- Resi is a rental marketplace that aims to improve the renting experience.
- Their first product, Upfront, guarantees landlords the leasing of their vacant apartments and allows tenants to lease apartments in under 10 minutes.
- When applying to YC, Resi was focused on the rental space and exploring the idea of providing landlords protection from tenant-related risks.
- During their time at YC, Resi decided to solve the problem of vacancy risk for landlords as well.
- They realized that by eliminating the risk of vacant units, they could significantly improve the tenant experience.
- Resi initially used YC safe capital and money raised from friends and family to pay landlords, and their first transaction went well.
- They differentiate themselves by improving the user experience for tenants, particularly in the leasing process.
- Resi focuses on efficient showings, secure and quick application processes, and providing valuable insights to landlords regarding pricing and market trends.

- The company started by cold calling landlords to offer their rental service
- They provide landlords with certainty of execution and cash upfront, while also conducting thorough tenant screenings
- The acceptance rate varies depending on the location and type of apartment
- The company raised debt to finance leasing apartments, creating a financing structure similar to a REIT
- They had a advantage in creating this structure due to the founder's background in finance and structured products.

- The company understood the market's requirement for attractive returns for investors in consumer receivables.
- They aimed to provide a financing solution that would meet the investors' desired returns.
- Educating investors and VC partners on their business model was important to gain their support.
- Risk modeling involved analyzing vacancy risk and tenant performance.
- Back testing and learning from other consumer receivables helped in understanding and managing risk.
- The company transparently communicates pricing and negotiation with landlords, establishing trust and partnership.
- They have a sales team to interact with landlords of different types and sizes.
- Flexibility and responsiveness to landlords' concerns are important for crafting solutions that benefit both landlords and tenants.

- Landlords benefit from lower friction and risk, leading to cost savings
- Tenants benefit from faster and more secure application process and better deals
- Company learned the importance of personal engagement with landlords and tenants
- The industry is undergoing a reimagining with technology improving user experience
- Trends include elevated application process and creating communities in buildings
- Landlords are looking for differentiators such as technology and amenities
- Trends are common across markets but move at different speeds
- New York has seen an increase in concessions due to saturation of new development

- Landlords in cities like New York, San Francisco, Dallas, DC, Atlanta, and Miami are recognizing the importance of providing a good leasing experience for tenants.
- The rental market in metro areas tends to have lower returns compared to non-metro areas.
- It is important for founders to stay focused on solving the problem and not get caught up in the hype of running a startup.
- Hiring the right people for specific roles is crucial, and it's important to reassess and make changes as needed.
- The process of quitting a job to start a company can vary, but having trust and a strong co-founding team is essential.
- Managing personal well-being on a daily basis is important for founders.

- The speaker emphasizes the importance of taking care of oneself in order to effectively run a business.
- They discuss their efforts to improve their physical well-being through exercise and healthier eating habits.
- The speaker acknowledges the mental challenges of running a startup and the need for resources and support, including a coach and their partner.
- They mention the difficulty of balancing work and personal life, but emphasize the importance of setting aside dedicated time for personal relationships and relaxation.
- The speaker shares their approach to managing stress, which involves stopping and reflecting on the reasons behind their feelings, and ensuring that their actions align with their purpose.
- They attribute their ability to handle stress and find happiness to having a purpose-driven life and cutting out things that do not contribute to their goals.

The speaker discusses the importance of progress towards a goal and the need to handle ups and downs. They emphasize the value of journaling to express and understand emotions, and highlight the personal growth that comes from running a startup.

