Jeff Glass - Home Equity Investment at Hometap (EP.418)

Summary

Capital Allocators – Inside the Institutional Investment Industry
Episode: Jeff Glass - Home Equity Investment at Hometap (EP.418)
Release Date: November 21, 2024
Host: Ted Seides

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Introduction to Jeff Glass

In Episode 418 of Capital Allocators, Ted Seides welcomes Jeff Glass, the co-founder and CEO of Hometap Equity Partners. Jeff brings a wealth of experience from his entrepreneurial ventures and his tenure at Bain Capital Ventures. The conversation delves into Jeff's journey, the inception and growth of Hometap, and his insights into the institutional investment landscape.

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Jeff Glass's Career Journey

[02:43]

Jeff begins by tracing his early career, highlighting his initial foray into the workforce to fund his education. He recounts working for a trucking company delivering office furniture, where he transitioned into a commission-based sales role. This experience was foundational in developing his skills in relationship-building and sales.

Notable Quote:

"My real career and understanding how do you build relationships and how do you think about customers and value proposition and delivering started back then."
— Jeff Glass [02:52]

Jeff's entrepreneurial spirit manifested during his college years when he co-founded a college clothing company to combat high markup prices at campus bookstores. Despite the challenges, this venture underscored his knack for identifying market inefficiencies and pursuing innovative solutions.

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Transition to Investment and Bain Capital Ventures

[05:28] - [09:05]

After college, Jeff joined a strategy consulting firm but was laid off shortly after. This setback reinforced his belief in controlling one's own destiny through entrepreneurship. Rejoining another consulting firm, Boston Consulting Group (BCG), Jeff honed his strategic and analytical skills, working on transformative projects centered around the emerging influence of the Internet.

Jeff's transition into the investment side began when he founded an Internet technology company, followed by a mobile technology startup. His success caught the attention of Bain Capital Ventures, where he spent seven to eight years investing in early and growth-stage companies.

Notable Quote:

"I may be the first person in the history of the world who actually viewed joining Bain Capital as an opportunity to work a little bit less."
— Jeff Glass [10:55]

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From Operator to Investor: Key Lessons

[10:55] - [14:37]

Jeff discusses the invaluable lessons gleaned from his dual perspectives as an operator and investor. He emphasizes the importance of empathy, credibility, and recognizing the strengths of team members. Understanding that a CEO doesn’t need to excel in every area but rather should leverage the expertise of their team was pivotal in his approach.

Notable Quote:

"There’s an empathy that you have for the team that I think you don't necessarily or really can't necessarily have if you've never been in their shoes."
— Jeff Glass [11:06]

He also highlights the role of luck and timing in entrepreneurial success, acknowledging that while hard work and smart strategies are crucial, external factors often play a significant role.

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Founding Hometap: Genesis and Vision

[14:37] - [25:37]

Jeff recounts the genesis of Hometap, born out of personal experiences and the realization of a tangible market gap. Frustrated by the rigid borrowing options available to homeowners, Jeff aimed to create a platform that allows homeowners to access their equity without the downsides of traditional loans or selling their homes.

The idea crystallized during conversations with entrepreneurs and peers facing financial constraints despite substantial home equity. This led to the development of Hometap's unique home equity investment (HEI) model, which provides homeowners with capital in exchange for a share in the future appreciation of their property's value.

Notable Quote:

"Why can't you just sell a little bit and still control your house, own your house, live in your house, not have to pay monthly payments, not increase your cash burden, not be in more debt, stress not hit your FICO score."
— Jeff Glass [20:17]

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Overcoming the Chicken and Egg Problem

[25:37] - [32:17]

Launching Hometap presented the classic chicken and egg dilemma: needing capital to attract homeowners and needing homeowner interest to attract capital. Jeff explains how they navigated this by initially self-investing capital to build credibility and prove the value proposition to both homeowners and potential investors.

They raised a small fund and gradually expanded their capital sources through innovative financial structures, including securitization and creating a term loan facility. This strategic approach enabled Hometap to scale and attract a diverse range of investors over time.

Notable Quote:

"The way you solve a chicken and egg problem is you ratchet up the chicken and the egg a little bit at a time."
— Jeff Glass [25:45]

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Building and Scaling Hometap

[32:17] - [43:08]

Jeff outlines the operational and cultural frameworks that have been critical to Hometap's growth. Emphasizing the importance of team culture, Hometap prioritized hiring individuals who embody their core values of ownership and collaboration. This cultural foundation fostered resilience and a unified mission-driven approach, essential for navigating challenges such as the pandemic and fluctuating interest rates.

In terms of operational scaling, Hometap invested heavily in data science and technology to enhance user experience, streamline processes, and maintain compliance across multiple states. These investments ensured that the company could handle increasing demand and complex regulatory landscapes effectively.

Notable Quote:

"The most important thing you can get right if you're going to scale a business and continue to grow and be durable, is culture."
— Jeff Glass [33:02]

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Navigating Challenges and Competition

[43:08] - [44:49]

Jeff reflects on the competitive landscape, noting that while Hometap has grown significantly, the HEI sector remains relatively nascent with ample opportunity for expansion. The rising cost of housing and stagnant real incomes continue to drive demand for alternative financing solutions like HEIs.

Hometap's ability to create a lasting asset class involved collaboration across various sectors, including banking, securitization, legal, and operational services. This ecosystem development has solidified HEIs as a viable and established financial product.

Notable Quote:

"The home equity investment is still relatively small, but it is an asset class. It's an established asset class."
— Jeff Glass [43:08]

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Future Vision and Goals

[44:49] - [48:19]

Looking ahead, Jeff envisions HEIs becoming a mainstream financial product, akin to HELOCs or cash-out refinances. Hometap aims to expand its product offerings and geographic reach, aspiring to serve millions of homeowners. The company plans to continue innovating through tools like the Home Equity Dashboard, which provides homeowners with insights and resources to maximize their property’s value and financial potential.

Notable Quote:

"Seven or eight years from now versions of home equity investments will be considered a mainstream product that people will think about when they're contemplating loans."
— Jeff Glass [46:34]

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Personal Reflections and Life Lessons

[48:19] - [54:52]

Jeff shares personal insights, expressing gratitude for the life and opportunities Hometap has afforded him. Reflecting on mentorship, particularly from his friend Howard Berkowitz, Jeff acknowledges the profound impact of mentorship and diverse perspectives in shaping his professional journey.

