play music. But is all of this a fair exchange for the creepy feeling that they create?
I’m not sure. But it certainly feels like the future.
I have been writing about the real estate startup Opendoor for many years here on the blog. Another promising startup in this space is Knock, and today it was announced that they just raised a $400 million Series B round (led by Foundry Group).
They share some similarities with Opendoor, but they are also different in that their focus is on home trade-ins. They tell you what your current home is worth, help you find a new home, and then coordinate “a seamless swap.” For more on how they work, go here.
One of the ways in which they are similar to Opendoor is that they front the cash for new home purchases. In the case of Opendoor, they buy your home with the plan of selling it in the future. And with Knock, they buy your home with the understanding that your old home will get sold.
It is certainly a more capital intensive model compared to the way that home sales are handled today. But many investors are clearly betting that it is exactly what is needed to change the status quo.
(Credit to Jeremiah Shamess for sharing the above news with me today.)
Toronto-based Drone Delivery Canada has just signed a $2.5 million agreement with the Moose Cree First Nation. This will bring the company’s drone delivery platform to the Moosonee and Moose Factory communities in northern Ontario (about 19 km south of James Bay).
“This agreement is representative of the large ‘Remote Communities’ market that we see penetrating over the next three to five years,” said Tony Di Benedetto, CEO of DDC. “The Remote Communities market is only one segment of the overall total addressable market in Canada. In addition to Canada, DDC is working with other customers around the globe to licence our FLYTE software and drone delivery technology.”
DDC’s Sparrow drone is able to handle 5 kg (~11 pound) payloads and will be used to transport letters, parcels, medical supplies, and other general necessities.
This is a big deal for Moose Factory because the island can only be accessed by boat in the summer, ice road in the winter, and by helicopter during the rest of the year. And this is not a unique situation for remote communities.
Suboptimal infrastructure and connectivity is a common problem and generally results in a higher cost of living, among other things. So this strikes me as something that should have meaningful impact on the quality of life in these communities.
