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Blog

Don’t Congratulate Me For Writing A Check

Steve Schlafman

On Thursday we announced our Series A investment in Managed by Q. Throughout the day, I received countless congratulatory emails and tweets from friends. “Amazing investment.” “Love that company.” “Nice win.” “HUGE CONGRATS.” And so on. On my way home, as I reflected on these kind messages, it occurred to me that I don’t deserve a pat on the back. There’s a long road ahead for the company, and I really haven’t done shit. Sure, I built a relationship with Dan and Saman, hustled to help Q win new customers and key employees, and gave them a generous term sheet. But writing a check is easy. Being an engaged board member and a supportive partner in good times and bad is the hard part. And building an enduring, category-defining company is nearly impossible.

Mark Cuban once said, “the magic in business isn’t raising money but making money.” Amen. Our industry spends too much time sensationalizing the fundraise while ignoring the fact that this process marks the beginning, not the end, of a startup’s journey. Once term sheets have been signed, there are people to hire and fire, product and features to ship, endless reams of data to analyze, and millions of small but crucial decisions to be made.

Let’s be honest for a second, fundraising news drives page views for the tech blogs, makes companies feel validated, helps investors build their brands, and can even intimidate the competition. There’s no denying that raising money is an important milestone in a company’s lifecycle. But dollars in the bank is far from the most important metric. I like to remind my founders that cash is oxygen for their startup—it buys time and space to breathe. But money alone cannot buy victory. That would be like Sir Edmund Hillary celebrating before reaching the summit of Everest based solely on his vast store of supplies. 

Whenever I make an investment, my Jewish anxiety tends to kick in and I become laser-focused on how I can support the team in the short and long runs. After the 24-hour buzz of winning the deal fades, the real work begins. What follows a fundraise is daunting for every founder and investor. Don’t get me wrong, I sincerely appreciate when people take time out of their days to send a thoughtful note. Each of us has a million things going on, and these small and simple acts of kindness are perhaps the most underrated acts in business.

But rather than sending a congratulatory pat on the back, wish me good luck, see how I’m feeling, ask if or how you can help. We all need to do this better. I am no exception. I’ve always believed it takes a village to raise a startup. The more strongly we support each other, the more quickly our industry will grow and thrive, and the more successful our companies will be. I don’t show up every day to write checks. I show up to fight for my founders and deliver a return to my investors. And I don’t show up alone, I show up alongside everyone in our ecosystem that is passionate about building companies and moving the world forward. 

Hightower: The System of Record for Commercial Real Estate

Steven Schlafman

A few years ago, Brandon Weber, CEO and Cofounder of Hightower, and I were catching up over a casual dinner in Brooklyn. We had met ten years earlier when we started our careers at Microsoft and quickly became friends.  A few months before our dinner, Brandon left the commercial real estate (CRE) brokerage powerhouse CBRE, where we was a Vice President, to start Hightower because he saw that the industry was broken. He explained in fine detail the great paradox facing the industry. Despite CRE being a fifteen trillion dollar market and highly data intensive, many of the processes were manual and relied heavily on paper, excel and email.  Additionally, existing industry standard solutions such as Yardi, MRI and Argus were siloed and 20 years old. Brandon explained that he and his cofounders, Donald and Niall, were starting Hightower to solve these problems.

I was initially skeptical because I had seen dozens of real estate tech startups and many of them struggled to gain adoption with institutional landlords and brokers. CRE remained one of the major industries that hadn’t embraced the cloud and mobile.  My gut told me there was a huge opportunity because at some point in the near future “software would eat” CRE. After spending more time with Brandon and his cofounders, they convinced me the time had come and they were the right team to back.  They argued the market was ready because brokers and landlords were using iPhones, Google, Facebook and other cloud-based tools in their personal lives.  These customers now wanted and expected the same quality of tools at work.  As we dug deeper, it became obvious that Brandon, Donald and Niall were the right team to invest in because they had the unique blend of domain expertise and world-class product experience. A few months later, RRE Ventures was lucky to invest in Hightower’s seed round along with strategic investors Thrive, Bessemer, The Box Group, and Red Swan among others. 