He candidly discusses his ongoing efforts to balance high aspirations with emotional well-being, striving to cultivate mindfulness and resilience amidst the pressures of leading a rapidly growing company.

Notable Quotes:

"If Hometap is a durable, lasting company where the best talent builds their careers and feels taken care of and helps take care of each other in that company... I'll have felt like I'm living a life worth living."
— Jeff Glass [48:34]

"Sometimes just go with your gut and live with the consequences."
— Jeff Glass [52:58]

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Closing Thoughts

Ted and Jeff conclude the episode with light-hearted questions, revealing Jeff's personal hobbies and pet peeves. Jeff's reflections underscore the importance of culture, resilience, and mission-driven leadership in building a successful investment platform that genuinely benefits homeowners.

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Join the Conversation:

To learn more about Jeff Glass's journey and Hometap’s innovative approach to home equity investment, visit capitalallocators.com.

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This summary captures the essence of Jeff Glass's insights and experiences shared during the episode, providing a comprehensive overview for those who haven't listened to the podcast.

Transcript

[Unknown Speaker]

Foreign.

[Ted Seides]

Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access Premium [e-mail] All opinions expressed by.

[Unknown Speaker]

Ted and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.

[Ted Seides]

My guest on today's sponsored insight is Jeff Glass, co founder and CEO of Hometap Equity Partners, a novel platform with a billion dollars of investments alongside mission to allow homeowners to access their home equity without having to sell, stress or borrow. Jeff started the business eight years ago after a series of successes as an entrepreneur, followed by seven years investing at Bain Capital Ventures. Our conversation covers Jeff's early lessons in sales, entrepreneurship and investing that led to the founding of HomeTap. We then discussed HomeTap's investment strategy, including the chicken and egg problem of starting the business, sourcing owners, sourcing capital, and developing the team culture and infrastructure that brings it all together. Before we get going, we're in the home stretch leading into Capital Allocators University for Investor Relations and Business Development Professionals. It's crunch time. We're almost sold out and registration closes next Monday, November 25th. Our instructors are putting the finishing touches on their presentations and the content looks amazing. We're excited to share insights about the playing field and success in IR and BD roles from allocators managers, brand experts, conference providers and chief investment officers. Last chance to dance and we hope to see you in New York City on December 3rd and 4th. Hop on our website at capitalallocators.com university this week to register. Thanks for spreading the word about Capital Allocators University for investor relations and Business development professionals. Please enjoy my conversation with Jeff Glass.

[Jeff Glass]

Jeff, thanks so much for joining me.

[Unknown Speaker]

Nice to see you.

[Jeff Glass]

Why don't you take me back to your path that led to where you are today?

[Unknown Speaker]

Interestingly, I would say I started my career before college. I did well in school. I got into some good colleges. They're expensive even after with financial aid and loans and grants and all the things we knew was going to be super tough. So the summer before I went to college I was just Trying to get whatever job I could make the most money. I wound up working in a trucking company that delivered office furniture. I thought it was pretty cool. At the time. I was viewing it as, oh, I'm getting paid really well to get in shape, lift credenzas, and put them on trucks. And it was hot, and it was New York City. It was not a glamorous job. But I wound up having a meeting with one of the companies whose furniture they delivered, the dealer of office furniture. And I said to the owner of the office furniture company, I said, hey, I'm delivering furniture. It's fine, but is there anything I could do here in the office? And he said to me, well, no, the only job we have open right now is a commission based sales role. There's no training, there's no salary, there's no draw, there's no nothing. We sell to companies here in Manhattan. You're a high school kid. And I said, great, I'll take it. So I would argue that my real career and understanding how do you build relationships and how do you think about customers and value proposition and delivering started back then. I spent the first several weeks canvassing the Empire state building. Back then, you could do that. You wouldn't be able to do that today. My career would have gotten stopped at the security gate because I had no badge and no one to let me into the building. And I went to every door in the Empire state building, talking to whoever would talk to me, Getting kicked out of a lot of offices, learning how to deal with rejection, learning how to work my way to decision makers. But I started developing some really good skills. I wound up going back there that next summer and doing quite well. I started a company in college. So my freshman year, I could not afford a college sweatshirt. And I was infuriated by the cost of a sweatshirt and the monopolistic pricing of the bookstore. And my roommate and I started doing some research, and the markups were so phenomenal that we were just, this is ridiculous. So we borrowed about $10,000, which at the time was an enormous amount of money from my roommate's father, and we launched a college clothing company. We built a mail order business targeting parents and alumni, and then we wound up bringing it on campus and having trials and tribulations around the bookstore and their rights to have a monopoly on campus. So that was a whole other set of entrepreneurial experiences. But my career as an entrepreneur and trying to build things and build relationships really started quite early.

[Jeff Glass]

Where did that take you?

[Unknown Speaker]

After college, when I graduated from college. I wound up getting a job with a strategy consulting firm. And my thought was, okay, this is good. I know how to be an entrepreneur now. I can learn the strategy side and the financial side and the analytical side. That'll be a good, well rounded experience perspective. I got laid off six weeks after I got there. So I also learned a quick early lesson about risk tolerance, which is perhaps the best, best way to mitigate risk is to put yourself in a position where you have more control over the outcome than less. So I have always viewed companies that I've started as less risky than going into a big company job because in a big company you don't know what's going to happen to you and it often has nothing to do with your performance or what you can deliver. Whereas in a small company, you have a little bit more control over that. I wound up going to a different strategy consulting firm, the Boston Consulting Group. It was awesome. I learned a ton. I worked for all these great clients and cases and industries and worked with these super great, smart, wonderful people. And I just got the business bug. I was like, wow, I think I just want to stay in the business side. I still had no money and still had a ton of college debt. My little college business did well, but not well enough to get me fully out of debt. So BCG was gracious enough to make me an offer to go to business school, pay for my business school if I were to come back and work there. So I worked there for a bunch of years before and after business school and really grateful for it. And then I went for many years on an entrepreneurial run where I was part of smaller companies trying to build new products and new industries.

[Jeff Glass]

So I'd love to hear some about that entrepreneurial run. What sector did you jump into after seeing a whole bunch of different stuff at bcg?

