Housing in some sense for me is like that final frontier of FinTech.
Sort of the end goal for most consumers.
All of FinTech in some ways leads to a consumer caring fundamentally about generational wealth.
And generational wealth It comes from things like homeownership, right?
It comes from long-term appreciation.
It comes from creating something that's safe and sustainable for you and your family and your family's family.
And that's the American dream.
Part of the problem is that all the old people have all the money.
It is like a catastrophic issue right now.
If you're getting paid in cash you might get a 3 salary bump every year, but the SP 500 compounds at 10 a year.
The median age of homebuyers has jumped from 30 to 38 in just over a decade, and it's not getting better.
Today, you'll hear from Varun Krishna, CEO of Rocket and A16Z general partner, Alex Rampell, on why housing has become the final frontier of fintech.
We discuss how old people corner the market through asset price inflation, while young people get paid in depreciating cash.
Why the Empire State Building was built in 110 days, but you can't change a window pane today, in less than two years.
And the paradox of real estate sites with 50 million daily users that can't figure out how to make money what Alex calls Zillow and Chills.
Plus, how Rocket is flipping Silicon Valley's playbook.
Instead of building a toothbrush product and searching for monetization, they're starting with a 10 billion profit engine and working backward to daily engagement through the acquisitions of Redfin and Mr Cooper.
Let's get into it.
Alex, in 2010, the median age for a home buyer was 30 years old.
Now it's 38.
Why did that happen and what can we do to change that?
Well, I think part of the problem is that All the old people have all the money.
This really is a catastrophic issue right now.
Because if you look back, the American dream has been homeownership for a very long time.
And the example that I'd like to point to is after World War II, have you heard of Levittown?
No.
So Levittown, you ever heard of Levittown?
Okay, so Levittown, I'm sure you know of Levittown, Varun.
But this was one of the first track housing communities.
So this guy, think about what Henry Ford did for the automobile.
Like, how could you buy a car before Ford?
These were handmade things that were very, very expensive.
And I think it was James Levitt, who actually turned out to be somewhat of a racist.
So Levittown was the first, I'm going to bring the Henry Ford factory to housing.
And it's actually a town in New York built, I think it was, thousands of homes, sold them to GIs that were coming back.
And like home ownership was just like you had lots of land.
You had a country that was half the size that it is today and just supply and demand.
So you didn't have like all the old people had all the money.
You had this like giant, giant population that wanted home ownership and you had lots of supply that was being built and actually new, innovative techniques for building.
And that's why I like to point to Levittown.
And what has happened since is, if you just look at the pyramid of who, I got, to think about inflation as being two different things.
You've got the CPI, which is this you know, the Bureau of Labor Statistics comes up with a basket of goods and services like gas is one, or bread is one, or fish and eggs and butter and things like that.
They get more expensive, they get cheaper.
But then there's this other thing that I would call asset price inflation, which is not actually part of the CPI.
Part of the CPI is rent inflation, or perhaps like the mortgage payment that effectively allows you to live in your house.
But asset price inflation is very, very different.
So there's a piece that we wrote a little while ago showing that the price of housing in the Bay Area has declined massively in the past 25 years.
People are like, no, no, it hasn't.
It's gone up.
If you price it in Apple stock and Google stock, right?
So if you already have one asset and one asset would be stock or one asset would be like your parents left you a lot of money and they left you an old house.
Well, Supply and demand, there's only a fixed amount of real estate.
There's only a fixed amount of Apple shares.
Those have gone up in value relative to the U.S. dollar.
These are the people that can buy homes today.
And they are just predominantly and disproportionately older.
And it is really hard for younger people to afford their first house because they get paid in cash.
Most people, if you're getting paid in cash, you might get a 3% salary bump every year.
But the S&P 500 compounds at 10% a year.
And if you're buying with a basket of assets...
And obviously, you're not paying for your house with Apple shares.
But if you happen to work at Apple, houses have gotten a lot cheaper in the Bay Area in 25 years.
If you happen to work at a company where you have no ownership in anything, you're just getting paid a salary.
House prices have gotten a lot more expensive.
There are many reasons why I would answer your question or how I could answer your question, but I think fundamentally, that's the main one.
And like number one is supply and demand is that we don't build enough homes.
Very, very different than like the Levittown area, where it's like wow, we're going to build like a shitload of homes.
And that really, really happened in the 1950s.
So it's supply and demand.
And then it's also this kind of like asset price inflation, which has really kind of created this tale of two cities for people that have assets and people that do not.
And is asset price inflation the best explanation for how old people got all the money, so to speak?
Yeah basically, especially where it was if it was much easier to build.
There's asset price inflation but there's also it was much easier to build a hundred years ago than it is today.
So this is not about housing, but all right, Pop.
How long did it take to build the Empire State Building?
