Earlier this year, I wrote a piece that predicted the success of two ambitious startups. One has been accepted into Y-Combinator and the other was on Venture Beat’s Annual 100 Noteworthy Startups List. But, what’s coming next? People love to chuck around industry buzzwords like “Augmented Reality”, “Big Data” and the fan favorite… “Artificial Intelligence”.
These industry terms are overused. An “Artificial Intelligence” startup nowadays is likely not that exceptional. After all, everyone’s doing it. There are hundreds of startups accepted to accelerators and venture capital funds all around the world, and most of them nowadays are built with deep learning, recurrent neural networks, or other nifty new tools. There are so many startups that it’s hard to see through all the mess.
During my unicorn search, I kept my eyes peeled, and read a lot of blogs. Amidst all the reading, I learned a new (and important) term called “asset class”.
Google’s knowledge graph defines an asset class as:
“a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments.”
This term is widely applicable and a good model to test the growth potential of a startup. Businesses navigating within a larger asset class (automobiles) will have more room to grow than a startup within a smaller asset class (dog walking app). No matter how great the dog walking app is, there is fundamentally more room for the startup tackling the automobile market to grow. Based on this model, it would make sense to invest in startups disrupting massive asset classes.
Meet Point – the home equity startup that’s disrupting the trillion dollar private owned U.S. housing market, the largest asset class in the United States. Point’s business model allows it to puchase an equity share in the ownership stake in your home. As the value of your home rises or falls in value, Point shares in the expected gains or losses on the property. The company started strong with an 8.4 million seed round led by Andreessen-Horowitz, a top tier venture firm. Harvard Graduate and Point CEO Eddie Lim says “There’s $18 trillion of US residential real estate equity wealth that is locked up. We want to put that wealth to productive use.”
In order to achieve that goal, Point has a unique value proposition that aligns the investor and homeowner. In the words of Andreessen Horowitz Partner, Alex Rampell,
“If the house depreciates in value, Point gets paid back after the bank, but before the homeowner, in the event of a sale. If the property depreciates enough, Point may lose some of its money, without the homeowner being in default; on the flip side, if the house greatly appreciates in value, Point will make far more than a traditional “coupon” from a mortgage.”
The terms of Points agreement also provide hefty financial rationale for the home owner. Because of the mutual agreement, the average monthly mortgage bill is significantly lower than a standard 30 year mortgage payment. Here is an image of what your mortgage might look like without Point:
If you partner with Point and they (hypothetically) take a 10% ownership stake in your property your mortgage goes all the way down to 350,000 over 30 years. The decreased mortgage amount in turn decreases the monthly payment. You can see a mortgage that takes advantage of Point below:
There is a clear upside for all homeowners with Point. They will save tremendous amounts of money in the interim, and unlock substantial wealth over the course of a 30 year mortgage.
Despite Point’s potential, there are significant hurdles and legislation that the company will have to overcome in order to capture the entirety of the private homeowner asset class. For example, real estate laws are regulated by state, not federally. On Point’s website they only list a California License – there will be challenges establishing a nationwide real estate company with 50 different governing bodies to address. Nonetheless, if the company can effectively capture markets with the highest profitability and efficiency first, they should be able to capture a significant percentage of the United States housing market before competition emerges.