- Resi is a rental marketplace focused on improving the renting experience.
- Their product, Upfront, guarantees landlords the leasing of their vacant apartments in under 10 minutes.
- Resi solves the problem of vacancy risk for landlords and aims to improve the tenant experience.
- They differentiate themselves by improving the user experience for tenants in the leasing process.
- Resi provides landlords with certainty of execution and cash upfront, while conducting thorough tenant screenings.
- The company raised debt to finance leasing apartments and created a financing structure similar to a REIT.
- They focus on efficient showings, secure application processes, and providing valuable insights to landlords.
- Landlords benefit from lower friction and risk, while tenants benefit from a faster and more secure application process.
- The rental market is undergoing a reimagining with technology improving user experience and creating communities in buildings.
- It is important for founders to stay focused on solving the problem and hire the right people for specific roles.
- Managing personal well-being is crucial for founders, and the speaker emphasizes the importance of taking care of oneself.

Sean Mitchell - https://www.linkedin.com/in/seanfmitchell/ - is the cofounder and CEO of Rezi - https://RentRezi.com. REZI helps landlords find high quality, long-term tenants in 48 hours. They were part of the Winter 2017 batch.

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

Why don't we start with just a brief explanation of what Resi does and then go back to what you applied to YC with.

So Resi is, we're a rental marketplace with the mission to make renting better.

We use our, technology and we use finance in order to provide products that allow us to do that.

Our first product is a product called Upfront, which is essentially a solution that gives landlords an option where they're guaranteed to lease out their vacant apartments and gives tenants the ability to lease apartments from us in under 10 minutes.

So When we applied to YC, which is, call it winter of 2016, we were focused on the rental space.

We knew that there had to be some sort of risk transfer from the landlord to either us or some other party.

But we didn't really candidly have a great handle on what the model should be.

So at the time we were kind of toying around with the idea of, okay, well what if we gave landlords protection from the downside?

Like if, if you know, a tenant doesn't, doesn't pay the rent.

And to put a finer point on that, the risk transfer has to happen because that's your value proposition.

So let's think about it from the landlord's perspective.

So a landlord principally has 2 risks with a vacant property.

So the lost income and the carrying costs from owning that asset every single day.

If they're not generating income, that's a loss.

But then when they lease the property out to a tenant, you know, will the tenant pay the rent?

Will the tenant be, you know, disruptive to other tenants who live in the building?

These are all considerations that they have to have.

We got fairly comfortable with how to solve that second problem.

I think what changed during our time at YC was we decided to take the next step forward and solve the first problem.

So prior to YC, we looked a lot like effectively a software solution that gave you better due diligence or better screening for your tenants.

I think while we were in YC, what we realized was, okay, what if instead of saying to the landlord, hey, if you use our tool, you'll have a better success rate with screening tenants, what if we said to the landlord, okay, you never have to worry about a vacant unit ever again.

And would that be compelling enough of a solution that you can make a business out of it.

And completely candidly, we got to YC January 4th.

I told the team I wanted to pivot the strategy probably on January 6th, and we went to office hours.

Our partners kinda told them, hey, yeah, you know what you let us in for?

Yeah, the thing you let us in on, we're not gonna do that anymore.

We're trying to figure out what we wanna do.

And I'd say by the end of the month, we had decided on this strategy and we actually closed our first transaction at the end of the

And we got to go into the financing in particular, but what was a particular revelation that you had to shift?

Yeah, it was how big of a problem can we solve?

So I think everyone, anyone in leasing and anyone in the rental space is familiar with the problems and pain points in the leasing process.

Frequently, there are agents, whether there be brokers or other parties, who don't have skin in the game.

So the landlord who is effectively at risk of finding a bad tenant or not finding a tenant fast enough and losing money, they don't have a partner who is in that same risk.

And So those 2 problems were pretty apparent.

And I think what we, the quote unquote aha moment, was what if you could create a scenario where, for the landlord, that risk didn't exist anymore?

And If you could offer that product, and we knew it would be enormously complex to offer.

But if you could, you have to solve pricing, you have to solve funding, you have to solve technology.

But if you could do it, Could you then meaningfully improve the tenant experience where tenants have the ability to lease properties in minutes versus waiting days and sending all of their sensitive personal information in typically very unsecure ways?

And did you have cash on hand in the beginning to pay these landlords?