In just two short years, the industry has changed dramatically and Hightower is helping to accelerate this change. Institutional landlords and brokers now recognize the need to adopt a cloud-based platform to streamline core processes, to enable real-time visibility into their portfolios, to lease space faster and to remain competitive. From dozens of conversations with both brokers and landlords, adopting a cloud-based platform is no longer a nice to have but rather a must have. They see Hightower as the initial foundation that will support the entire industry as it transitions from antiquated systems and adopts new technologies. Existing customers are leveraging Hightower for many business processes including deal pipeline reporting, current tenant tracking, market data tracking, stacking plans, financial analysis, and portfolio reporting. So far the response has been overwhelmingly positive as evidenced by hundreds of millions of square feet on the platform, an NPS score higher than Apple, and virtually no customer churn. All the data suggests that 2015 and 2016 will be the year CRE comes online. 

With all that being said, I’m incredibly excited to announce that RRE is doubling down on Hightower and leading a $13M Series B financing with participation from Thrive and Bessemer and a handful of strategic real estate investors. The funds will be used to recruit and hire world class talent, enhance the Hightower platform and continue to provide our customers with high touch support. We’re significantly expanding our investment for a variety of reasons. First, we believe that Hightower has built the best team and product in the industry. Most importantly, customers feel the same way. The dozens of owners and brokers we spoke with said Hightower has helped them increase sales velocity and operate more effectively. We also discovered that informed customers have chosen Hightower over the current alternatives and the competition’s customers are defecting. In fact, they’ve had 100% trial win rate over the competition. Additionally, Hightower has a robust product roadmap and trajectory. They’re consistently first to market with the latest features and respond quickly to customer needs. With this funding we’re ensuring that Hightower is here to stay and will become the market standard. The company is now well positioned for long-term success, stability and growth. 

Since RRE’s seed investment in Hightower we’ve been very lucky to partner with a handful of innovative real estate startups such as Managed by Q, Floored, Breather and The Square Foot.  While each one is transforming CRE from a different angle, perhaps the biggest disruption and most value created will happen within information aggregation and sharing. This is the cornerstone of the industry because it’s where the listings and deals reside. By having real-time visibility into the data, both brokers and landlords can move faster and close more business. Hightower is building the system of record for the industry by providing world-class workflow tools built around leasing.  Based on all of these developments and many others, I’d argue that CRE is no longer a barren wasteland for technology but rather an oasis for innovation. CRE technology is a trend that’s reshaping an old and a multi-trillion dollar industry and Hightower is building that foundation of change.  I’m excited to say we’re just at the beginning. The future of CRE is here.

Apple Watch Venture In Residence

Steven Schlafman

In just two weeks from now, the Apple Watch finally comes to market after months of anticipation and speculation. You may recall back in November, Apple released its WatchKit SDK to developers and companies to ensure there would be a large selection of apps when the wearable computer hits the market. In fact, Tim cook wrote in a memo earlier this week that more than a thousand apps have already been submitted to the App Store. Based on intuition and early screenshots, many of the initial apps will be geared towards communication, news, payments, transportation, health and productivity. Like with any new platform, it’s mind bending to think about the range of apps and services that we’ll now be able to access with a flick of our wrist. 
 
The big question that everyone’s asking is: Does Apple still have the magic to create a category defining product that will ship hundreds of millions of units? People much smarter than me believe Apple Watch will be a flop. Additionally, many of the early reviews have been mediocre because the user interface has a steep learning curve. Taking a contrarian angle is understandable given we’ve become tethered and addicted to our smartphones and Apple Watch feels like a nice to have rather than a must have. I personally struggle with making predictions and betting against Apple before a single unit has shipped. What I do know today? Thousands of developers are building apps, Apple Watch is beautiful and hyper personal, and Apple is putting all of its marketing might behind the launch. In my limited experience, that’s a recipe that I probably wouldn’t bet against.    
 
Given the developer interest we’re seeing, I strongly believe that thousands of watch-specific apps will emerge over the next few years and several large companies will be built on top of this new platform. I don’t pretend to know what the winners will look like and where value will be created but I do know that RRE Ventures is eager to learn and invest in the ecosystem.  As part of this process, we’ve decided to establish the RRE Venture In Residence Program which will initially focus on Apple Watch. The idea behind this program is to partner with one or two “pre-venture backed” startups, provide free office space and mentorship at our office in Flatiron NYC, and learn from each other. An investment is not required or guaranteed but is certainly possible over the life of the residency. Going forward, the RRE Venture In Residence Program will run on a quarterly basis, offering workspace for 3 consecutive months per startup. Each quarter we will announce a new theme in order to attract a diverse base of startups over the course of a year. 
 