[Unknown Speaker]

So I'm at bcg. I'm part of their multimedia convergence practice area. And what that meant was there was this thing called the Internet. People thought it was going to transform business models and the world, but it was still early and no one knew exactly how that would be. So I was working on projects where we were thinking about how technology, and specifically the Internet was going to transform business models. And I decided it was time to move on into more of an operating role. And I got introduced to the CEO of a very low tech insurance business. And I met the founder CEO and he was looking for a coo. And during the interview process, at one point he said to me, so why do you think you're qualified for this job. And I said, sir, I'm not. I don't think I'm qualified for this job. I don't know anything about insurance. I've been a strategy consultant for the last six years. I'm a smart, hardworking guy. But I'm sure you can find someone with insurance and operating experience and more domain expertise than I can bring to the table. And I appreciate you meeting me, but I really don't have a good answer to your question. And it was like a movie. He was like, that's the exact reason why I need you. I was like, wait a minute. So the reason why you want to hire me is because I'm totally unqualified for the job. And that was kind of it. He wanted someone from the outside who was going to be more tech and contemporary, leaning to really help build the business going forward. So I joined this company. That business got acquired by Travelers Insurance. I worked at Travelers for a while. Travelers merged with Citibank. So I was part of Citigroup. Business did pretty well. At one point Citigroup decided to sell a whole set of businesses to another company. And as part of that I was asked whether I wanted to go along with the sale. And I took that moment in time start an Internet technology company. So that was my first raw tech outside venture backed startup and that's how it all began.

[Jeff Glass]

How did you get from operating startups to the investment side?

[Unknown Speaker]

I started an Internet company that did pretty well, honestly, maybe more a function of the time we got acquired. Then I started another technology company which was an early mobile technology company. That business grew to be quite big over many years and also had a nice outcome. And Bain Capital Ventures was an early investor in that business. I had at that point just completed three back to back really hard long operating runs of building really early stage businesses. So I get asked sometimes from people thinking about being an entrepreneur, when's the right time to do it and how do you think about it? Should I put away some money first? Should I go to business school? Those are reasonable questions that I had. And my answer is things change over time. And the right time to do certain things in your career is not based on a premeditated timeline. It's based on the situation and circumstances in your life. So at that point in time had these three really great but incredibly hardworking, tense businesses that every entrepreneurial business you've got ups and downs and moments where you're like, are we going to make it? And then moments where you're like, wow, we're crushing it. And now you're not crushing it. And it's an emotional rollercoaster to sign up for this line of work. So I was tired and I had small kids and I was pretty burnt out. And I had been working 100 hours a week for as long as I had remembered. So I may be the first person in the history of the world who actually viewed joining Bain Capital as an opportunity to work a little bit less, because that place is an amazing place with super smart, hardworking, incredibly disciplined investors. But I got invited to join the Venture Group, which was early stage and growth stage investing. And I thought I'd be there for a couple years. I wound up being there for quite a while. I was there for seven or eight years before I got the bug to tie up the shoelaces and put the sneakers back on and get back on the field.

[Jeff Glass]

So when you were in that investing seat, what were some of the key lessons that you had from being an operator, being an entrepreneur that you felt you were able to help other entrepreneurs with?

[Unknown Speaker]

I think I still benefit from having seen this movie from three lenses is a CEO lens of an investor on the board lens. So seeing the same movie from a different camera lens really does shape your perspective on things. For starters, one thing that was very useful is that there's an empathy that you have for the team that I think you don't necessarily or really can't necessarily have if you've never been in their shoes. So I think that that was a really useful thing for me because when I would be trying to help or brainstorm or coach, I was drawing on actual similar challenges and opportunities that I had to deal with in my life. So I think that was helpful. And I think I got a little bit more credibility and benefit of the doubt. I don't think it has to be true, but I think there's often a lack of trust that can sometimes exist at the board level between leadership and the board. But the other thing that I worked really hard to try to get people to recognize is that just because you're the CEO doesn't mean you have to be the best at everything. And you have to recognize the fact that you ideally should probably be the best at very few things because you've managed to bring people in who are way better at those things than you would be. And so I think it helped me a lot in seeing really good examples and less good examples of just this idea of your job as CEO is to work for the company, and it's not the company's job to work for you, and you've got to work harder than everybody and you got to walk the walk and talk the talk. And you got to remember that your job is to make the company successful, not the company's job to make you successful.

[Jeff Glass]

What did you find were some of the characteristics that allowed you to be successful as a repeat entrepreneur? And then similarly, as you saw repeat entrepreneurs and businesses you're investing with around.

[Unknown Speaker]

The board of so much of the success or failure of businesses is really thin and it's timing. It's did one thing break your way or break the other way? Did you manage to just get through that tiny window or did the window shut before you got out? When you work harder and if you're smart and thoughtful and if you got some skills, you might have on the margin a little bit better chance of being successful. But so much of it is luck and timing and circumstance. So I really do believe that people get too much credit when it goes well, and they get too much discredit when it goes poorly, because so much of it is things that are outside of your control. So that's a really important lesson for me because what I found is I was lucky enough to have some early wins. So here's what happens. You have an early win, and now people are like, oh, this guy Glass, he knows what he's doing. And then capital wants to back you because you just made your last investors a truckload of money. Well, now you have the capital and you're recruiting talent. So talent says, well, yeah, I'm going to go work with a guy who's had a bunch of successes and his businesses have done well and he's funded, he can afford to pay me. So now you've got capital and you've got talent. And if you've got capital and you've got talent and you're pointing yourself in an interesting space, you now have the team and the luxury of time to go figure it out. And then you figure it out, and then you have another win. And now it's like, wow, this guy's done it twice. He's done it three times, he's done it four times. It must be because he's got some special sauce. No one's got the secret sauce. We work hard, we do our best. Some of us have different skills and different talents. But a lot of that is the benefit that you get. If you've had a few wins, it really does improve the likelihood that the next one's going to be successful for those reasons.

[Jeff Glass]

So when you got ready to tie the laces back up, jump back on the court. What was the genesis of the idea you wanted to pursue?

