Hello Everyone! In today’s edition of Fintech Founders, we will be chatting with Josh Ernst, the CEO & Founder of Backflip. Josh and I actually met early on in my venture career and what I can definitively say is that Josh is one of the most focused, dogged, and genuine entrepreneurs I’ve met.
Josh is building what I like to think of as a cross between Zillow and Shopify. Backflip is a real estate-focused software solution designed to support individual entrepreneurs in their journey toward identifying, improving, and monetizing a real estate asset. One of the things I love most about Backflip is that it’s an enablement layer for entrepreneurship, and in a vertical (real estate) that is in desperate need of innovation. Check out our interview below and let us know what you think, and if you’re curious about getting into the real estate game, don’t hesitate to hit up Josh!
Josh, it’s so great to have the chance to interview you here for Signals’ Fintech Founders. Where I’d like to start is, tell us a little bit about Backflip, a little bit about who you are, and what your founding journey has been thus far.
Sure. I'll start by giving you the super high level on Backflip. We are supporting real estate entrepreneurs on their journey to reinvigorate the housing supply, and it's been an incredible journey so far, and we're really just getting started. I grew up in Texas, and growing up in Texas– as you did too, Dez– you are surrounded by business folks, particularly in the real estate sector. And there are people all over the place who are doing all sorts of interesting and innovative things in real estate. I also have always been fascinated by technology and data, and what's possible with innovation. And what’s so interesting to me, as well as others, is how slow the technology adoption cycle has been within real estate, and so you’ll see that that's been an ongoing theme throughout my career.
Long story short, I started my career as an investment banker in New York, working in credit and capital markets. After a few years I decided to start my own proptech company, Urbin, a storage disruptor. We were a competitor to Makespace and Clutter. I grew the company and sold it, which was a great experience and from there I decided to try VC investing. I worked with companies like The Trade Desk, which is an ad tech platform that uses AI & ML to make better decisions and make buying more transparent. I always knew I wanted to get back into operating, and after my VC experience, I was thinking about starting my next business or joining one of my portfolio companies. Eventually a founder friend of mine recruited me to be the COO of his company which coincidentally was in the real estate space, and in Texas.
That was a really important step in my journey because that platform had a couple of different business models, but one was a marketplace specifically for real estate investors who were focused on buying single-family residential assets. Those investors could make money in a lot of different ways: Flipping the house and doing a value-add deal, AirBnB-ing the asset… and our marketplace helped curate inventory for the investors. We helped about 20,000 investors scale their businesses, ranging from big institutions to Mom and Pops. They were all doing quite well and making good profit on fun, interesting strategies, but they were also so antiquated in their processes. They didn’t leverage what's available to them from the data technology standpoint, let alone a capitalization standpoint.
It just became more and more obvious to me that we needed to build a version of the capitalization stack that I'd been introduced to in my past lives, for example at The Trade Desk or in my early investment banking days, to help these really small-scale real estate entrepreneurs and investors.
Because today, although they do well, a lot of them are definitely still operating without vertical market software and more like old-school Moneyball. People act as scouts trying to make decisions based on gut. And then they're capitalizing these deals, honestly, with slightly predatory partners. That’s not the way that it needs to be.
These deals are interesting. There's a lot of potential upside. These entrepreneurs are unbelievably fascinating, and so finding ways to help them, whether that's accessing this asset class and getting into the space for the first time or their business– that's what Backflip is purely focused on, and it's been an incredibly fun and rewarding kind of platform journey that we're on right now.
So, where does Backflip enter in the journey, the lifecycle, of a real estate entrepreneur? How do you start the relationship with them?
Really good question. So stepping back a bit, there are three major categories in the real estate life cycle: Acquisitions, value-add improvements, and monetization. So simply the processes are: How do you find and purchase an asset, how do you improve that asset to create value, and then how do you capture value driven by those new improvements?
At Backflip, we’ve created a new and exciting product that supports entrepreneurs during the acquisitions part of their journey. We do a lot of work and analysis on behalf of every client by taking in a lot of data, helping them think through what end-to-end strategy makes the most sense for a particular asset, and allowing them to double click further as opportunities progress through their sourcing funnel.
In addition to the upfront analysis, another unlock for Backflip is that we have embedded finance into our product and are the financing originator for these assets. So while they're underwriting the property and underwriting the actual deal structure, we're also working with them to underwrite the property and to underwrite them as borrowers. Throughout all of our interactions with a member, we are also trying to figure out whether or not this deal makes sense as a potential Backflip financeable deal.