If you would like to be our Apple Watch Venture In Residence, please complete the application by Friday, April 24th at 12pm EST.  Over the course of the next two weeks, we’ll follow up over email to schedule an in person interview if you think you have what it takes. Our plan is to make the final selection no later than April 30th. Throughout the process, please don’t hesitate to email me at s@rre.com if you have any questions, comments or feedback. This is a new experiment for RRE so we’re going into this process with an open mind. As you can probably tell, we’re amped about the potential of Apple Watch and hope to make several seed investments this year. That said, we’re looking forward to seeing how your apps will change the way we interact with the physical and digital worlds. 

Why We Started Abra

James Robinson

Yesterday at the Launch Festival in San Francisco we announced Abra.  Abra (A Better Remittance App) is an exciting new iPhone and Android software cash wallet and money transfer application.

We started Abra because we believe that the first generation of digital currency applications are technical marvels but don’t solve real consumer pain.  To make digital currency useful to “cash consumers” digital currency should: be transferable to any phone number in the world, not represent exchange rate risk, be as private as real cash, have no costs for money transfer, and be fungible to real paper-cash at very low cost 24 hours a day, 7 days a week.  Abra was designed to fulfill all of these needs.

Our “marketing description of Abra:”

With Abra, digital cash (equivalent to US Dollars) is stored directly on the smartphone. Instantly transfer money peer to peer to any phone number in the world..  Abra never touches your money. Abra merges money transfer and payments via a single digital cash wallet that works ubiquitously anywhere in the world.  There is no bank or other third party involved in managing, storing, remitting or accepting your money.  Abra represents the next generation of digital cash applications but without the technical fuss.

Technically put, Abra is digital cash stored directly on your phone, guaranteed in US Dollars.   Abra app-based transfers use the blockchain to settle, and transactions are published directly to the blockchain from your phone.  Abra’s back-end servers never touch consumer’s money or their transfer requests.  The value of the holdings in your wallet do NOT fluctuate with the value of Bitcoin for at least 3 days after initial deposit onto your phone.  Abra is not a financial service -- it is an app that facilitates storing digital currency equivalent to US Dollars directly on your smartphone and transferring your money from your Abra App to any other Abra App anywhere in the world.

To make Abra accessible to consumers globally we are launching a network of Abra Tellers. Tellers are like mobile airtime agents.  Instead of selling airtime, Abra Tellers sell and buy digital currency.  Think of them as human ATM’s.  In the US, consumers with supported ATM cards will be able to add digital cash to their smartphone with their ATM card and pin.  This is a US first.  Those using an ATM card to buy digital cash via one of Abra’s exchange partners will need to provide ID.  Others do not have to register with Abra at all.  All Abra Tellers are background-checked, similar in fashion to Uber or Lyft drivers.

Abra began Teller sign-ups yesterday in advance of a full service launch planned for this spring. We’ve been playing with builds of the App and we love it. It’s the digital cash app we’ve always wanted for ourselves.

To design Abra we turned to the traditional Hawala model.  The concept of a Hawala dates back to the 8th century.  Hawaladars are people who collect and hand out money on behalf of others over long distances.  Hawaladars settle with each other via barter transactions, netting out reverse transactions, or in modern times via bank wires if necessary.  Traditional Hawala’s are generally illegal in the United States as no one is allowed to hold or remit funds on behalf of someone else without being a licensed money transmitter both with FinCen (the Financial Crimes Enforcement Network) and with the US State regulators where the consumers’ reside.  In the case of Abra, however, consumers and Tellers are always holding their own money just as with the standard open source Bitcoin software.  Abra Tellers simply buy and sell digital currency directly to and from other consumers in their neighborhood in small amounts. 

Funds are stored in US Dollars so there is no foreign exchange taking place.  Consumers send money peer-to-peer directly via the blockchain.  As everyone is always holding their own money in their Abra App and no third party directly facilitates the transfer of money, money transfer laws don’t apply and no foreign exchange happens.

Abra Tellers are strictly forbidden from knowingly buying or selling digital cash to any person that they believe would use the App for illicit means.