What do you think?
A year?
What do you think we're in?
How long did it take to build the Empire State Building?
Five years.
110 days from start to finish.
I assume today could never happen.
If you wanted to change like a window paint, it would probably take two years right now.
So the other thing is that it's not just that the old people have all the money.
That's a problem.
But it was much easier to build things when the old people didn't have all the money but bought a lot of these properties.
So now it's just, it's much, much harder to build is number one.
If you could just go build 10 million homes tomorrow, what do you think would happen to the price of homes?
Would they go up or down?
Pretty sure they would go down, unless every economist is wrong about like supply and demand, you know, the intersection being the equilibrium price.
And the main bottleneck there being regulatory?
I mean, it's regulatory, but actually it's not regulatory always.
It's this term nimbyism, not in my backyard.
So imagine that I bought a house and I know that the old people that own the house next to mine they've made so much money by owning that house because they bought it in 1960.
This is actually a true story.
My first house I bought was in Palo Alto and I bought it for, I
It was $2.1 million in 2008, very perfectly timed before Lehman Brothers failed.
I figured I wanted to buy a house before like the World Tower part.
No, I'm not saying that.
I should have bought it like three months later because I'm like down 50% of the time.
My next door neighbors, it was a retired Stanford professor.
He bought the house, I think in 1960, bigger lot than mine, worth more than mine for like $30,000.
Oh, yeah.
And if he wants that $30,000 to turn into more, and like that's a natural thing.
Everybody wants whatever.
If I buy something and it's not a consumable, like I don't care about this water increasing in value.
I care about my house increasing in value.
If you build 10 million houses right next to mine, the house is going to go down in value.
So it's nimbyism.
And nimbyism then becomes regulatory.
And then you have people that vote for people that will give them what they want, which is nimbyism.
It's not just like you have evil politicians that out of nowhere say we now need to take 10 years to go build something or you can't build things.
It's people as well.
Varun, any reflections, reactions to hearing this?
What are your thoughts to how we can increase homeownership?
Yeah, I mean, I think Alex is right on the money.
The reality is there's just a lot of things that have shifted over the past 20, 30 years around housing right.
Like it's cultural shifts, it's higher home prices, it's higher rates.
But ironically cool stat the other day that, like in the fifties, the average size of a starter home was like 985 square feet.
And if you look at the size of a starter home today, just any guesses on what that is?
What is it?
I have no idea.
It's like almost 2,500 square feet.
Wow.
So our expectations like culturally around what a home is have like fundamentally changed.
But you also have these other generational dynamics too, right?
Like people today are settling down a little bit later in life.
And Alex talked about affordability.
But some people want to buy but they just can't clear that affordability hurdle.
And so there are other things that I think will improve as we think about the future.
Like the cost of building a home has got to come down, right?
And I think things like robotics, 3D printing, advancements in material science, will help with that.
But that's a little bit further out into the future.
I mean, the nice thing about this AI revolution is it's not just that it will help us with all the traditional use cases that you see today around, like ChachiPT and what Anthropic is doing, and Agentic AI, et cetera, et cetera.
But it's more like applied AI in the context of, like robotics and advancements in 3D printing, material science.
But I think like our culture has fundamentally shifted a little bit.
The expectations around a starter home has shifted, but then you have to attack the problem from the other way.
And that's where you need a little bit more of a paradigm shift in the technology space as well.
Yeah.
If you had to predict over the next five to seven years how the process of homeownership changes the stats that we shared around homeownership, what do you expect?
I think there are a couple of things that would change fundamentally.
I mean, I think you'll start to see the applications of AI be a little bit more geometric in nature.
And so it won't be that a computer is smart at the knowledge worker type jobs, but it can handle manufacturing, building and just more sort of process and a workflow and like physical tasks right.
Alex has a great analogy around bit problems versus atoms, problems that I think Andreessen is very famous for pioneering.
So I think you'll sort of start to see that.
And I think that will significantly change just the manufacturing environment in general.
I think the other thing that you'll also see is just today.
Part of the problem with the home ownership dynamic is that the reason it takes so long is there's just a lot of work, right.
Like providing your data, providing your documents.
It's a gigantic qualification process that involves these complicated terms like underwriting and qualification, money movement et cetera.
But it's like why is it so easy to walk into a grocery store and buy a chocolate bar with a credit card?
And yet the process of buying a home is just a slightly more complicated version of the same thing.
And so I imagine in three to five years a lot of that workflow gets like hyper compressed and a consumer and their sort of financial readiness and their qualification criteria is just something that happens in a real time.
And so I think that's kind of exciting, because one like you know, the amount of effort to know whether you qualify for something as expensive as a home purchase can be significantly compressed.
And then two you know you start to see more leapfrogs and technology where you, you know, the process of building manufacturing, servicing a home kind of come down.