Our vision is to build an end-to-end suite of products, starting with acquisitions. We really want to own the acquisitions stage because it’s the entry point that supports everything else.
Talk to us a little bit about your thought process in building a lending business, and how you are thinking through balancing growth and risk-taking. It’s a natural tension in any lending business, but especially so from a VC-backed perspective.
It’s an incredibly challenging aspect of what we’re doing, but I think it ultimately comes down to people, partners, and process. The three of those things need to tie together. The people we bring in to help build Backflip need to be detail-oriented and possess a combination of growth mindset alongside risk aversion. The partners we work with need to be rigorous, institutional-quality capital partners that hold themselves to the highest standard possible. The processes we have internally need to be geared toward optimizing conversion of our funnel, toward collecting and analyzing data in real time, and they need to link back to the people we have and the partners we rely on. It’s challenging overall, but something we’re very aware of and believe creates a competitive moat.
Let's take a step back and talk about, kind of, the real estate market on a more national level. This has been a running conversation I’ve had with people over the past, honestly, years at this point. I’ve talked with Adena Hefets from Divvy about it, I’ve talked with Ali Nichols from Getaway about it. When you think about the state of the nation's housing, we’re on a course headed towards more people being renters rather than owners: About 65% of single family homes are owner-occupied, there’s probably $60bn+ of real estate dry powder looking to be deployed, and the writing on the wall, to me, says the historical trend of home ownership being a part of the American dream and a significant pathway to building wealth is going to be replaced with the reality that you’re increasingly likely to be a renter versus an owners. There’s a fundamental tension that I don’t think we talk about enough, so I would love to generally hear a) Your thoughts on that general question, and b) How you see Backflip participating in whatever that future may be.
It's hard, but I believe the trends we’re starting to see are really just the tip of the iceberg.
Non-owner-occupied ownership is not going away. There are just too many prevailing tailwinds on the capital demand side, and the dynamics that we’re seeing at a housing level make me believe that the trend is here to stay. So from there, the question to ask is, “What does this mean for consumers?” Homeownership is a fundamental tenet of the American Dream, but it’s a 20th century phenomenon. FDR introduced the concept and it made a lot of sense based on the economic and political landscape as well as the real estate market at that time. Most of the houses in the US were built in the 50’s, 60's, 70's and 80’s. Since then, the American household has been used as this massive savings mechanism that has transferred equity and wealth across generations.
It would be really nice if we were to continue that, but at the current course and speed, I just think we’re trending in a different direction. I mean the reality is, for a while homeownership was the default way to build wealth in this country. Maybe real estate can still play a major role in some way shape or form, or via some new ownership model. Or maybe we need a new asset class to emerge as the primary way to build wealth. Maybe it’s not just real estate that does it for Americans.
I’m going to chime in quickly because I love the direction that this is headed. I think what’s missing when you look through the lens of entrepreneurship as an asset class is that there is less of a focus on subsidizing the asset class, as well as the fact that you can't apply leverage very effectively into startups. Now, do we need to apply leverage into startups? Maybe not. But my point is I think we should be having more of a conversation surrounding entrepreneurship as the asset class that replaces real estate as the modern vehicle to achieve the American dream. I’m obviously talking my book here. It's how I make a living. But I genuinely think that given how widely entrepreneurship and startups are covered in the media and the maturity of the VC world, it’s very clear that people want to get into the game. There's just different levels of understanding on how the game works and skill sets, quite frankly. All of which can be improved.
I completely agree, and that unlocks a whole lot of really interesting opportunities, right? I think there’s so many different ways for people to begin their entrepreneurial journey and there’s never been this level of available information or support in the ecosystem. I do lean back– and this is me talking to my book– to real estate, because there is a reason that 90% of the world's millionaires made their money in real estate. What’s really exciting to me about real estate entrepreneurship is trying to lower barriers to access al from an information, education, and capitalization standpoint for folks. That to me is an incredibly exciting and a worthwhile goal.
We have tons of people on Backflip platforms who've quit their day job, right? They went from a 9-to-5 at a great company, collecting a very solid paycheck. Now they make orders of magnitude more than that, have financial freedom, and are doing something that they love. And so we support active real estate investors, but what’s really, really exciting to me is also finding ways to generate entry points for the next wave. Part of our goal at Backflip is to be somewhat of a Shopify for real estate. We want to arm the rebels, the emerging entrepreneurs, with a platform that helps them scale and take their business to the next level.
