Interviewed on August 25, 2021
Interviewed by Yingying Zhu
Sarah Liu is a Vice President on the Real Estate Technology Investment team at Fifth Wall, where she supports the firm’s LPs in the residential space. Prior to joining Fifth Wall, Sarah worked at McKinsey in San Francisco. Her work there spanned FIG, TMT, and retail and included private equity due diligence, M&A strategy, and corporate transformations.
Sarah was born in Shenyang, China, grew up in Toronto, and currently lives in Venice, CA. She graduated summa cum laude and Beta Gamma Sigma from the University of Pennsylvania's Wharton School with a BS in economics.
As an investor at Fifth Wall, Why would you say Fifth Wall is so successful in becoming the leader of PropTech investment? Many factors attributes to the achievements that we have so far. The secret sauce of our Real Estate Technology fund is probably the group of strategic LP investors who are the leading companies of each sector in the real estate industry. We receive critical support from our LPs in the due diligence on our prospective investments and the value creation process post-investment. We differentiate ourselves in the PropTech investment world by being able to make introductions, facilitate pilots and commercial partnership between our portfolio companies and our large high-profile LP base. Fifth Wall usually has a direct relationship with the decision-makers and is able to help our portfolio companies in front of the key personnel and save them from a time-consuming process to sell their idea bottom up. From our LP’s perspective, Fifth Wall was one of the first movers in the field and we are one of the few who has established a track record and created business cases where our LPs participate in the value creation process.
You spend sometime at the LP coverage team before moving to the investment team. How does the LP coverage work help your investment judgment today? My involvement with our LP clients gave insight into what their priorities are as well as the way they go through their decision making process, allowing me to engage them on innovative initiatives in the most effective way.
What size of investment are you making? For our Real Estate Technology fund or “Fund II”, our regular check size is from $10M to $25M. That means we often would like to take a leading position and board seats in a Series A or B investment. But obviously we would make an exception for the right companies.
PropTech in the residential sector is one of your focus areas. What are some of the specific themes that you are paying attention to? There are a few macro trends that we are seeing. 1) Home improvement and homeowner-based solutions to improve aging housing stock. Fifth Wall led the Series B for Sealed (https://sealed.com/) this past June, who modernizes home heating and cooling, matches homeowners with the right contractor, and finances the upfront costs until cost saving is achieved. 2) I-buying and fractional ownership to provide wider access to home equity and to solve the affordability issue. For example, Flyhomes (https://www.flyhomes.com/) is one of our portfolio companies that improves the whole home buying experience across i-buying, brokerage, mortgage and closing for individual buyers. 3) Tech-enabled solutions for investing in and managing single-family rental products. This is a proliferating market. We led two other Series B investments in this year including Lessen (https://www.lessen.com/), which provides end-to-end property management service to institutional investors to streamline the otherwise fragmented renovation, repair, maintenance, cleaning and payment process; and Sundae (https://sundae.com/), which provides a marketplace and auction platform for homeowners to receive better offers and for investors to have wider access to house inventory for sale.
“Assignar… is a good example to speak about our investment logic… Assignar is targeting a segment that is underserved and lack of competition; Assignar has great potential to become a ‘Procore’ for subcontractors; The founder and CEO… knows firsthand the pain point and adoption process of (their targeted clients).”
Can you give an example of what attributes you evaluate when investing in a PropTech company? We invested in Assignar’s (https://www.assignar.com/) Series B earlier this year, which is a good example to speak about our investment logic. We love the company for a couple of reasons. 1) Assignar is targeting a segment that is significantly underserved and lack of competition. Some construction tech segments already have strong competition such as computer vision scanning and general contractor project management. But subcontractors and self-performing contractors with typically 50-500 workers don’t have nearly as many options when it comes to a one-stop project management solution. Assignar aims to serve them and they are also more focused on horizontal and infrastructure construction as opposed to the more popular vertical construction or high-rise commercial buildings. 2) Platform potential in SaaS companies is a critical factor. Assignar could increase its Total Addressable Marketing overtime by integrating Fintech, Insurtech, equipment, IoT, sales and marketing solutions.3) The founder and CEO of Assignar owns a contracting company in Australia and he knows firsthand the pain point and adoption process for small and mid-sized subcontractors that they are targeting.
How do you view the PropTech adoption in the commercial sector? Generally speaking, the commercial space has seen less technology available than its residential counterpart. For example, there isn’t necessarily a parallel solution for commercial transactions, while digital tools are widely available and adopted to facilitate the closing process of residential transactions. Commercial assets are typically much larger and harder to standardize and the decision-making is more complicated when more significant value is at stake. But many startups are gearing towards this market and trying to bring the same level of tech enablement to this industry.