And I think if we get that right, you know, we can start to see and this is something that I think the administration is rightfully focused on is that like how do we get more new homes built at a faster rate, right?
And to Alex's point earlier how do you get more inventory on the market, which would create more price pressure, so that even if mortgage rates are, you know, are elevated or high, at least the cost of the home can come down?
And so I sort of see these intersection points starting to just influence the process, hopefully for the benefit of that consumer.
Alex, anything you'd add to that?
Yeah, I mean I think the technology thing I mean.
That's why I was like kind of quickly chat GPTing to refresh my memory on Levittown.
But I mean, this was the first planned suburb.
And... um, this in 1947.
So this was all these returning GIs, and it's like we need to build housing for all of these people that came back.
Like, what did you do?
Remember, like the famous picture post-World War II, where the GI is like kind of swooping this woman down and kissing her.
It's like, what did they do after that?
They got married, they bought a house, they had five kids and hence the baby boom.
Um, well they needed to live somewhere and apparently it was a 985 square foot house.
Um, but a lot of these were just like constructed so quickly.
Um, And actually like the technology wasn't bad at all, but it was like let's go bring the Henry Ford factory to housing.
And that was Levitt & Sons, William Levitt.
And again, they did some bad stuff.
Like they famously had something.
It's like you could not rent or sell to somebody who was not white.
So that part, obviously bad.
But the good part was we are going to build just like a shitload of homes and we're going to do it in a smarter way.
And I mean because if you have an assembly line for homes and, by the way, like Lenar and others, like they do a version of this, when they decide to go buy a giant tract of land and go develop it,
They don't just like build one house and then finish that and then build the next house.
It's really cool watching these communities get built because it is it's like okay, today is foundation day.
And it's like foundation, foundation, foundation.
Like they just do all of these things.
Okay, today is framing day.
Boom, boom, boom, boom, boom.
And these things go up very, very quickly.
A lot of homes building and this yeah ver, and i agree with you like it's the atoms versus bits thing.
It's like it's just really hard to construct things, but we do have solutions to this.
Like modular housing is not a, it's not like a pipe dream.
You can do this.
Um, there's this very cool, famous uh, like chinese uh, It's almost like a meme, but like this woman, that's like showing off her, like you know, here's like this RV home.
Look, shower, look this.
And it's pretty funny.
It's got like, it's like this very popular TikTok, you know, YouTube short thing.
But you can do this.
I mean, so I think you have like three main things.
You need to make it as easy as possible for people to buy the house.
And it really is.
It's like, I've never done this before.
I buy a house once every lifetime.
What do I do?
All I know is that I pay my rent every month.
I know how that works.
Like, I'm scared from this process of homeownership.
Where do I buy?
Do I get outbid?
Do I get a mortgage?
Ah, this sounds so complicated.
I'm going to keep renting.
And the biggest thing that people, I mean, so many people that rent, they do want to buy.
Like, this is not surprising.
Would you rather, like, the American dream is to own a house you currently rent.
Do you want to be part of the American dream?
Everybody's going to say yes.
How do you make it as easy as possible?
And it's kind of making the process of buying as easy as possible.
It's making it as affordable as possible.
And then when you go under the affordability, it's probably the financial side, which is mortgage.
And the United States is actually quite unique in that most countries they don't have 30-year term mortgages to repay your principal and interest.
Sometimes you'll have shorter duration.
Um, but it's, you have the financial side and then you have the construction side.
And you know I I know more about the financial side than the construction side, but both of these like if you make it cheaper, like guess what.
More people will want to, they, you're going to open up this aperture.
And the other thing that I would add, I gave a presentation about this a long time ago.
Um, I never thought it would be popular to have.
I'm going to give a presentation on, like homeownership and housing and all these things that are happening.
And somehow that was, that was a, that was a popular little video that I made.
Um, And I think there needs to be more of a, less of a binary between I either rent or I own.
Like that was it.
And a lot of these innovations that have popped up, like what is Airbnb?
Like you have this piece of real estate and what do you do with it?
Well, again, you can rent it or you can own it.
You only have two options.
No, no, no.
You can rent it for a month or you can buy it and you can save money, or rather help make your payments or have a second source of income, or whatever, because the Olympics are coming to LA in 2028.
You have a a little apartment near the stadium, go rent it out for a month.
Like that's an innovation that has actually made home ownership more affordable.
So, or, you know, we were an investor in a company that was helping do rent to own.
You rent but like you're basically setting on fire your rental payment every single month because it does not help you in any way, shape or form in terms of getting ownership in a house.
What if you could get a house that you have the right to buy later which, by the way, would actually bring down housing costs as well to a certain extent?
Because there's a saying by Warren Buffett which I love, which is nobody pays to wash a rental car, right?