How did you get that side of the marketplace?

So the first transaction we did, we had the YC safe capital.

We had a little bit of money that we'd raised from friends and family.

But the first transaction we did, I pulled my other 2 co-founders aside and I said, yeah, I'm going to probably use 40% of the money we have on this 1 deal.

And it's like, if this doesn't work, yeah, guys, I don't know.

But we felt fairly convicted that it was the right solution.

Knock on wood, that went well and continues to go well.

And so for people who don't understand the product fully, how much cash are you giving this landlord?

Right, so depending on a given transaction, it could be anywhere from, call it, $30,000 to $50,000.

So on a portfolio of units, for instance, if we're engaging with a landlord who has several units or something like that, then it can be several hundred thousand dollars or greater.

And from a tenant's side, how do you meaningfully differentiate?

Yeah, So I think user experiences are a big focus as it relates to tenants.

So I think you look at the leasing process.

Leasing an apartment, particularly in any competitive metro, is a very painful process.

There's no standardization on the qualification criteria.

Typically, if your broker's not being really responsive, You can have missteps with being able to see the unit or visit the unit.

And so we really focused on, OK, how do we make this process more efficient?

First and foremost, we decided to tackle showings.

And we said, okay, can we make it possible for somebody to schedule a showing anytime they want?

And we did that leveraging our concierge team.

But after they see the property, how do we improve the application process such that it's more secure and it's better?

And really that's where the technology kind of came into play and kudos to our CTO, Hirsch, who really thought through how do we implement this in a way where a person can just apply and get a decision, you know, fairly instantaneously.

And so, you know, we've been fairly fortunate to be able to achieve that.

It was mostly nailing the user experience.

For example, all the apartments, or a majority of the apartments that I looked for when I was living in New York and out here actually, just Craigslist stuff, right?

And so you didn't need to have an apartment in every area in Brooklyn.

No, because we typically use third-party tools to market through.

No, it was really user experience and making sure we got pricing right.

And where do you fall in the pricing spectrum?

So We're alive in the Bay Area and in New York at the moment.

A typical apartment, our price ranges are probably anywhere from $2,000 to maybe on the upper end $6,000 on a given unit.

It really depends on, as a studio, 1 bedroom, 2 bedroom, et cetera.

I think where there's, you know, a tremendous amount of value of what we do is that we are able to provide a fair amount of insight to our landlords, even landlords who don't end up transacting with us.

We're able to provide them a fair amount of insight on where their units are likely to transact given a certain price.

Because the thing is, when you think about the resources that landlords have to get price discovery, the tools are not very nuanced and precise.

They don't provide the landlord insight into, how does my likely executable rent change if I add stainless steel appliances or not?

How does it change if I have a patio or not, or if I have a deck or not?

And what we've tried to accomplish on the modeling side with our internal system is, can we put a price on those things?

Can we say to the landlord, okay, if you have stainless steel appliances, your rental rate should increase by $57 on the corner of 72nd and 2nd for a one-bedroom apartment.

And so that research process and developing that sort of pricing, I think, at minimum, provides landlords with a valuable insight into where the market may be, even if they decide for whatever reason that our product isn't the right fit.

And so following in that, we had a question from Twitter from Robertus DeMarcus.

What mental frameworks and thought processes were behind growing the supply side around landlords?

Doing things that don't scale in particular.

Yeah, I think landlords are probably 1 of the more nebulous communities to figure out how to sell to.

And first and foremost, we'll not pretend that We have fully figured it out.

When we started, Kenan and I, Kenan's another 1 of my co-founders, we essentially, in our little rental while we were going through IC, we essentially set up a two-man cold calling operation.

Where we essentially would go to Craigslist, Zillow, and any other site, pick 100 units, and we'd just call people.

And I think, Frankly, the willingness to be able to just talk to your customer.

The funny thing is that it's not complicated.

It's not using AdWords or PR or anything like that.

