NFX Invests in Ribbon to Transform The Home Buying Experience
by Pete Flint, General Partner
As Founders ourselves, when we announce a new investment, our goal is to share what we’re learning and observing for the benefit of the founder community at large. Today we’re excited to share that alongside Greylock, Bain Capital Ventures, and NYCA, we’ve invested in Ribbon, a company that is out to transform the process of buying a home. Moreover, we believe Ribbon represents a growing breed of company type that are better positioned to become the category-defining leaders.
First, a few words about Ribbon. This is a company that is solving a real problem – buying a home is getting harder and harder for many people and the experience has not meaningfully improved over decades. Part of that is due to a lack of innovation while another part is because in many communities, Wall Street investors have swooped in, making all-cash purchases, and effectively pricing out the everyday American. Given the complexity of this market, we believe Ribbon’s “software plus” model gives them a very critical advantage.
Let’s unpack what “software-plus” means…
For some time, Silicon Valley has had a romance with the notion that software and algorithms alone were enough to innovate stale industries. The formula went something like this – target a large industry, find intersections of customer pain and market viability, and then design a modern UX that improves enough on the current option to drive conversion.
But this misses two very important points. First, consumer expectations have risen at a faster rate than the software/algorithm model alone can currently accommodate. Simply put, if machine learning will ever be able to completely replace humans, it’s not happening anytime soon. Second, just because ML in theory could replace human labor doesn’t mean it should. Though technology may be scalable, people and communities are often not. When the human is eliminated from the equation, the sociological consequences can lead to weakened communities and deteriorated cultures – IRL.
Increasingly, my Partners and I at NFX are seeing that the category defining companies are those that bring far more than software and algorithms to the table – we call them “software-plus”. These are software companies at their core, but bring other scalable assets, partners or components to the company to build next generation product experiences and competitive moats with strong long term profit margins.
By bringing additional capabilities, this not only enables a wildly better user experience, but also builds long term defensibility. I saw this close up as the Founder and CEO of Trulia which alongside Zillow (which it later merged with) transformed access to real estate information.
The ground level potential of a software-plus company like Ribbon is huge – because they can bring together software + capital + local agents, their solution removes the hassle and uncertainty from the single most important financial decision of someone’s life.
Ribbon is a helpful case study on why Founders going after complex markets should consider a software-plus approach:
- Cutting through complex markets. While technology has made great strides in modernizing the real estate industry, the actual transaction is still as slow, painful and uncertain as ever. In fact, in some ways it is even slower. It now takes the average home buyer 25% longer to find their new home, 73% of millennials think it is too hard to get a mortgage so they rent, and 1 out of 4 people cite just the paperwork of a mortgage to be the single most challenging part of their home buying experience. While change is inevitable, the scale and complexity of certain industries requires an unusual approach.
- Getting at the real problem at hand. Investor and institutional capital has taken advantage of the transaction complexity experienced by the everyday consumer who needs to secure a mortgage. Combined with financing challenges and home price appreciation, this has made home ownership increasingly impossible for many Americans. Today’s home ownership rate is fallen to 64.2%, which hasn’t changed in 50 years. It’s not a demand issue, it’s a practical issue for many prospective homeowners.
- Empowering customers with choice. By taking a software-plus-capital approach, Ribbon empowers home buyers not only to have a modern, technology-powered experience, but moreover to compete with all cash offers and to close quickly with full transparency. The team has secured real estate capital to enable over $2 billion in transactions this year.
- Restoring sustainable communities. Buyers are now able to actually compete, real estate agents are able to provide their customers with an unfair advantage, and sellers can have the assurances they need to be able to graduate to their next home purchase.
We believe companies that invest not only in homes, but also in people, will better serve our local communities and form the neighborhood connectivity that leads to higher quality, happier lives. This is precisely the vision and philosophy at Ribbon and we stand behind this consumer-first approach.
In addition to their software-plus approach, here are the tipping points that led to our partnership with Ribbon:
- They are building a network effects company in a $30 trillion industry. There is still so much innovation lacking in real estate, so the opportunity is massive.
- They move quickly and think big. The team has secured real estate capital to enable over $2 billion in transactions this year, they already launched in their first market, Charlotte, NC, they’ve closed brokerage partnerships, and have developed a pipeline of $15 million in home transaction volume in the last 30 days.
- The team is stacked with talent, expertise, and a deep-rooted hunger to transform real estate. Shaival Shah, Wei Gan, and the entire team are experts with deep knowledge of technology, financial services, lending and real estate who care passionately about the mission and opportunity. They have built market leading companies, have overseen the purchase and sale of over 10,000 homes throughout their careers, and have been involved with notable brands like LendingClub, Twitter, Spotify and Invitation Homes.
- They are passionate about solving their customer’s problem. The Ribbon team doesn’t believe that sellers should be forced to sell their homes for massive discounts to institutional capital as the only source of certainty. A 15% discount (typical investor discount) can be more than 50% of a seller’s equity value. Ribbon’s believes that their customers deserve better.
- Ribbon is a people-first solution that empowers communities, not a pure algorithm designed to displace agents. Ribbon is not a real estate brokerage, but works with your local agent, not an algorithm or call center helping consumers get the best advice and the best deal.
- They’ve built a solution that is easy to use for buyers, sellers, and agents. Ribbon takes the hassle out of the whole experience, simplifying and often handling things like valuations, offers, capital backing, inspection, repairs, and on-time closing.
Across every single industry, consumers not only deserve better – they now demand better. We believe “software is eating the world” was just the beginning of industry modernization. In large part, the next phase of transformation will be led by software-plus startups, which are better positioned to provide end-to-end solutions and truly effect change.
Pete Flint is the founder and former Chairman and CEO of Trulia. In 2015 Pete merged Trulia with Zillow in a transaction which valued Trulia at $3.5BN, after which he served on the Zillow Group board. Previously he was part of the founding team of lastminute.com which was acquired for over $1.1BN. Today, he is a Managing Partner at NFX. Follow Pete on Twitter here.
NFX is an early stage venture firm based in San Francisco. Founded by entrepreneurs who built 10 companies with more than $10 billion in exits across multiple industries and geographies, NFX is transforming how true innovators are funded. Follow us on Twitter here.