Like that makes sense.
Why would you wash a car for Hertz, right?
You're returning it.
So if you know that you're going to buy your rental, you'll probably take better care of it.
If you take better care of it well, the landlord doesn't have to worry about as many things, and then the cost goes down.
So you know there's a lot of in-betweens, that I think technology, and actually more importantly entrepreneurship, can help drive, but you need a regulatory environment that allows it.
Are you excited about the fractionalization experiments or these other forms of financial engineering?
Do they solve real problems?
Are they feasible?
Can you define that?
Oh people, there's some startups that have been trying to say oh you can, you know, own part of like we can just increase the amount of people that own part of a home.
And Yeah, I mean there's the blockchain stuff.
That doesn't really make sense to me.
I'm a big, big fan of crypto, but it's like crypto exists.
Like if you're trading things that are purely digital, works great.
If you're saying I'm going to represent something that's physical, where I need to assert my ownership, like if somebody's living in my house illegally, that's called they broke into my home.
And then I call the police and I say, I live here, Eric broke in, kick him out.
And like, you can do that.
But if I say no no no, on the blockchain, it says that Eric like no no, it's like we have like, the guys with guns enforce the laws and they look at like who owns the property, based on like, the county recorder's information.
And like, you know, should it work that way?
I don't know.
That's how it works.
So like that stuff, I'm not sure.
But yeah, I mean, we're an investor in a company called Point that allows you to sell part of your house.
And you have a lot of people that are like, you know, they're house rich, cash poor.
And again, that's another thing that doesn't make sense.
Like if I have 50000 in credit card debt and a 620 FICO, but I bought a house in 1950 and I own 100 of it.
It's like that doesn't make sense.
Like I shouldn't have to sell my house so that I can pay off my credit.
Like, why don't I sell 10% of my house?
Like stuff like that.
To just take a binary of like either rent or I own, or I either own all my house or none of my house.
Like you can get a little bit more creative around the edges by giving people more options.
I want to segue and go deeper into mortgage.
Alex, you've been investing in fintech for a long time and building companies in this space.
How has the space viewed the mortgage tech space?
How has mortgage and fintech worked together?
Well, I think what's really interesting about mortgage is I'll kind of tell a story by background.
Here's my little parable or story.
I get to college.
I don't have a credit card.
I went to Harvard and there's a store called the Harvard Coop or it's a co-op, but it's called the Coop.
And that's where you buy your textbooks and everything else.
So I want a credit card and they're like apply for a Harvard Coop credit card and you get a t-shirt.
I was like, Ooh, I want a t-shirt.
That sounds great.
So I applied for this card.
I had a, I think it was $75 credit limit. you know, a lot of credit that was extended to me.
And it was a bank called First USA which eventually became something else, which eventually became something else which, I think, eventually became Chase.
So I got my card and they gave me a free t-shirt.
Why did they really want me as a customer?
Like they didn't want to, just like they didn't think I was like a supermodel and they wanted to put their t-shirt on me.
Why is it that they gave me the t-shirt that they gave me the card?
Well, they were kind of betting on, we talk about this a lot, there's CAC and there's LTV.
The customer acquisition cost was a t-shirt.
The lifetime value is not like how much money I'm going to make for them at 18 when they only extend me 75 of credit.
The lifetime value is if I stick with that bank, eventually I'm going to make a very, very valuable transaction.
I mean, banks make money on net interest margin.
So they take deposits, they make loans.
What kind of loan might I, as an individual, take out with this bank?
That would generate a lot of value for them.
Probably a mortgage.
So the key inflection point for a bank or a lot of financial services companies is you know, I now have Eric or Alex or Varun as a borrower.
I'm going to make a lot of money on them, but I kind of have to.
I can't just like show up at the 23rd hour.
It's actually a good segue for a lot of the cool stuff that I think Rocket and Varun are pushing for with some of the acquisitions that they've made.
But I can't just show up at the 23rd hour and say, hey, I know I've never met you before.
I've never given you a free t-shirt.
You have no financial relationship with me whatsoever.
You know, here's a mortgage.
You're like, nah, I'm going to get it from the guy that gave me a t-shirt before.
Or I'm going to get it from my real estate broker.
But the lifetime value, like it's funny, in finance, LTV normally means loan to value, right?
So like the value of the house is $2 million.
I got a $1 million loan.
That's 50% loan to value.
But in most of like startup land, when we talk about LTV, We talk about lifetime value.
And the majority of lifetime value for a consumer, even an 18-year-old, is going to happen probably 15 years later in the future when they buy a house.
That's such a valuable inflection point.
Or when they get a HELOC.
It's a financial product where you are taking a large loan.
You're going to pay it back, but the amount of money made at that point in time is so much higher than when you're an 18-year-old kid and getting a free T-shirt with your 75 limit credit card.
