Bold Vision Leads Towards European Expansion

18.03.19, KODIT, Tilaaja: Riikka Roitomaa, Valokuvaaja: Juho Kuva, Helsinki born PropTech company made it to the news in the beginning of summer when they announced the close of a €12M venture round to fund expansion in Europe. Investors include New York-based FJ Labs, Austrian Speedinvest and Spanish All Iron Ventures, as well as Norwegian Adevinta (formerly Schibsted Marketplaces) and Finnish previously raised €2M in seed capital and is planning to use the new funding to strengthen its expansion to new markets.

This gave us the opportunity for an in depth interview with Kalle Salmi, Founder and CEO of Kodit.

Founded in 2017 in Helsinki
Founders: Kalle Salmi, Martti Suomela, Nico Rotstein’s goal is to bring the quickest and simplest possible way to sell your home. They do this by using algorithms and automation to build and maintain a housing data platform and services designed to make the process of buying and selling property significantly easier.

Tell us about and your iBuyer platform, how does it work?

We have quite a background, we started out at Maria 01 in 2017 with 3 flex desks and now we are more than 40 people across offices in Helsinki, Madrid, Barcelona and Warsaw. A lot has happened in the past 2 years: we have been building a machine learning-powered real estate  data platform, which basically is a system that follows housing markets in real time. Using this technology, we launched our so-called iBuyer, that stands for instant home buyer. That means we give home sellers, private consumers fair and fast cash offers on their homes, flexibility to choose their moving date and even an opportunity to lease it back in order to avoid any temporary housing arrangements. For home buyers we offer homes that are renovated, move-in ready, with no risks involved and we give them an opportunity to sell their old home to us.

Real estate is the largest asset class in the world and it is quite interesting that despite being such a huge part of the economy, the whole process of selling and buying a home hasn’t really been significantly improved in the past 20 years. The last big change was when the online classified ads came along. 

Nowadays, it all comes down to customer experience: consumer demands have changed, people appreciate getting most of their services on-demand, self-service. On the other hand, it is easy for anyone to understand that technologies like machine learning allow computers to do a lot better job understanding complex things such as the proper value or liquidity of real estate. So there is this clear demand to change the course of how we buy and sell homes.

Our long term vision and how we see it play out in the future is that we believe that people will sell their homes, buy the next one, and get all the related services such as mortgage and insurance from one platform, on demand. You can forget all the hassle of selling your home, going to an agent, etc. and skip the uncertainties by getting a simplified offer from us. On the buying side, what we are able to provide is move-in ready homes, renovations included with known costs from the beginning, at your convenience. This significant improvement process-wise will eventually lead to a better customer experience for sellers and buyers alike.

How did you end up launching 

Real estate is not the easiest business to get into as it requires millions from the get-go to buy homes, and the reason we went for it all boils down to founders’ personal backgrounds. I am an  entrepreneur, I’ve built companies that eventually allowed me to go into investing and real estate investment specifically. That’s how I met my co-founder Martti Suomela, who is also a serial entrepreneur a real estate guy by heart: he studied real estate economics, worked in real estate consulting and development. So basically everything real estate-related, our expertise covers it. In addition, our third co-founder Nico Rotstein has a PhD in AI  – so we had a pretty strong background to start building this product.

Was expansion a part of the plan from the beginning?

We are Finnish company, but from the very beginning we have had a very international team with diverse background and international experience. Today we have eight nationalities working together. When you build a startup in Finland, there is a very limited market size, so you need to build something that works elsewhere too. Having this international mindset from the get-go is important.

In some countries, the market size is so big, you can basically operate in one market and be a huge company, so most of the local players only focus on their territory. But in Finland you can’t be that big, so we knew we needed to create a better technology that we can bring to other regions by getting the local data sources in place. That put us in a category leader position. We are heavily investing in the technology from the early days and now we can transfer it to new markets, where local players are still very much focused on local business. This is a different mindset that requires a bold vision from our side.

How much do you rely on local expertise when expanding to new territories? 

Our model has such a huge offline component that it is required of us to have strong local presence and expertise. Real estate and renovation is operationally probably one of the most challenging models. So we have significant local presence, several people in local offices, teams of minimum 3-5 people on site from the get-go.

It is super important to have dedicated people leading the expansion, not necessarily the founders or the CEO. It’s all about having strong presence from day one. It helps to have recruitment agencies that try to find talent locally, but when you find that right talent, you don’t leave them on their own. And it’s not just a few calls every now and then, even if they are fully qualified and experienced for the job. It never plays out well.