[Unknown Speaker]

So I left Bain Capital to help turn around one of our portfolio companies. I wasn't yet fully committed to leaving Bain Capital because I loved it. It's a great place. But I was yearning for the operating side and liked being an investor, but would say I didn't love it. I just wasn't getting the emotional energy of what I get when I'm on the operating side. So I went back, worked inside this company. Thankfully, things went well. We wound up getting it growing and profitable, and it wound up being acquired. And then I decided not to go back to being capital because I thought, I'm going to go start something else. And what I said to myself was, if I'm going to go start something else at this stage, it can't just be like, oh, this is a good business idea that we can build and be profitable and make some money for shareholders. I needed it to be that I wasn't interested in building an unsuccessful financial company, but I more so really, really, really needed it to be something that I felt had a mission and soul to the business, where if I'm going to get up and work another 80 to 100 hours a week, it's because I really believe in the mission and soul of what we're doing as opposed to believing in, oh, if I work really hard, we're going to have a good financial outcome for people. So when you layer on three things, which was going through my mind at the time, which is, one, it's got to be a good business that could be long and durable and lasting. Number two, it's got to have a soul and a purpose and a mission so that you feel really proud of what you're building and the legacy you're leaving behind. And then, number three, on the margin, something that you might actually be able to contribute to and you have some skills to pull off when you put those three things together, it's a tough search. So I was actually working inside another venture capital firm who had also been an early investor in one of my previous businesses, General Catalyst, And I was helping them with some ideas and looking at some investments that they were making. And I sat on a board for them and I was working with some of their team to think about new ideas and was not inspired. The idea for Hometap did not come out of Jeff thinking really hard. They never do. Thankfully, the idea for Hometap, we're in this mode of Trying to think about ideas, working with one of general catalyst, best guys there, Andrew Vassallo. And we're going through ideas and we're meeting companies and we're brainstorming on stuff. And I wound up having lunch with a young entrepreneur who needed some advice on a business that he was working on. He starts talking about the fact that neither he nor any of his friends really have a great vision of how they're ever going to be able to afford buying a place in Boston. These folks, well educated, could get good jobs. They could probably carry the mortgage, but the cash, the down payment to be able to put down just could never do it. So during that lunch, I was thinking, yeah, young people today are just in such a tough situation. And I wasn't thinking of us as a business idea, but I thought about it as like, wow, this guy's a great guy. I would help him. I would invest in a house. I don't want to be a landlord, I don't want to own someone else's home. But I thought, hey, this would be a good investment that you could help someone with and you'd feel really good about it as a passing idea. In the lunch, two weeks later, I'm meeting with a friend of mine who tells me the story about how he and his wife had just sold their home in Newton, Massachusetts because the wife's mom had gotten sick just after the wife, who was the major breadwinner in their family, had lost her job. And they needed to come up with capital for care for the mother in law. And the bank wouldn't lend to them because the wife had just lost her job. They had lived in this house for years. They had hundreds and hundreds of thousands of dollars of equity built up in their home and the bank wouldn't let them touch it. So they sold their entire house to free up the capital. They freed up $800,000 of capital to deal with a hundred thousand dollar challenge that they had on their hands. Had to relocate. It worked out fine. They rented for a while, but they had kids. There was school stuff and kids stuff and total pain in the neck. And it was like, wow, the bank is saying, you've got $800,000 in the bank. You can take all of it out or none of it out, but I'm not letting you take a little bit of it out. So those two things happened within a short period of time. And I was in this entrepreneurial mode. People's home, it's their most important financial asset. It's their most important emotional asset. It's where you live, it's where your kids grow up, it's where you build family memories. So all that came together. So we dug in and we spent the next year and a half until we launched the first hometap product. We spend months and months and months meeting with real estate experts across the board, building a data science capability, building models around how residential real estate behaves over time. How could you price an investment that would be appealing to homeowners, that would be appealing to capital partners? How do you build an operating system to make sure that you're not only in compliance with any and all laws and regulations that you need to be in compliance with, but goes above and beyond to do the right thing all the time for the homeowner. And we just got super inspired about the idea of let's build a big, long, durable, lasting company that's a next generation financial company. And it's centered around the mission to make homeownership less stressful and more accessible. And let's let that be the guiding principle in everything we do. So that was the end of 2016, and we made our first investment to help our first homeowner in the late summer of 2018.

[Jeff Glass]

I'd love to walk through what you need for this business to work well.

[Unknown Speaker]