Varun, what would you add to sort of this intersection of mortgage and fintech?
You know, there's a great movie that came out, like, I think it was around 15, 20 years ago.
It's called Thank You for Smoking.
I don't know if you've ever seen that one.
Yeah, David Sacks produced it, I believe.
Correct.
There's this one line that popped into my head where you know she kind of scams him, you know, and gets some information out of him.
And he's like, why did you do this?
And she thinks for a second and she says, for the mortgage.
And that line has always stayed with me because in some ways you know I've been around FinTech for a long time.
You know, was that PayPal?
Was that Groupon?
Was that Intuit?
And so like, when people think about FinTech, they think about, like you know, personal loans payments investing taxes, money movement.
You know a lot of these kinds of businesses.
But, like one thing i i've learned just from talking to a lot of consumers is like all of those are a means to an end, and housing, in some sense for me, is like that final frontier of fintech, because it's sort of the end goal for most consumers, and alex said it really well.
When you think about renting, it's like renting is part of a funnel that is a continuum toward buying right, and so All of it to me, leads to housing right.
And housing is so important to the economy.
It's 20% of the GDP, right?
$5 trillion market.
And it's very complicated, right?
Like it's fragmented.
It's got a lot of moving parts.
And the mortgage process itself is also really interesting, right?
Like you have the concept of a loan, like you have an originator that underwrites a loan and brings you to the closing table.
And then, once it's closed, you have like the mortgage note itself and that gets sold off to the secondary market.
So to these, these GFCs, government sponsored exchanges like Fannie and Freddie, and they use that to kind of free up the capital and maintain liquidity.
Then you have like, the mortgage servicing rights, which is where you know, kind of an, you have an ongoing relationship with the mortgage as a consumer because it's, you know, typically the biggest transaction any consumer is going to make in their life, where you manage your payments, your property taxes and your escrows.
And what I think is like really interesting is that, like all these parts and processes have evolved to be like very desperate right.
You have like, the home search and real estate experience where you use websites like Redfin or Zillow to kind of go through that part of the journey.
Then you have the mortgage process, which is where you apply for financing and credit.
You know, you go through title and you go through appraisal, and then you close and then you go into servicing.
And these are all like completely different parts of the equation, which is why that LTV to CAC thing is like so important.
Like typically when you value a business or a company in FinTech or really any consumer business, you think about LTV to CAC and you think about well, what's the lifetime value of this relationship relative to the customer acquisition cost?
And the problem with housing in general is that these sort of if you think about it as a funnel, they're all like disparate right.
Like a consumer essentially flies out of one funnel and into another funnel.
And so the economics are not great, given how big of an industry it is, and just you know how big of a transaction it is.
And so that's something that really fascinated me is that, like one, you know, all of FinTech in some ways leads to a consumer caring fundamentally about generational wealth, and generational wealth it comes from things like home ownership, right.
It comes from long-term appreciation.
It comes from, you know, creating something that's safe and sustainable for you and your family and your family's family.
And that's the American dream.
That's what we thought about.
But the economics of the business are incredibly disparate.
And so that's why, you know, for us, a lot of it has been around just integration, right?
It's about more vertical integration.
It's about connecting these parts of the experience because we think we can one build a better experience.
Two, we can create a lot more efficiency and therefore lower the cost.
But then three just completely change the economics of the business as well and just sort of create something that is a bit more of a new species.
And so, yeah, mortgage is a really interesting business.
You know, I've been, I'm relatively new to it.
I've only been, you know, two years or so, you know, in this space and in the industry.
But like, It's fascinating.
I mean, it is so big and so fundamental to the economy.
It is so important to consumers from a long-term perspective.
And yet there's so much opportunity to modernize it, transform it, improve on it.
And so, um, yeah, these are all the things that are exciting to me.
Let's get deeper into into into Rocket and and both go into its, its history and its and its future.
Maybe on the history side, if I understand correctly, the broker model used to dominate and then there was a transition to direct lending, and Rocket is one of the big beneficiaries there.
Why don't you give some of the history of how the model evolved and the story of Rocket?
Yeah.
Rocket, first off, has been around for a long time.
This company is 40 years in the making, and that's a generational thing.
We have been around for a long time, and we've grown.
We are one of the largest employers in Detroit.
And, you know, we started by really transforming the mortgage experience from the beginning.
I think we were the first to put mortgages on the internet.
We were the first to put them on a mobile phone.
We are now the first to really embrace the AI driven version of the mortgage experience.
But, you know, a lot of this is that it is hard to build this kind of an experience at scale.
You know, the mortgage process is complicated.
I mean, you have to build sort of pricing, licensing and hedging infrastructure that works on a day-to-day basis.
Every state, every county has different lending requirements, different regulatory requirements and a whole suite of different types of products.
