When we first came across this interview opportunity, the first headline that came to mind was really “click-baity” – Real estate investors hate this guy. Thankfully, we came to our senses and scrapped that idea, but the relevance and significance of what BitofProperty are doing cannot be denied.
Read BitofProperty CEO and Co-Founder, Karl Vaan’s story here
Their CEO, Karl Vaan, was kind enough to take some time out of his busy schedule to answer a few of our questions to understand more about what he and his co-founders are doing.
This interview was an ideal opportunity for us to understand why a Latvian entrepreneur started a company in Singapore that has already secured funding from Japanese real estate giant LIFULL and Singapore venture company Spaze Ventures.
Here’s what he had to share with us.
First of all, why Singapore? You’ve mentioned before that Estonia (your homeland) is quite an advanced country, so why leave? What brought you to this small island to build a business?
It all started in 2016 when we started brainstorming ideas for a real estate crowdfunding business with my co-founders Taavi and Timo. We also had input from a friend of mine at a venture capital company in Singapore, helping to make local connections.
There are actually two reasons why we flew to Singapore and started off there. Firstly, we saw a gap in Asia for this particular business that we thought needs addressing. The market in Asia is massive and dynamic, thus not giving it a try would not make sense. Secondly, to bring our vision to life we needed funding to kickstart the process.
On January 27th of 2017, I quit my job and stepped on a plane to fly to Singapore and find funding for our idea. It was my first time doing fundraising for the company so it took 4 months and about 70 meetings, but eventually, it paid off.
In May, we received our first funding (pre-seed) from Spaze Ventures and our lead investor in the seed round was the Japanese real estate information giant LIFULL Co. Ltd, providing its services in 57 different countries around the world.
Singapore is a startup hub in South East Asia and the best place for starting a new venture around the area. There are many startup events, the country is well respected for its strong legal system (important for investors) and provides relatively easy access to capital.
Is there an advantage to building a global startup in Southeast Asia?
The advantage is that the market potential in Asia is huge and Singapore makes it easier to tap into that. Especially for foreign founders, it’s easiest to test the product in English speaking countries. Once the product-market fit is confirmed then finding customers in South East Asia wouldn’t be an issue.
In comparison, we’ve tested our product out also in Estonia due to quite strict regulations for product testing in South East Asia. Although the ecosystem in Estonia is very pro-startups then the market size is very limiting – 1,3 million people.
Your current investors include Startup Spaze and LIFULL. How has the experience been with both parties and what have they provided in terms of support?
We have been very lucky with our investors. Spaze Ventures and LIFULL have been lead investors in either round, but we definitely cannot forget other investors who have provided support as well.
Spaze Ventures has given us strong support in the very early days in our venture. At the time when the platform development, marketing and onboarding first investors and properties was yet an unachievable goal for us. They brought invaluable contacts and helped us make the needed connections so their support has been invaluable for us.
Now that we are a step closer, but still far from the vision, we have been lucky to get LIFULL as a strategic investor supporting us in this journey. Sharing the same vision and beliefs with them is great recognition to BitOfProperty. In addition to the funding, LIFULL has expertise in various fields in the real estate industry and knowledge on how to scale companies on an international level. We see this as a great opportunity for both of us to discover new opportunities together with the and work on the same mission together.
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All investors have been sensible and down to earth when it comes to business and operation side of BitOfProperty. Understanding obstacles, which we need to encounter and actively helping to find solutions, has been valuable support from their side.
How would you assess the current real estate investment industry in Southeast Asia? What are the current challenges and how does BitofProperty address some of them?
There is a positive trend in the real estate investment industry in the Southeast Asia region at the moment although each market has their differences so it’s difficult to generalize. Recently the market has been cooling down, but it’s still possible to make good investments if you know the property market well.
We, at BitOfProperty are looking Thailand as one of the most potential go to markets in SEA. More specifically, we are eyeing the Bangkok condominium market, which in our opinion is rather safe, but profitable investment opportunity, with 5%-6% rental yield and 10%-15% capital gain potential per annum. We believe that such trend is keeping its pace for the foreseeable future, because many MNCs are moving their businesses to Bangkok. There will be 5 new metro lines built in the coming years and Bangkok is continually one of the most visited cities by tourists.