To get a business like this started is very difficult because every startup has a chicken and egg problem. If there weren't some hard problem, somebody already would be doing it. And when we started working on the idea, of all the people we talked to on capital side, on the real estate side, homeowners, I would say at least 75% of them told us we were being totally dumb and that this could never possibly work for all kinds of reasons, which is why most people don't become entrepreneurs. So we knew from the overwhelming number of people telling us that this was a dumb idea that this was either brilliant or was going to be a train wreck. And thankfully, I feel like it was a pretty good idea. As it turns out, we were not the first. We came up with this idea independently and then we started doing research and figured out that there are other companies that were doing similar things and working on this stuff. So I cannot take credit for inventing this idea or this category. It was both good news and bad news that other people were thinking there was something to be done here. But when you think about starting this business, we decided that the homeowners that we wanted to start helping first were homeowners who you would describe as being in a position of being house rich and cash strapped. You've lived in your home a long time. Your house is appreciated, you've done it right. You've paid down your debt, you've paid off some mortgage over the years. And now, over the years, you now have this really big balance of equity value in your home. Home that you own apart from the bank, you own it, but it's illiquid and it's hard to tap into. And historically, there were two ways to tap into that equity, which is, number one, you could borrow more, you could do a refi, or you could take out a second lien mortgage or heloc. And those products make total sense for homeowners, depending on your situation. The other option is like my friend, which is for whatever reason, borrowing more is not desirable or not attainable. His temporary situation is you sell your whole house and you free up all the equity. So our really simple idea was just, well, why isn't there a third option? Why can't you just sell a little bit and still control your house, own your house, live in your house, not have to pay monthly payments, not increase your cash burden, not be in more debt, stress not hit your FICO score. And this is where also it came together for me, my life as an entrepreneur and someone who's been a huge beneficiary of investors investing with me, equity capital. No debt, no monthly payments, no interest, risk of loss that if I don't deliver, you could lose your money. So I've been a huge beneficiary over many decades now of equity capital and also a purveyor of equity capital when I was an investor at Bain Capital. So it was like light bulbs flashing, saying, wow, they're in every other business, in every other industry. Businesses and consumers have all these options and choices, but for all reasonable but historic reasons, the residential real estate options are just really debt or sell your house. So the first product that we launched was focused on trying to help these homeowners who are in that situation where they had some capital need. By the way these capital needs are. They're not always tough situations. Like my friend, he was dealing with a family health emergency. People will often use it and pay off credit card bills if they've gotten a little bit out of whack there, or they'll consolidate some debt and just try to get out of that treadmill of paying monthly payments and interest, clean up their balance sheet, strengthen their financial situation, get their FICO scores in order. I love that. The financial health of that is a huge part of making us feel really great about what we do. The other side though is the opportunity side, which people are using this money to fund new businesses and the working capital of their businesses, or to renovate the kitchen, or to pay for their kids college, because the gap between financial aid and what you've got is pretty tight. And so the next four years is going to be horrible. But now maybe I'll just take a few chips off the table here and I'll be able to fund my daughter's college bill and still be able to have a life over the next four years. So we see all kinds of use cases for it, but it's really focused on these homeowners who are in that situation where we're helping them tap into an illiquid asset and make it liquid for them. So that's the homeowner side of it. And then of course, you have to structure those investments in such a way that there's a value proposition for capital. We can't deliver on that mission for homeowners unless there's also a value proposition to capital partners. So a lot of the early work was first you have to design that product in terms of pricing and underwriting and structure so that it will appeal to homeowners relative to their options. Because almost all of our homeowners are comparing us to debt options. Like everyone's heard of taking out a loan, it's us that they haven't heard of. So we have to compete well against their options to take out a loan. And we have to deliver, of course, to capital to make it worth their while. And when you first start this business, even once you think you've got that formula pretty well organized, you still have this giant chicken and egg problem, which is until I have the capital, I can't go talk to homeowners. And until you can show capital that homeowners actually like this and want it and are going to do this, nobody wants to give you capital. It's also not an easy business to start because unlike maybe a product that is less core to someone's financial and emotional health, from day one, you got to be ready for primetime in terms of your operations and your documentation and all of the various federal, state, local level laws and compliance issues. So there's a lot to getting these businesses going.

[Jeff Glass]

Once you got that infrastructure part squared away, so you've got that regulatory piece, you got the structure. How did you solve the chicken and egg problem?

[Unknown Speaker]

In general, the way you solve a chicken and egg problem is you ratchet up the chicken and the egg a little bit at a time. Until they're almost exactly at the same place at the same time, and then metaphorically close on both of it in a synchronistic way. That's conceptually how you do it in practice. What we did was we put our money where our mouth was, which we took some of our own operating capital in the beginning, and we made the first set of investments with capital that we had raised into Hometap, which not only strengthened our systems and got the kinks out, it also helped us prove out the value proposition to homeowners, got us talking to homeowners, understanding what they like and didn't like. And not just that the product was the right product, but the way we delivered it was in a way that was easy for them to understand and transparent and clean. One of the really interesting lessons that I've definitely learned over the last seven coming up on eight years is that for a business like ours, you have to think about your value proposition and who your customer is on the capital side. Like a product roadmap, it evolves over time. And what your value proposition is on day one and who that value proposition resonates with on day one is different than what that looks like in year three and in year five and now in our case coming up on year eight. So in the earliest days, we started off investing our own capital because we really did not have a compelling enough value proposition to anybody. We then raised a small fund, which is a not typical way to fund asset backed investments. A lot of people thought we were totally odd for doing this back then because it's just not the classic way that mortgages and loans get funded. And of course we're not a mortgage and we're not a loan and we're a new asset class and a new product. So we were forced to have to be more creative. But I think a lot of what makes HomeTap special now, seven or eight years later, is actually a byproduct of the fact that we raised funds. So we are an asset manager and we manage these portfolios and our homeowners with the care and attention that an asset manager would. We're this mission driven company that goes beyond everything we can possibly do to help homeowners in any way possible. But it also works to the advantage of our capital because if you can help homeowners avoid tough situations, then you're going to have good outcomes on the investment investment side. So we are very different than a classic mortgage originator who originates a loan and then sells it off to an investor. And then we are completely committed to an ongoing relationship with the homeowner and completely committed to working with the homeowners to ensure that they do well. And we're an equity product. So we want their home to do well. We want them to make a lot of money off of the future sale of their home because we're completely aligned in how we get paid. So there's just been a lot of really good alignment and operational strength that's come out of the early ways. That was the only way we could solve the capital issue was to create this GPLP fund, but a lot of good stuff.

[Jeff Glass]

So how did that product roadmap evolve from the first GPLP fund to what's happened since?

[Unknown Speaker]

I think they evolve along a number of dimensions. So one of them is around scale. So the first fund was $12 million. We've had days now where we've deployed that much capital. That fund lasted us the first year. Plus one of the things, even as we started to grow, which was another chicken and egg problem, is as we'd start to talk to people who had the capacity to write hundred million dollar types of checks or more, and we've had some write even bigger checks, they'd say, well, if I commit to you, I need to put this money to work and you've shown no proof that you actually could go deploy this amount of money for me. And I said, well, it's pretty difficult for me to prove that I could deploy $100 million if I don't have $100 million. The second one I would say is around financing. So historically, what makes the mortgage world work is the availability of warehouse financing and of securitization, which allows for both investors to seek a levered return and also through the securitization market, be able to achieve some level of liquidity so that they can take that capital back and in many cases then go recycle it and redeploy it. So for example, our first fund, there was no warehouse facilities available. People hadn't heard of the HEI industry, the home equity investment industry, and we were literally seven years away from there being a securitization market. So I think another element to how you build your product roadmap is what can you do to be able to create some level of both leverage and also liquidity for investors. In our case, between then and now, we had a middle period where we brought in a strategic lender who we created a term loan facility and essentially created a private securitization, even though there were no ratings at the time. And there was no warehouse capital four years ago. So we managed through entrepreneurial effort and good partnership to create that on our own. And that allowed different capital to be able to invest with us. The third one where I think we've gotten clever is in terms of the types of structures that we're able to accommodate. So the early investors with us were LPs. They like what we're doing. We call capital. We have the fiduciary responsibility to invest that wisely for them. And they're an LP in the fund and they have certain level of reporting and they get distributions. It's a GPLP relationship. Well, many institutional investors are not at all interested in a fund. So the next thing we did a fund of one. Okay, you can't do a multi LP fund. We're going to take our fund structure and it'll just be for you, and you'll put up all the capital and we can tweak the rules associated with the fund based on the fact that it's all your money. Then we migrated to more traditional ABS terminology and we started to do what's called flow agreements, where we agree on what the investment criteria will look like, we will go out and make those investments, and then you as an investor commit to buying them from us. We then created a joint venture structure where we and a partner came together and we collaborated on a bunch of stuff. So a part of how we have evolved the value proposition, broadened the market for the kinds of capital that would be interested in. This is through a combination of scale, financial structures, legal entities. And it's been an amazing learning experience for me. I really have a deep appreciation for how much creativity can be done on the capital side to really build and structure products to create a value proposition for different segments of capital.