Right,
FHA, VA, 30-year fixed, adjustable rate mortgages.
The compliance requirements change, you know, sometimes day over day, week over week.
And so it's a gigantic workflow engine that we've built over the past 40 years.
You know, we are licensed in all 50 states, 3000 parishes.
And, you know, we kind of have this mindset of continuous innovation, continuous evolution.
And we're great at what we do.
It's why we have the most trusted brand to become the largest mortgage company and lender in the industry.
But I'd also say that we are we're very restless.
You know, we have one of our values is obsessed with finding a better way.
And that's something that drives thousands of our team members to just do more restless things, more disruptive things, and continue to sort of transform the space day over day, week over week, month over month.
So I have the fortunate benefit of being a new CEO.
I've been in a role for two years.
I'm the first outside CEO in the company's history.
But it's a very special company.
There's so much potential for us to do more.
And I would say that we are quickly evolving from being a mortgage company to a home ownership company.
And that means that we're not just creating innovation in the mortgage space, but we're really transforming home ownership, because that's what it's really about.
It's not just about the financing aspect.
It's about the search and the real estate aspect.
It's about servicing.
It's about really making a 30-year bet on consumers who are making 30-year bets on us.
And so our grand vision is to really evolve to be a home ownership company.
That's why some of the Decisions that we've made around acquiring Redfin, Mr Cooper, are fundamental to that thesis.
But we have a long legacy of building great products and experiences for our consumers.
That's how we built a brand.
That's how we built our presence.
We have thousands of team members that are super passionate about what they do.
And we have a very loyal team member and talent base working for us.
We actually had a celebration.
We turned 40 this past year.
And we had a very special experience where we built a celebration for our long-term tenured team members.
And we had over 500 team members who've been with the company for over 20 years.
And that's pretty cool.
You know, I've been in Silicon Valley for some time.
I've been in Southern California and Seattle.
And you don't have a lot of companies that have that kind of loyalty.
And that's something that we really appreciate because you guys know this, right?
Innovation happens quickly, but it takes a lot of dedication and passion to actually create something special.
You have to put a lot of time into it.
You have to sometimes spend the first two years or experimentation, realizing what works, what doesn't work.
Then in your third year, you kind of figure out.
In your fourth year, you figure out better product market fit.
In your fifth year, you figure out distribution.
And so what I love about Rocket is just that we have a lot of folks here who've been here a long time.
That will run through walls for this company.
And that kind of loyalty and dedication, I think, is something that makes us what we are.
And it's something that we're betting on will transform us into the future as well.
Alex just hit 10 years at Andreessen Horowitz and I was also similarly inspired at the company picnic just seeing a bunch of people have been here.
I got a gold watch.
Yeah, that's the, if you're here for 10 years, you get a gold watch.
So I got a gold watch.
It has a nice little engraving on the back.
If I can kind of add to what you were saying.
I mean like to take like a pithy take on this a lot of companies in Silicon Valley.
It's like okay, I use this product every day and like the company can't figure out how to make money right.
And then you have this other type of company where it's like I make so much money, how do I get the person to use me every day?
Not because it's like I just want somebody to use me, but it's like I want to add value every day.
And this is what I found so compelling.
This is not part of my day job at Andreessen Horowitz.
I invest in a lot of prop tech companies, a lot of fintech companies, and I have kind of an extracurricular activity which is Rocket.
And part of the reason why I find it so interesting is it's like So Rocket made I think it was 10 billion in net income in 2021.
Because guess what?
Rates go down dramatically.
People are like, I'm paying 6% or 5%.
I can refinance to 2.5%.
I'm going to do that.
I'm going to save a lot of money.
And Rocket was at the epicenter of that.
But you don't refinance your mortgage every day.
You don't go buy a new house every day.
These are not daily active use type products.
And meanwhile, like in Silicon Valley, you have all of these daily active use type products.
They're like how do we make money?
We can't figure out how to make money.
Like we get people that use this, like chat GPT, people use it every day.
Are they making money?
No, they're losing a lot of money.
So it's very, very rare to find it's, what's the more unique of those two?
Is it like, I have a product that people use every single day.
It's like a toothbrush.
Remember, like Larry Page had a rule at Google which is like we will not launch new products unless they pass the toothbrush test.
What's the toothbrush test?
You have to use it every day.
Hopefully you brush your teeth every day.
Um so, whereas on the other hand, you have companies where it's like they don't pass the toothbrush test.
Um, but that's actually not a qualification for success, right?
$10 billion net income.
So how do you take?
I would rather start off with this.
You know, here's a very, very valuable thing.
That's a real business model, you know, perfectly run, um, very, very profitable.
How do you add more products and services that add more value to the consumer?
Right.
It's like you go to the dentist twice a year.