You need to have people who actually go there, spend time there, boots on the ground, to bring the company culture with them. They play an important role in the communication between management and the local team, it pays out to have someone who personally knows the management team and the local team as well. We have this dedicated team, on the move, getting things done. They gain experience in one region and implement it at the next stop, learning from experience and improving the process.

Real estate generally requires trust, how do you create this trust in new markets?

When we launched in Finland, this was something no one has ever seen before. So naturally questions arose: how is this even legit? How come there is no real estate agent, how can they promise to buy the home, what kind of money is this? But once we raised our seed round last year with Speedinvest and Schibsted Media Group, our investors being quite well known gave us credibility. So when we went to look for partnerships, this helped a lot. And also our transparency is key.

One of the problems with traditional agencies is that their incentives are not always aligned with their clients’ and that creates tension. People don’t consider real estate agents to be very trustworthy. But when we give somebody a price, it is definitely not a gut feeling. All of it is based on data, there is science behind it. You can be disappointed or happy with whatever we offer, but you can be sure there is data behind it, and we can explain it to you. It’s all about transparency.

How much does the technology need to be adjusted according to the specific traits of local markets? 

There’s always a certain amount of localisation. We get local data scientists on board as well, who know the local data sources, but most of the localisation is done from here, our Helsinki office.

How do you deal with the customer journey being different in local markets?

Thanks to our technology we know at any given time what exactly is out there. We have been building outbound tools to attract off-market homes, to reach people who are thinking about it but haven’t yet put their homes on the market. We also buy a lot from agents. We are able to identify opportunities fully automatically from our system, from the public market, and jump in where we believe we can make a very competitive offer.

Unlike many other consumer companies we don’t need to invest heavily in raising brand awareness or customer acquisition in terms of advertising. In the launch phase it is more about going there and building the business without that huge marketing effort. Instead, we invest in localising the technology.

What do you see as the biggest pain point of expanding your business?

The biggest pain point is definitely to identify and acquire enough super high quality talent. It is a lot of work. In our model access to capital also plays an important role whether that comes from VCs or other type of investors. VCs normally say that entrepreneurs don’t think big enough. Well, we do. In our case, when we first started talking to more local investors, they were like: “Maybe it would be okay if you did this only in the Nordics.” It was a little bit too bold for many of them. Introducing a new idea, this new breed of startups putting together the offline and online world and being so capital intensive and asset-heavy, is still quite new for many investors in Europe. Some VCs told me in the early days that they don’t think this is a VC-fundable business. That it’s not a startup. That remains to be seen I guess.

How did you convince them?

Very early on it was about this very experienced, solid team we have. We landed the first investors saying: we are the guys, we know what we’re talking about. Then when it comes to the business model, if you have a good enough team in place you can trust that they will figure it out, they will iterate until they succeed. We haven’t really changed the vision at any point, we haven’t pivoted, we stuck to it through and through.

What is your advice for other founders with bold vision?

Stick with it, but don’t be a complete fool – it is a fine line. If we wouldn’t have been able to get this going, to grow the company, to get investors, to get customers then people would see me as someone who had this crazy thought that did not work. A lot depends on finding the right partners. For us, the bigger we become, the bigger potential partners we talk to and the more we think alike.

And of course you need to make the numbers work, it’s all about that – whether it is a bold or less bold idea. I am a big believer in sustainable business models: unit economics, unit economics, unit economics. And customer acquisition cost.

You really need to be on top of those things and have them figured out. It’s not enough to solve problems with your business, it’s about clearly explaining what is the market size. What are the unit economics including customer acquisition cost, and if it makes sense, if there is scalability and the market size is big enough, you can get investors, partners, and talent to work with you.

Finding the right talent is key: go on LinkedIn, use all resources to find the best in the world in a given field, reach out to them and try not to compromise. If you want to build the best company in your space, which all startups do, you’ll need the best talent.

How does growth affect the team?

Early on we focused on expanding the tech team, to come up with an MVP, a very early version of the product and build our evaluation models. Then we grew the operational team. Before the seed round we were 8 people, we were scaling up from there. Since the latest funding round, we almost doubled in size to 40+ employees, investing more in tech to accelerate the product and focus on localisation. The new geographies, Poland, Spain and France are huge in market size, so expansion requires us to do so. We are building local presence and going in deep into these markets.

Are you planning to expand outside of Europe as well?

At this point, the foreseeable future holds European expansion. Once we have successfully established ourselves in these new markets, we’ll see.