[Jeff Glass]

So as we sit today, what's the scale of what you've done on both sides of that platform?

[Unknown Speaker]

Early in this year, we crossed deploying over a billion dollars. We've been growing very rapidly since then. We have helped over 14,000 homeowners. We operate in 18 different states across the country, and we're growing pretty rapidly from that. We've got over 240 employees at HomeTap. We're trying to build this to be big and durable and lasting, and we're pretty proud of where we are.

[Jeff Glass]

So in that path, when you went from a $12 million fund and maybe helping your friend to 14,000 homes, what have you had to build to be able to make all that work?

[Unknown Speaker]

It's mostly about team. We've been very, very lucky. We were able to recruit people early on who not only were fantastic when we recruited them, but who have developed over five, six, seven years into brilliantly talented executives. And those teams have been building out the organization more broadly. The most important thing you can get right if you're going to scale a business and continue to grow and be durable, is culture. How could we possibly achieve any really important critical goals if we don't have a team that believes in our mission, that cares about each other, that goes the extra mile, that works through the startup phase, that works through the pandemic, that works through the Jerome Powell phase, that works through the crazy, turbulent political times that we live in. Because at the end of the day, even though it's hard and it's rough and it's long hours and there's stress, it's because they believe in what we're doing and they believe each other and they feel committed to our mission and to each other. So if we get that right, it doesn't predetermine success, but it's absolutely a prerequisite to success. And if you don't get that right, you've got no chance. So I would say the number one thing is culture. Right behind that. I link that to having a team that replicates your culture, believes in that culture, and operationalizes that culture. So that culture isn't just a plaque on a whiteboard or in a conference room that has a bunch of values listed. It's just something that you live every day.

[Jeff Glass]

What are the key things that you feel like you've gotten right in operationalizing that culture?

[Unknown Speaker]

Well, when we were maybe 10, 12 people, we through foresight or luck, we said, wow, this might be a big company someday. We better get crystal clear now on what we're all about. So we got really clear on identifying what our values were to support this culture. And then on the back of that, to this day, when we interview candidates, all questions basically translate into our core values. When we're finishing up annual performance review conversations inside our business, they're guidelines around our describing how you're doing relative to our core values. When we have our all hands meeting once a month where we get the whole company together, we take a moment to highlight a few individuals who've gone above and beyond in demonstrating our core values. And when someone's not demonstrating those core values, what we ask is for leaders and managers to call them aside and say, hey, that's just not way we do things here. And over the years, we've had to make some tough decisions where people are. Maybe they're really good at getting some stuff done, but they don't get stuff done in the way that we want it done. And we've had to part ways with folks who don't represent these values. I say this all the time to new people on their first day, which is the CEO cannot decree a company culture. I can do my best to live those values and to appreciate them. But we're 240 people. Each one of us as an individual is now 1 240th of the culture. And every day we have an opportunity to strengthen that culture and put one more brick in to strengthen it or chip away at that mortar and make it one step weaker. So it is absolutely a team sport. And I think we've been fortunate in that. Over now many years, we've continued to strengthen it.

[Jeff Glass]

What are the core values?

[Unknown Speaker]

It really breaks up into two buckets, and then we have some sub points underneath each. The language that we use is the language of homeownership. So really, the two core values to HomeTap is what does it mean to be a great owner, an owner of your work? What does it mean to execute, but execute with intention? What does it mean to be the kind of person that creates solutions? What does it mean to be the type of person that rolls up one's sleeves and just gets it done as opposed to waiting for someone else to get it done? So we talk about what it means to be a great owner. I think over my many years now of being amongst companies, which is if there was one thing that at the end of the day is the most important thing is do I believe in this company and do I feel like what I do contributes to that mission? So we really felt like focusing on people who want to be great owners and contribute, and that's what makes them tick, is a super important component of that. But then we recognize the fact that no one of us can ever get our job done in isolation. If me being happy means I get stuff done because I'm the kind of person that likes to get stuff done every day, well, I can't be happy unless other people support me, because I can't do it alone, there's no job at HomeTap. That's an individual sport. So that means that in order for me to be able to be a great owner, I need the people around me to be great neighbors. I need them to collaborate. I need them to collaborate with trust. I need to communicate directly and constructively. I need dissension to happen in the room, not after the meeting. So we felt like these two values really go hand in hand of what it means to be a good owner and what it means to be a good neighbor. In some ways, it's pretty simple. It just boils down to the golden rule. It's the workforce version of do unto others as others would do unto you. But I love it because we're able to really break it down. We use the language of ownership and neighbors, which we're in the business of helping homeowners live better lives. And so that's what our company values are all about.

[Jeff Glass]

If you break down what you've had to do beyond culture and then the team into the practical aspects of building this platform, what have you had to build along the way to operationalize this so you can continue to solve the chicken and egg problem?