Like, that's it.
That's just like, is there a way to go interact on a more regular basis?
And that's where things like mortgage servicing come in, where it's like you get a bill every month.
That's an engagement.
What do you do with that?
Most people, it's actually really interesting.
There is a story that Tony Hsieh used to tell about Zappos, where Zappos was one of the very, very few companies that decided to take customer support and try to turn it from a cost center and actually turn it into a well, I think he didn't call it a profit center.
I think he called it like a love center or something.
But like, you know, really engage the consumer.
And there was a famous story from Zappos where there was some woman and the customer support rep at Zappos sent her flowers.
Something bad happened to her.
It's just like, You don't expect that to happen.
Normally it's like okay, I hired McKinsey and they said I could cut you know two thirds of my people this way and that way.
And then I could put people in this IVR and then I'll save $4 million a year.
And like that's how a lot of companies treat their I'm sending a bill to a customer or I'm doing customer support with the customer, as opposed to looking at it as an opportunity to upsell something, not in like an evil way, but it's like hey, we have a monthly communication with you.
What is it that we should do?
And the answer can't just be we're going to drive down the cost to zero and have robots do everything, and you're going to hate us.
It's like a real interesting opportunity if you're engaging somebody every month to do something with them.
So it's really, it's like you start off at the profit center.
That has been solved.
And that's a really hard problem that entrepreneurs that come into our office every day.
It's like I'm going to figure that out eventually.
But right now I have a product that people.
I've got a toothbrush, but I have no idea how to make money on it.
The other way of doing this and I think it's a really interesting.
You know, it's a 40-year-old company.
Varun's been there for two years.
You have, you know, a real profit engine.
How do we turn it into a toothbrush?
Yeah.
So let's talk about how you guys are doing that or thinking about doing that.
You made a wave of acquisitions, you know, high-profile, you know, public companies.
Why don't you talk about what is sort of the strategy, of how this all fits together, what you're trying to do?
Yeah, I mean, look at the end of the day, we want to redefine the category itself fundamentally, you know, and our thesis is very simple if we connect more parts of the ecosystem, we can build a better experience, we can pass on that value to the client in the form of lower, lower cost, less friction, and we can build, you know, fundamentally different economics around the business and drive growth.
And from our perspective, you know, when you think about funnels, right Mortgage, in some sense, is one of the world's most complicated user funnel type products.
And when I was at Intuit TurboTax, TurboTax is another example of a funnel centric product.
And, you know, our strategy is pretty simple.
It's that we want to serve clients across the entire journey of homeownership, not just the financing and mortgage aspect, but also at the top of the funnel, the home search, the real estate aspect.
And then at the bottom end, the servicing aspect where, you know, they have a lifetime relationship.
And so we've made two acquisitions in service to that.
The first one is Redfin.
Redfin is the most visited real estate brokerage site in the US.
They have relationships with 50 million monthly active users.
And so these are consumers that use the Redfin app, they use the Redfin website and they search for homes every single day.
What I love about Redfin is they have an amazing mobile app.
And so most of those 50 million users, they use the product daily.
And they use the product on a mobile phone.
So they have that really nice, rich interaction.
They also have a network of thousands of real estate agents that we now employ with the company, as well as a partner agent network as well.
And so what that represents is really the start of the homeownership experience, right?
And so some people start with the mortgage and the financing.
Other people start with the house and like browsing and sort of that voyeuristic scheduling tours right.
Exploring the home.
And so So that's one part of the experience that we want to connect, right?
And so those 50 million relationships really help us build a top of funnel relationship.
The next thing that I think is also really important is that we want to connect that to financing and then we connect that into the servicing experience as well.
And the reason that's important is because that allows us to build more relationships with clients so that we can reserve them with products and services as well.
Because once you're in a relationship with Rocket and you have a great experience with home search, real estate, mortgage and with servicing, the beautiful thing about it is that you create loyalty.
And so when that client is ready for their next home ownership transaction, it doesn't have to be a new purchase.
It could also be, you know, a home equity loan, right?
There's trillions of dollars of home equity that is now trapped in a consumer's home.
And so, you know, there's a lot of equity there that you can use to generate cash flow.
To Alex's earlier point, what are they doing today?
Well, they're racking up more credit card debt.
And instead, you know, it's probably better to take more equity out of your home.
And what better way to do that with the provider that you already have a relationship with, right?
And so, for us, the big realization that really led to these acquisitions is that these relationships are part of a super funnel.
They're not a singular experience.
And if we can do a good job integrating those parts of the experience, We can create a better relationship with clients.
We can create more loyalty.
We can be sort of their lender for life.
And that's the fundamental thesis.
Now, with Mr. Cooper and Rocket, we have 10 million clients in our servicing book.
And so those are clients that we have a lifetime relationship with.