There had been a lot of controversies around WeWork’s valuation because it doesn’t seem right to value it by applying either real estate or SaaS company multiples. Fifth Wall invested in Industrious and Clutter and many other PropTech companies that sit at the crossroad of real estate and technology. How do you value them? Even before the rise and fall of WeWork’s valuation, we were always aware that we shouldn’t value an asset-heavy or capital intensive business model in the same way with a pure SaaS or marketplace company, in particular due to their vast difference in gross margin and scalability. That being said, we are definitely investors in the “tech-enabled service” business as you mentioned, such as in Industrious and Clutter. I think you can still achieve venture level return in these investments if you underwrite them with the right comparable companies and the right exit multiples and set your price accordingly.
What are the impacts of the pandemic on your investments? Some companies and features benefited from the sudden increase in technology adoption. For example, self-guided tours and digital notarization quickly gained popularity as people’s behavior around real estate activities was forced to change. On the flip side, short-term rental and flexible workplace operators suffered for a period of time as their business models are not conducive to a full staying-at-home model. We tried our best to help our portfolio companies to get through this period, just like every other investor, through additional funding, facilitating partnership and assistance in generating new revenue. The good thing is, a lot of them have started to take advantage of the tailwinds of the pandemic, for example, Industrious is generating new growth by providing service accommodating the new hybrid work model and the distributed workforce.
Can you talk about your typical day, for those who are interested in PropTech VC to get a peek at what it is like? In VC, it varies from day to day. If I am taking a deal to the investment committee this week, 80% of my time will be spent on preparing for the IC, i.e. working through the model and IC memo with our associates, communicating with the management team and diligence partners. But overall my time is probably split 50/50 between travels, board meetings, meetings with startups, investors and portfolio companies in person; and desktop work such as emails, evaluating potential investment theses and opportunities.
What would you say as important traits of a great VC investor? The first and foremost is being a big picture thinker – having a view of where the world is coming and making bets based off of that. For example, 5-10 years ago, not many people believed that a meaningful percentage of the future residential transactions are going to be done digitally but a few leading investors were able to see the paradigm shift. The second point is to build up a reputation in being helpful and accretive to your network. Great investors make great efforts in facilitating partnership, introducing deal flow and following through on the commitment.
Where do you source your deals? Fifth Wall gets a lot of high quality inbound interest from startups and fellow investors and most of our deals come in from people we know well. Specifcally we pay attention to those funds and accelerators who invest in earlier rounds than us and industry conferences where trends are being discussed.
You came to North America as a teenager from China. I am curious about your view of China’s tech scene. Do you see opportunities on the horizon for cross-border expansion? China’s tech scene is very active and a lot of the ideas were even first widely adopted there than in US such as e-bikes, mobile payments and microfinance options. I personally spend decent time looking at Fintech and InsurTech in US so I found the ideas from China very interesting and hope we can learn from them for example providing more financing solutions for small business owners and subcontractors. In terms of cross border expansion, there are a few cases where unicorn sized companies such as Uber and Matterport sought to grow their business in China but most of the smaller companies still tend to focus on the domestic market and perhaps expand into markets such as UK, Canada and Australia before they go conquer another gigantic market like China. This is a priority issue as well as a local regulatory issue.
“… it comes down to having someone who you can be honest with and genuinely want the best for you so you can tap into their brains about what they would do, when you are trying to make key decisions. I think it is extremely important for women to have a diversified support network.”
You had mentioned in another interview that to advance your career as a female professional, it is important to curate a panel of sponsors and advisors who are not necessarily women only. Can you talk about what kind of people are on your panel and how do you maintain the relationship with them? There is a mix of people in my supporting network, who maybe work in the same company or in the same industry but not in the same company. At the end of the day, it comes down to having someone who you can be honest with and genuinely want the best for you so you can tap into their brains about what they would do, when you are trying to make key decisions. I also think it is extremely important for women to have a diversified support network. I often learn from the perspectives that my male counterparts have such as being bolder for challenges even when they are not fully prepared.
What is your passion outside of VC work? I have always been interested in urban planning topics since school, especially housing affordability. At some point, I would love to take my real estate and tech experience and apply it through a more public-oriented lens to solve an issue, just like the entrepreneurs that we are funding now. Mental health is also near and dear to my heart. I think there is still a stigma around mental health although it becomes a serious issue among startup founders and workers. On the other hand, lower-income people have accessibility issues when seeking mental health help. I see a lot of opportunity in mental health treatment and prevention and especially now, given everything that people have gone through in the past 18 months.
What do you do for fun? I have many hobbies and a lot of them are about spending time outdoors. I am a big skier and spend my weekends skiing as much as possible in the winter. During the pandemic, I actually packed up my stuff from Venice, CA where I worked and lived, and worked for a few months remotely while hopping from one skiing spot to another. Now I am back to CA and look forward to picking pottery-making back up, which I really loved doing before the pandemic.
Edited and condensed for clarity.