[Unknown Speaker]

I think one of the unsung strengths sometimes of a company like Hometap is how much we do with respect to the use of data and technology to drive operational benefit and scalability. We have a pretty sizable product engineering, design and data science set of teams. We do think about three constituents internal to Home tab. One is our homeowners. We're trying to continuously think about building a user experience that helps them understand what they're doing, makes it easy to do it, interact with us well, puts as much work as possible on our shoulders and takes it off of their backs and really be best in class in terms of a user experience. The second part is in order to achieve this kind of scale, you have to have systems and processes in place that allow for that user to scale without making mistakes. So we have built a enormous amount of operational technology to support the application process, the underwriting process, the signing and funding process. And then the third group that we think about in terms of technology and capabilities is the capital side. And a lot of that has to do with reporting and how we're able to move money back and forth and to give them an understanding of the size of their portfolio and how it's performing. Some of that now is an operational component. We've done just this year multiple securitizations. There's now ratings in this industry. So the rating agencies are able to provide ratings to these assets, which is now led for broadly syndicated securitizations, which brings new capital partners in. So I'm really proud of the job led by our capital team, but cross functional in terms of broad support. So it's a combination of technology and operations that you have to invest in in order to make a company like.

[Jeff Glass]

This work, as you scale a platform, it's never perfectly smooth lines. I'm curious to hear some of the stakes or bumps along the road getting from where you started to where you are today.

[Unknown Speaker]

The growth of our business I think of as being. It's a stool. We're trying to build the world's best, tallest, most durable stool. Boy, that sounds like a really inspiring mission. The three legs of our stool are homeowner demand. The second leg of the stool is capital supply. And then the third piece, which is where your last question was, is associated with operational capability to scale and scale with excellence. And that starts with our marketing capabilities and our sales. And we actually don't call our salespeople sales. We call them investment managers because we want them to think about their role as they're helping a homeowner manage through an investment process and decide if that's something that's interesting to the homeowner. Then of course, our underwriting and application team and then all the things we do to support all that under operations side, if any leg of the stool is shorter than the other two legs, you got yourself a bad stool. And we want to have a big, solid, stable stool. So I would say at any moment in time over the last seven and a half years, the leg that has often been the shortest has been the capital side. Historically, that is no longer the case. As a result now of a seven year track record and a securitization market and the rating agencies rating this, I would say we are now in a place where there's a broad range in different types of investors that are looking to get into the HEI and home tab world. Go back to year one, we had $12 million. And what our marketing team quickly figured out is that there was enormous demand for what we do. But we only had 12 million bucks. And we needed that 12 million bucks to last until we would be able to find the next pool of capital. When I think about the challenges of the business, it's thinking about those three things. The schedule, management and coordination across operations. Capital and homeowner demand is a very complicated and critically important thing to get right. And I'd say at any moment in time, we've had to juggle those three things.

[Jeff Glass]

What's happened to the competitive landscape for what you do? From hearing that maybe there were other people trying this seven years ago to now, a billion dollars and growing, for.

[Unknown Speaker]

The most part, our competitors have done well and we have a lot of respect for our competitors in the space. And there's been some new companies that have entered that are off to a good start. There's a lot of homeowner demand for what we do. So I still would argue we're in the very early innings of the opportunity to help homeowners here. I think the increased value of homes, the rising interest rates, the unfortunate fact that real incomes have not risen nearly as fast as the cost of housing. I think that those continued macroeconomic trends have led to a lot of tailwinds for businesses like ours as you develop.

[Jeff Glass]

What'S effectively a new sub asset class within real estate. I'm curious the impact you've seen on the whole ecosystem around what you're doing.

[Unknown Speaker]

Any startup definitely requires some level of blissful ignorance because if you knew all the things that you were going to have to pull off, you might just go get a real job. Job. We've helped to create the hei, the home equity investment space and education of consumers, which back in 2016 I thought was going to be the most difficult part of this business. There's this giant $500 billion a year mortgage industry with tens of thousands of brokers that have relationships with homeowners and real estate lawyers. So we've got to educate the whole world on the fact that there's this very different alternative. What I underappreciated is just how many different parties need to come together to create a new asset class, which is what we've done today. I would say the home equity investment is still relatively small, but it is an asset class. It's an established asset class. There is everything that you would expect to be in an asset class in terms of bankers who lend to the space and securitization bankers and bond buyers who are looking at the cusips and understand how to value them, and intermediaries like diligence providers and accounting firms that know what to do and lawyers that understand the transactions and backup servicers that are in place in case there's a problem and you need to help homeowners and something goes wrong with the company. There are so many different components to what it takes to pull this off. It's probably 20 different categories of companies that need to be in at the same time. So it takes time to get that all to come together. We're finally there. But that was hard. That took a long time.

[Jeff Glass]

How do you think about where you sit today and where you're going?

[Unknown Speaker]

It has been a difficult journey to get to where we are today. So over the seven and a half years that we've been at this, we went through the startup phase, which is where most companies stumble. We then went through the pandemic, which every company obviously had tons of things to grapple with, but we went through the pandemic in a housing related business. So we had extra macroeconomic and housing things impacting us. We then went through a period of time where we had to live through the most rapid escalation of interest rates within a short fixed period of time than anybody had seen in our lifetime, which had tremendous impacts on the capital market, some people's fear about the cost of housing and whether there was a housing bubble. So we've gone through three very, very tough periods of time in our eight year history. And what I would say though, as I look forward, we're just getting started. So we have shown ourselves to be able to be resilient. And when you look at the magnitude of opportunity there is to help homeowners through a variety of products for well intended, mission driven companies to help. By the way, that's just us homeowners. There's nothing that says it over time that we can't figure out how to do this for homeowners across the world. World homeowners, they need choice. The economy has changed, the cost of housing has changed, Our macro economy has changed. Affordability is really tough. Accessibility is really tough. People's home and financial lives and emotional lives are so intertwined. So there's just so many good things that we can do for homeowners for society to build a good business that we can be proud of. Even though it's been eight years, I feel like we're on day one.

[Jeff Glass]

What goals have you set for what this looks like in the next seven or eight years?