One thing that stands out in Southeast Asian countries (except Singapore) is that the land registry and title deeds are untrustworthy or non-existent. This makes investing in SEA’s emerging markets difficult and might scare some investors away. It is getting better, but still far from what we see in Europe. BitOfPropety could help here as we record all investment related data on public blockchain, which is accessible for all investors. They can see where, when and how much they invested, and these records are immutable. In addition, as some investors don’t want to take risks by investing too much money into one asset, then they have an option to invest in small amounts and diversify their portfolio over many properties. This way they can get into property investments while taking advantage of not putting too much money at risk and being able to view their investment details on an immutable public ledger.
What is your current portfolio of properties and how do you foresee growth? What markets will be your focus and what types of properties?
Real estate investment business requires local knowledge and contacts. This is crucial, because in order to find good investment properties, you have to know the market well. Real estate is tricky as there have been many examples where even properties in the same district and similar features have huge price discrepancy. In addition to that, you have to take into account many other factors, such as economy, migration, inflation, taxes, rules and regulations etc. Combination of all these and market knowledge can help you source good investment properties.
Our current portfolio of properties consists of individual residential units in Tallinn, Estonia. Today, in Europe we are looking at Finnish residential market and considering to list couple of properties from there as well. In addition to that, we are actively working on finding the next country in Europe, where we could source properties from.
Together with our investors in Asia, we are looking at Japan, Thailand and Philippines, as potential countries where to source properties from. The reason why we have chosen these markets is that we possess knowledge and contacts in these countries. Using this as our strength, we believe that our selection of properties will meet investor appetite.
Up until now, we have been sourcing only residential properties and this will most likely be the case in the near future as well. Commercial properties are relatively more expensive, thus as we are in the early stages, we cannot take too large of a bite.
Blockchain has become a buzzword thanks to Bitcoin, but as you know its implications and uses are wide-ranging. How does blockchain integrate into your platform and how does it make it better?
We use blockchain currently for tokenizing real estate and recording investment related data. Once a property has been listed on the platform, it will automatically be tokenized. Investors who are investing their money to a specific property will receive tokens based on their respective investment amount. The token represents investment confirmation and the number of shares in the respective property. As it is built on the smart contract, it contains information about the investment and property. We have built this on Ethereum smart contracts, which is a part of the public blockchain, allowing access to the contracts for all investors independently and at the same time keeping the investors details hidden.
This brings an extra layer of trust into the real estate investment space. Firstly, all the documents, which prove the ownership of the investment are kept separate on a public ledger. Investors have access to these whenever they want. Secondly, it brings more transparency for overseas investors when investing in emerging markets properties. Thirdly, we are currently working on secondary market trading functionality on the platform, which will help to increase liquidity when trading investment and moving ownership from one person to another.
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How do you see the use of blockchain evolve beyond mostly cryptocurrency into other industries?
Blockchain is often associated with cryptocurrencies but in reality, it can be used for so much more. It might be that blockchain has not yet found a solid use case in other business areas and the fastest and easiest adoption was the cryptocurrencies and ICO space.
However, I strongly believe in blockchain and that it could actually make a difference in many businesses and industries. Of course, it won’t be applicable everywhere and it will not disrupt all industries, but it can definitely be used to improve on many existing systems, such as voting. There are already front-runners who are trying to apply blockchain and looking for ways to implement this, but it will take years to see where and how much impact it has in various fields.
What advice would you give an entrepreneur looking to start their own business?
I think there are many things what a person needs to know if she wants to become an entrepreneur. Some of the things she just has to experience and learn along the way, but if I would have to give advice, then these are the three important things, which an entrepreneur has to bear in mind no matter what.
Firstly, read books and share experiences with other entrepreneurs. Reading books is the simplest way to learn from others and avoid doing the same mistakes. Of course, books are theoretical and not everything what you read applies to your business, but there are certainly some easy tips and tricks you can follow. Must read books for every entrepreneur, before starting are: Lean Startup, Lean Analytics, Mom Test, Zero to One and Start With Why. Also, try to meet other founders/entrepreneurs and ask about their journey. They just might have some good suggestions on how you should start your business.
Secondly, make sure that you do decent market research before you start your venture. This does not only mean googling about other companies and reading articles. Talk to people! Try to find events which are related to your startup. Validate problems before finding solutions. You should constantly keep yourself in Build Measure Learn loop, in order to fail fast and iterate your business to find a product-market fit as soon as possible.
Thirdly, make sure that you have enough savings in your bank account and/or you have family/friends that can support you. There will be tough times and moments where you have either financial troubles or you need support from your friends or family when the results have not been what you were looking for. This doesn’t mean you should stop, it just means that you need to take a step back rethink and start again. To minimize the risks of getting to this point follow the first two steps closer and that should keep you on the right track.