A real world example can help illustrate how Abra works:

Bill in San Jose wants to send $100 to Nancy in Mexico.  Bill finds an Abra Teller, Sebastian in downtown San Jose.  Sebastian charges 1.5% for selling digital currency to Bill.  Bill arranges to meet Sebastian from the Abra App.  When they meet, Bill hands Sebastian $101.50 representing the $100 in digital currency and the $1.50 fee.  Sebastian’s Abra App then transfers the digital currency directly to Bill’s phone.  Bill then transfers $100 in digital currency to Nancy’s phone in Mexico.

To get access to the cash in Mexico, Nancy finds an Abra Teller, Miguel, in her neighborhood and sells the digital currency to him in exchange for Pesos.  If both parties charge 1.5% for buying and selling the digital currency then they have saved a fortune in fees versus traditional money transfer services that can charge upwards of 8%, 9%, or more, for such transactions.

Why are Sebastian and Miguel likely willing to provide these services for a 1.5% fee or even less?

Consider that Sebastian and Miguel already provide some form of service in their neighborhood for cash.  In the case of Sebastian that means he already has to deliver cash to his bank every day for safekeeping.  Adding a little more cash to the mix costs him nothing and earns a few more dollars in fees every day and certainly puts him in the good graces of his friends and customers.  In the case of Miguel he takes in a lot of cash via his current businesses, selling prepaid airtime and his Bodega store.  Buying digital currency helps him manage all of his cash at no cost while actually making a little extra money in the process.  This is a real win-win.

You might be wondering… How does Sebastian get access to digital currency to sell and how does Miguel sell the digital currency he has bought from consumers.  Simple.  The Abra App has a built in “Teller” function that allows Tellers to easily buy and sell digital currency similar to the manner in which they buy and sell airtime.  They can do this for cash themselves or via their bank account.  The difference between the cost of this transaction and the fees charged to the consumer is the Teller’s personal profit.

You can sign up for Abra and let us know if you want to be an Abra Teller by going to Abra’s website. Help us make Abra better by giving us ideas and suggestions on how to improve the service design and make it useful for everyone!

Noom, Helping Us Keep Our New Year's Resolutions

James Robinson

At RRE, we identify and invest in entrepreneurs mining  significant opportunities and focusing on constructing long-standing businesses. After exploring the health and fitness space through the years, , we are thrilled to announce our investment in and partnership with Noom, alongside Translink Capital, Recruit Group Japan, Qualcomm Ventures and Harbor Pacific Capital.

I first met Saeju, co-founder of Noom, at one of those entrepreneur-VC lunches where poor, mindless eating decisions are the norm. I was immediately struck by his passion and ambition to address one of the most severe health problems facing our world today:  Obesity. His conviction, combined with my acknowledgment that little innovation targets the substantial number of people categorized as "plus-sized", encouraged further discussions with the team. Artem's depth of product knowledge alongside Adam's wealth of marketing expertise wonderfully complimented Saeju's heavy sales skills and almost evangelistic orientation.

The Noom team has made inroads with millions of users worldwide with their research-driven, mobile-first approach to better wellness, integrating not only proven behavioral science and physiological intelligence with  rapid consumer feedback. Noom's vision is to establish an accessible, holistic brand in sustainable weight loss and healthful living with strategies that demonstrate tangible results.  

Noom's product suite includes Noom Weight, Noom Walk, and Cardio Trainer. Noom Weight, the company's flagship product, includes food journaling, educational "bite-sized" content, and a virtual support network of other users selected to motivate one another -- a nod to Weight Watcher's group meetings. A testament to its traction, the app is the #1 top grossing in the Health & Fitness category in the Google Play store. Noom's users, the majority female and under the age of 30, represent a highly sought-after demographic for many marketers. Noom has also seen significant adoption overseas as it localizes its applications in countries such as Japan, South Korea, Germany.

We're excited to help fuel Noom's growth, and encourage you to think twice about that second cupcake.

Find Noom on iOS or Android.

The Most Important SaaS Metric Nobody Talks About: Time-to-Value (‘TtV’)

RRE

In a world where applications are delivered via cloud and distributed across billions of Internet-connected end-points, we’ve seen barriers to entry, adoption and innovation compress by an order of magnitude or two, if not crushed altogether. Compound this by advances in application and data portability and the implication for technology vendors competing in this global, all-you-can-eat software buffet is that customers’ switching costs are rapidly approaching zero. In this environment it’s all about the best product, with the fastest time-to-value and near zero TCO. And it’s this second point – time-to-value (TtV) – that I want to dig in on a bit because it tends to be the one glossed over most often.