[Unknown Speaker]

Well, I think seven or eight years from now versions of home equity investments will be considered a mainstream product that people will think about when they're contemplating loans. It'll be like, oh, I could take out a HELOC or I could do a cash out refi or I could do an hei. And so I think that we'll have done our job to help people educate and understand the pros and cons and let people pick the product that's best for them. I think that hometap certainly five, seven years from now we will be a multi product company. So there'll be Multiple versions of HEIs for different types of homeowners in different situations and there'll be other non HEI products that we offer to homeowners. Even today. One of the things I'm really proud of is Our team built out something that we call the Home Equity Dashboard. The Home Equity dashboard is a product that we give to our homeowners and it's tools to help you think about your home and its value and how to finance it and what its future value will be. Tools to help you get the most out of your house. And there's more things and products and services that we plan to offer through that Home equity dashboard because the business is around the mission to make homeownership less stressful and more accessible. So our product team and our marketing teams, they have a long list of really interesting, exciting products and capabilities all centered around that mission. So five, six, seven years from now, we will hopefully continue to be in as close to 100% of all US states as we can be in. We'll broaden the set of products, we'll help educate through partners, we'll add more capabilities and services to be able to deliver for homeowners. And I don't know, maybe five, seven years from now, we're pretty big thing outside of the US as well.

[Jeff Glass]

So as you take a step back and reflect on your whole journey of these entrepreneurial experiences early on bringing it together into this very mission driven focus at Hometown, how do you feel about this whole experience at this point in time?

[Unknown Speaker]

I feel like the life I lead and the privilege that I have to do this is beyond anything I could have possibly imagined could have been true for me when I was growing up. When I was young, I thought I wanted to be a prosecutor because I wanted to go into public service and I went the business route. But I feel like Hometap, if we continue to do it right for me, gives me the fulfillment of a lot of why I thought I wanted to go into public service. So at the end of the day, if Hometap is a durable, lasting company where the best talent builds their careers and feels taken care of and helps take care of each other in that company. And we build a brand about how we've changed lives and helped paid for kids college or people's health treatments or help them stay in their home or all kinds of amazing stories. And today We've helped over 14,000 and five years from now that number, maybe that number's in the hundreds of thousands of homeowners. I'll have felt like I'm living a life worth living.

[Jeff Glass]

It's amazing. Jeff, before we go, I want to make sure I get to ask you a couple fun closing questions. What is your favorite hobby or activity outside of work and family?

[Unknown Speaker]

I'll preface by saying I am not a particularly gifted basketball player. I've always loved playing basketball. I played a lot when I was a kid. I was an adequate intramural level basketball player just to set the expectations. But my favorite thing to do is I blow off steam by shooting free throws. I find it so relaxing. I still am baffled why I cannot get myself to shoot 100% because it's the same motion and nothing's moving. And unlike Steph Curry, I'm not shooting. After running 48 minutes up and down a court with defenders on my back, I'm just standing there shooting free throws. But I would say that is my favorite individual thing to do.

[Jeff Glass]

What's one fact that most people don't know about you?

[Unknown Speaker]

You? I am a terribly slow reader. I think that surprises people. I read at best, I think half the pace of what my peers read at. It's horrible. My kids will be reading something or if we're all looking over someone's shoulder or reading something and everyone is in bed asleep and I'm still finishing the paragraph. As a result, I tend to process information verbally, so I learn a lot more. And I can communicate a lot better speaking than reading because I'm so slim.

[Jeff Glass]

What's your biggest pet peeve?

[Unknown Speaker]

Double parkers. Grew up in Brooklyn, New York life, city kid. Now I live in Boston. Also not known for the friendliness of our drivers. And gosh, why are you double parking? Especially you're double parking and 10ft in front of you, you could pull over to the curb and not block traffic. It's just so rude and so inconsiderate. It's definitely my number one pet peeve.

[Jeff Glass]

Which two people have had the biggest impact on your professional life?

[Unknown Speaker]

Well, for sure, my dad is number one. Unfortunately, my dad died very young, 20 years ago. He was not a formally well educated man, but he taught me a lot of great lessons.

[Jeff Glass]

How about a second one?

[Unknown Speaker]

When I got to college, I was surrounded by some kids who had very different childhoods than I did. And one of my friends, and still one of my closest friends in the world, his dad was a very, very successful investor. One of the guys really attributed to being the inventor of the hedge fund industry. And the whole world that they lived in was totally foreign to me. I had grown up in blue collared inner city Brooklyn and this was a whole different world. And the thing that his dad, his dad's name's Howard Berkowitz and Howard took me under his wing a bit. And the thing that I saw with Howard, that was amazing to me. He is such a good dad. Dad. And his family loves him so much. And he loves his family so much. And he's an amazing philanthropist and mentor, and he just cares so much. It was great because I think prior to seeing him, I would have stereotyped. It says rich people are X, and I was of the poor side and poor people are Y. And I think he influenced me a lot by making me realize that you could be successful financially and you could be a great person and you could give back to your community, and you could be there for your kids and your wife, and you don't have to pick one over the other. You can and should try to do it all. And so he is a very important person that I've learned a lot of lessons from.

[Jeff Glass]

What's the best advice you ever received?

[Unknown Speaker]

Try sometimes not to overthink things and not have your brain override what you in your gut know is the right way to go, because your gut actually includes your brain. Your body's taking in a bazillion data points and trying to sort it out for you and tell you what to do. So I struggle a lot with that, but I think the best advice I got is sometimes just go with your gut and live with the consequences.

[Jeff Glass]

All right, Jeff, last one. What life lesson have you learned that you wish you knew a lot earlier in life?

[Unknown Speaker]

Okay, here's a life lesson that I have learned, but I cannot claim that I have internalized. So I have been working now for a couple years with a mindfulness coach trying to create pause between stimulus and reaction to create some pause for contemplative response. And one of the things that's taught in that area is that one can detach from certain outcomes and not have it be all consuming when things are going bad or going well, that you can kind of stay level and calm and also stay dramatic. I'm a very driven person. I obviously have really high aspirations for home tap and try to hold myself up to a pretty high standard, and that causes a lot of stress and anxiety. So apparently some people are able to both have high aspirations, stay totally driven, stay focused on what they want to accomplish, and also be able to put those emotions and negative energy or anxiety in a box. So I can't say that that is something that I have yet mastered, but it is something I am working on. And if anyone has some tips for me, please give me a call.

[Jeff Glass]

Well, Jeff, thanks so much for sharing the story of this new area.

[Unknown Speaker]

This was really nice. You got me going down memory lane and helped me think about a lot of important moments in my life. So thank you.

[Ted Seides]

Thanks for listening to this. Sponsored Insight Sponsored episodes are paid opportunities, opportunities for another 12 managers a year to appear on the podcast. If you're interested in telling your story in front of the largest audience of investors in the industry, please email [e-mail] to apply for one of the slots.