What's the scale of Backflip today? How many people are you helping?
We’re still pretty small. I mean, we've done almost no marketing today. Most people don't know about Backflip. The main way that we acquire customers today is word of mouth. It's very much a referral game so far, which has been great. At this point, we have about 4,000 real estate investors on the platform. So it's, you know, again, very small. We could turn on some digital marketing spend and generate a lot more than that if we wanted or needed to, but demand hasn't been a problem necessarily for us. For us, it's making sure that we get the product right and making sure that we are fulfilling what we believe is possible, and doing it in the right way.
Right. And, twelve months from now, even further up, five years from now, help draw the line from having 4,000 users today to the over-one-million mark where you become “Shopify for the real estate industry”.
There are about 17 million individual investment assets in the U.S. that are owned by a single individual investor. A single owner. We think realistically, we can serve about 10 million of those people with various products, and I believe we could get to as many as a million active real estate investors on Backflip. All that being said though, based on our unit economics, when we get 10,000 active real estate investor customers – we are a HUGE platform, by all measures a success. And that would be a great outcome, but let’s zoom out a second. You’re familiar with HGTV, of course, right? HGTV, most people don’t know this, but it's the fourth most watched cable network, only behind news channels; CNN, Fox News, and MSNBC are the top three. HGTV is number four.
I actually had no idea. That’s crazy.
They have something like 40 million to 50 million people watching every year. There are just so many people who are voraciously interested in real estate generally, and the crazy thing is that HGTV focuses not on million-dollar luxury homes; they’re showcasing everyday neighborhood homes, most of the homes in America. Homes worth $300K, $400K. That's what they focus on. And a lot of people are just gonna, you know, watch HGTV, and it's a media play, and they're never going to actually access this asset, especially not until Backflip comes along. But I believe that we'll work the kinks out with a lot of our initial ideal customer personas, these active real estate investors, for the first couple of years andet to a place where we really, really, really understand how we can create value as a platform, how they can generate as much value as possible for themselves, and then it's on to the next. What's cool is Backflip right now has a bunch of younger users. Our average user is under 40 years old.
Oh wow.
How cool is that?
That’s very entrepreneurial.
We have people in their twenties doing multiple loans a year with us. And these are digital natives who are excited about a frictionless tool and a way to access this asset class just like they would on Coinbase or Robinhood. So we’re leaning into this new generational wave in a way where the flywheels can consistently compound, where we can take our learnings from marketing to one specific ICP, apply what works to an additional ICP, and grow from there.
One additional thing we didn’t talk about is the housing stock in America. The housing stock in America does need help. It’s not only an affordability issue like you read in the news everyday. Also, most homes are old, so we need revitalization of existing homes. Not just to, you know, build a bunch of new homes way out in the suburban exterior. And so part of refreshing America's asset class is empowering this army of boots-on-the-ground entrepreneurs. That’s how we believe we may be able to catalyze an outsized housing impact.
Yeah, absolutely. My last question for you is, what advice do you have for the next founder coming up after you? I think it's so critical, especially in today's media-rich environment, to make sure that the learnings that we're all having as our careers develop are passed down along the way.
That's a good question. There are so many things I'd love to help everyone with, and that's part of what got me excited about building Backflip. So it's hard to pinpoint one particular thing to focus on.
I'll just kind of speak to my own values, which have ended up being the Backflip company values for the most part. For example: Stay curious. Test as many things as you possibly can, find interesting ways to learn from the giants that came before you, and stay humble along that journey, because that's the secret... If you're able to maintain a humble learner's mind and soak up all this information, all this data… test new things, right, for yourself and for others, you're going to learn quickly that way. And it's really all about that compounding learning curve right? How quickly can you find some form of a better answer than the answer that you have today, and then compound that, and learn over time.
I think a lot about inventions. About how most inventions don’t happen upon their first attempt. They all happen over time, on the thousandth attempt or so, and it's all about how quickly you can fail and learn from them. How quickly can you find a new answer based on a new set of data and a new decision point? That's one of the only advantages that startups have over these big, heavily-resourced incumbents, so lean into your advantage. Do it as a person, do it as a company, and see what happens.
Incredible advice Josh. Thanks for sharing. Excited for you and your journey with Backflip.
Thanks so much for having me on Dez, talk soon!