I’ll start with an anecdote …

A portfolio company of ours delivers a SaaS platform that competes with legacy, on-prem offerings from large infrastructure software vendors. In its early days the company had fallen into the enterprise sales trap: spending weeks, if not months, with individual customers doing bespoke integration and support work. About a year in when we finally decided to open up the beta to everyone, sign-ups shot up, but activity in new accounts was effectively nil. What was going on?

Simply, customers didn’t know what to do with the software once in their hands. Spending months with large accounts did inform some fundamental product choices, but at the cost of self-service. Our product was feature-bloated, on-boarding flow was clunky and the integration API was neglected and poorly documented.

In a move that, I believe, ultimately saved the company, we decided to create a dedicated on-boarding automation team within product. Sure enough, in the months that followed, usage spiked and the company was off to the races.

The takeaway was that highest priority should be given to building software that just works, and that means focusing relentlessly on reducing or eliminating altogether the time investment to fully deploy your solution in production. Ideally, you want customers to derive full value from your offering in mere minutes, if not seconds. To do so, treat on-boarding as a wholesale product within your offering and devote engineering resources to it. Find religion about optimizing TtV!

Below is by no means a complete list, but instead a few lessons that I’ve taken away from my experience with our portfolio that many SaaS companies should internalize in their product and go-to-market strategies to help optimize TtV:

Simplicity wins…be feature-complete, not feature-rich: This is a fairly obvious but subtle point that often evades even the most talented product teams: the defining characteristic of a simple (read: good) product is not the abundance of features but rather the relevance of those features to its users. This stands in stark contrast to the old paradigm of CIO-inspired products that were over-engineered and feature-bloated. The challenge in the new paradigm is what might be relevant to one customer may be entirely worthless to another. The solution is focus, either in product or in market.

The always-better option in my mind is to narrow your product focus. Do one thing incredibly well. Tackle the single, most acute – but universal – pain point and ingrain yourself in your customers’ workflow…then expand horizontally. Value needs to be delivered from day one, but features can be revealed over time. Ultimately, it’s about understanding your unique unit of valueand exploiting that with your customers. Slackis the single best company embodiment of the focus/simplicity paradigm. Others take note.

Hack the onboarding flow:  It doesn’t matter how beautiful or utilitarian your product is if no one ever gets around to using it. Developers are a fickle bunch with seemingly infinite alternatives to your offering of paid tools, open source projects and self-built hacks. You generally have one chance with them, and that chance lasts about 20 minutes (based on conversations with some of the least ADHD-ridden devs I know).

On-boarding should emphasize and reinforce the value prop that drove the user to your product in the first place. Sign-up should be frictionless and deployment should be self-service to the point where the customer is up and running in minutes and, most importantly, getting value from your product a few moments right after. Avoid the empty room problem at all costs – even if the data or insight you provide early on has less direct customer value, it’s better than a customer looking at a blank screen.

Suggestion: read New Relic’s early blogposts. The company was fanatical about delivering value to devs from their APM solution within 5 minutes of signing up.

Documentation, Documentation, Documentation: There’s nothing sexy or glamorous about documentation, but great docs can be a source of competitive differentiation. Look no further than Stripe, whose documentation is the stuff of legends (and a big reason why the company has grown as quickly as it has). Great documentation shows devs you care and it’s increasingly becoming table stakes, particularly if your product is technical or has an upfront integration burden. Given that, take the time to document from day 1 and don’t neglect those docs as your product offering expands.

An obvious corollary to the documentation point is around API cleanliness. Your API is a not adjunct to your product, it is an extension of the core; treat it as such.

Content, Content, Content:Embrace content – it’s your opportunity to connect with users. Content doesn’t just mean static blog posts, but includes webinars, tutorials, analyst publications and reference architectures. Leverage content to showcase the integrations, use cases and features of your product. Digital Ocean does this masterfully. Just go check out theirblog.

Finally, make sure to quanitfy. Set a goal for TtV and benchmark against it. TtV’s vary widely across product segments and end-markets but study your comps and make sure you’re at least beating the pants off them.

An optimized TtV has positive ramifications throughout the organization ranging from freeing up support engineers to work on product to enabling a tightening of sales and marketing spend up and down the funnel. Ultimately, a short TtV drives all those other metrics folks seem to care so much about like MRR, LTV, CAC, Churn, etc.