But I think to start, it was like, call 1,000 landlords and have 900 of them tell you, I will say it more politely than they did, that they're not interested.

Yeah, so typically we confirm, at that point we confirmed, is the unit still vacant, first off.

And second of all, if the unit was still vacant, then we said, OK, well, this is what we do.

We will make you an offer to rent your apartment.

We would love to send somebody out to come and just take a look, and we'll make you an offer.

And frequently, I think, we almost 100% of the time have landlords who say to us, haven't heard of this before.

Because I think they're fairly curious about the process, right?

And I think what we're really able to speak to is the fact that not only are we going to provide them that certainty of execution and give them that cash in hand, But we are fairly sophisticated in how we approve tenants.

Although we've meaningfully improved the tenant experience, in many cases our due diligence process is meaningfully more robust than the landlords.

So they kind of get this best of both worlds, where they have the certainty, they get the cash up front, but they also have Now this entire technology company that has skin in the game with them to due diligence these tenants extremely well.

And so for the ones that we were able, not the 900 that told us, the 100 that stayed around, I think that that was fairly interesting and

And so what exactly are you doing to screen tenants?

So when a person applies for a resi apartment, we're looking at some of their rental history.

We look at their income and employment status.

I think 1 of the things I'm probably most proud of is the fact that what we're not doing, which I think a lot of tenants have commented to us that they like this about our process, what we're not doing is evaluating things that don't relate to whether or not you're going to be a good tenant.

And I think the fact that it's an automated and algorithmic process really reduces the potential for discrimination, reduces the potential for not approving tenants who are viable and potentially great tenants.

We want to make sure that you've in the past been a good tenant, you have the ability to pay your rent, your background indicates those things.

And does the landlord have any part in the final choice?

Yeah, I've gotten apartments in funny ways and you're just like, I don't know, they said they thought it was cool that I worked at the Onion a

I was like, maybe that's what they thought, maybe not.

Yeah, I mean, We hear all types of stories.

We meet tenants who are like, yeah, the guy just shook my hand and just liked the way I presented myself.

The stories we hate to hear about are the other sides of that.

But I think from our perspective, we know that we're taking not only a financial risk, but we're also taking the risk of the type of tenant this person is going to be.

Do they have a history of not being the best member of that community?

So we really try to balance this line between giving a great experience, but also verifying that we're screening.

I would say probably 90% of the cases, we're probably screening better than our landlord clients would have if they hadn't used this.

That's not even the right word, probably.

It's a little, sort of, it's a little bit difficult to give you context because it really does vary by apartment.

Apartments, because different, I mean we have apartments that, you know, we'll show it 2 times and it'll rent.

And then we have apartments where it'll get 40 leads a day for a month and it won't rent.

So I could give you an aggregated number, but it's actually not the most correct.

It's not just like, hey, I'm going to sign up and then I apply it anywhere.

Well, so any person who applies for any resi apartment, We don't charge application fees.

So if you apply for a resi apartment and you're approved, if you decide that you want to take apartment A instead of the apartment B, you're freely able to do that.

We don't charge application fees, we don't charge broker fees.

So tenants have a very frictionless process as it relates to renting the units.

But yeah, different units, they just attract different types of volume.

If it's a 3 bedroom versus a studio in the right part of New York or right part of San Francisco, you're going to drive a meaningfully different amount of traffic.

OK, so let's talk about the financing side, because I think this is quite different from the average YC startup, the average VC-backed company.

The standard path is to sell equity in your company shares, whatever that might be.

You guys did that, but you also raised debt to finance the leasing of the apartments.

So we pretty early at the outset decided that we wanted to be able to have capital to provide the solution at scale for our landlord clients.

And we knew we had to be kind of thoughtful about that.

I think a lot of companies approach that in...

They kind of think, all right, well, I raised X amount of dollars in SAFEs.

I raised X amount of dollars in VC capital.

I got to spend that equity capital to fund my origination.

And from our perspective, we thought, well, wouldn't it be better if we intelligently kind of created a financing mousetrap?

Because we're generating a return on these investments.

Those returns are attractive to third party investors.

Can we create a structure that allows those investors to earn that return and allows us to use the money that our safe investors gave us just to operate the business.

And so I think we were fairly successful in doing that.

But I also think it's the sort of thing that you don't even know to ask that question unless you've kind of been on that side of it.

You know my background's in finance and structured products and so I did a lot of that in my past life and so I think we had a little bit of a advantage.

Because the closest thing, as a consumer of this, I've never worked on that side, is a REIT.

No, that's actually a really good comparison, actually.

So in effect, What we did was say, okay, you know We lease apartments,

Is there a way to kind of put those receivables together and then raise money from that.

I mean, REITs are effectively that with properties attached.

So before you raise the debt, had you standardized what you expected to return across all of these units?

we had a fair understanding of what the market would require.

So when I say that, I think whenever you're thinking about the returns of your asset or your receivable, whatever you're doing, at the end of the day, it has to be at a return that's attractive to investors.

So we knew investors in consumer receivables tend to like to earn something in the ballpark of mid-teens or greater into the 20s returns on their cash flows.

So we said, OK, we probably need to solve to be somewhere around there.

Or at minimum, if we're going to be lower than that, then we just need to budget for it.

But I don't think it's very difficult, I think, for particularly the startup founder to know exactly what the return is, right?

Because you have these, it's effectively 2 markets.

There's an investor market that has its required return, and then there's a product market that has its potential return.

And your hope is that those 2 are at minimum fairly similar.

Ideally, the product 1 is a little bit more.

But I think there's a discovery process there.

And I think that we, so far, have been fortunate enough to provide that solution on both sides.

But that's a pretty important consideration whenever you're launching any fintech company is, you know, if you're creating a return that's, you know, 2%, well, you know, investors can go and invest in US treasuries for 2%.

So do they really want to invest in your thing?

So what did the education process look like on both sides?

So both on the debt side of like, hey, we're doing this thing.

And then on the venture side of like, hey, just so you know, there's this debt thing happening.

Yeah, well, I think On the debt side, I think we were fortunate.

We had pretty thoughtful and educated investors there.

I think fairly sophisticated and also very capable in getting up the curve on new assets.

And so I think that we can't really take all the credit for that.

I think we were fortunate in that regard.

As related to our VC partners, I think whenever they invest in fintech, whenever they invest in this space, I think probably 1 of the biggest risks that they are worried about is can this company fund whatever like the origination it's creating.

And I think, you know, from their perspective the worst case scenario is that, you know, I gave you $500,000 or a million dollars to pay for salaries and pay for server costs and you went and lent it out.

Not that that's a bad thing per se, but it's...

It's now limited your ability to do anything else.

So I think when we went to our RBCs, we said pretty clearly, our intent is not to use the majority of the capital that we raise from you for funding these receivables.

Our intent is to create this financing solution that allows us to do

So it's not necessarily, it's actually maybe more attractive to them.

When we go out and raise again, I'll let you know.

And So someone asked an interesting question.

Akash Jane asked, how do you model risk given your business model?

Yeah, I could probably talk for like an hour on risk.

But I would say, So our team, we bring a lot of different types of expertise to bear.

My co-founder is purely in commercial real estate.

My other co-founder is purely in engineering.

And 2 of our senior team members, One's entire background is in receivable research and analysis, and the other's is on product development and design.

So I think the 1 thing that I will say that we've been fortunate with is that we each kind of know our strengths and know where we're weak at.

More specifically to this question, when I think about the risk we have, so again, it's principally 2 things, right?

We're also taking the performance risk on the tenant side.

Well, do they pay the rent, but also are they a good tenant?

Because even if they are paying their rent, if they create a scenario where the landlord doesn't want to work with them anymore or work with us anymore, that creates business risk for us.

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Helping Landlords Find Tenants – Sean Mitchell of Rezi