And that's one in six mortgages in the U.S.
So it's massive scale.
It's massive distribution.
And you know there's another saying where you know first time founders really think about product market fit.
And second time founders really started to focus on distribution.
And we have created a pretty amazing engine around refinance, around purchase.
But the question is, how do we now get more distribution?
And that's really the thesis behind these acquisitions is that we can now get more distribution.
And then the last thing I would say is, if you believe that the world is shifting into this AI world, one of the fundamental things that you need to make that successful is you need access to more data.
That data allows you to build better models.
Those models give you a better experience, but also better understanding of consumer behavior.
That just allows you to build a better experience.
And so it's a pretty simple thesis, just connecting more parts of the experience that are naturally part of the consumer journey.
It's making it more seamless, right?
Less points of data entry, less waiting and wondering, faster turn times, better rates, lower costs, better fee structures and just earning loyalty over the lifetime of a consumer relationship.
And so-
These acquisitions are a direct accelerant of our core strategy, and we're excited about them.
It's early days, two big public company deals.
The overall company is growing by approximately 60, in terms of just the overall size of the company.
We now have more national presence.
We have locations in different parts of the U.S.
That has an ancillary benefit of us being able to attract more talent to the company as well, and to be able to build our team members in a way that allows us to be more innovative and grow and scale.
And that's kind of the core thesis.
Is it accurate to say you're trying to vertically integrate as much as possible?
Yeah, I think there's two things.
Like I think that you know, one of the things that I've learned when it comes to large scale MA is you want to be very intentional about when you are integrating and when you are accelerating things.
And I'll give you two examples, because I think the way we look at Redfin and Mr Cooper are a little bit different around integration versus acceleration.
And the word acceleration is really important because I think sometimes what companies get wrong is when they acquire a company, they try to assimilate them too quickly or they try to assimilate them not quickly enough.
And they're not intentional about why they're doing what they're doing.
And when you think about something like Redfin, it's like Redfin is a very successful brand.
That is a very successful following with a very loyal group of consumers.
And one of the things we talked about was like hey, the Redfin brand is like super important right.
Consumers have a lot of affinity to that brand.
It's because they build a great product.
So as we think about the integration of Redfin and Rocket, we wanted to strengthen Redfin.
We did not want to assimilate Redfin too quickly.
We wanted to preserve the brand.
We wanted to strengthen the brand.
We wanted to increase the focus on traffic, on demand generation, to invest in the real estate strategy we have.
Because one, it helps us build that top of funnel.
But two, we don't want Redfin's brand to disintegrate.
We don't want consumers to lose that affinity.
If anything, we want to make it stronger.
And so we have deliberately decided to make Redfin stronger by allowing it to operate a little bit more autonomously.
And that's very intentional.
But when you think about Mr. Cooper...
Well, the biggest synergy is the integration of that kind of origination mortgage business and the servicing business, because we want to bring those two things together so that we can recapture and create more relationships that kind of go between origination and servicing.
And Mr. Cooper looks a lot more like Rocket.
You know, they have an origination business.
They have a servicing business.
And so with that company, We are going to rebrand.
We are going to call it all the rocket platform.
We are going to fuse the organizations more closely together.
And so that is a much more intentional approach around integration versus acceleration.
And so we've studied what has made acquisitions successful and what's made them not successful, by looking at a lot of patterns and practices.
And we want to be very intentional about that.
But to answer your question more directly, integration is our number one focus.
It's the number one focus across the company.
We have very specific goals.
We have very specific owners.
We've organized around it.
We've invested in specific milestones around the synergies.
And we want to get this right.
I mean, this is a big bet that we're making across the company.
I mean, these acquisitions are billions and billions of dollars in value.
And they're very important to our strategy.
Mr. Cooper is almost half the size of Rocket.
Redfin is about half the size of Mr. Cooper.
And so, When you look at it in totality, it's quite a substantial addition to Rocket that we're making.
And so it is a very important priority for me, for our board, for our leadership team.
And I'm also excited, by the way, about just the talent.
When you think about the Rocket leadership team as well as the organization now, I mean we have many of the best and brightest in the industry.
We have folks that are very steeped in mortgage and servicing and the technologies that are around it.
We've also hired, you know, we have leaders like Alex that are now on our board that really represent the future state of the art in fintech and in tech in general.
We have a new CMO.
We have a new CTO who really come from industry, not mortgage.
And so we have a very balanced leadership team.
And I think these acquisitions are going to strengthen that significantly as well.
We were talking offline about the importance of companies being balanced in their business model.
Why don't you explain what that means?
Yeah, so I think One thing that is interesting about companies is that, especially in regulated environments or environments that are sensitive to macroeconomic dynamics, is that their business and profitability fluctuates right.
In good times, like low rate environments, they print money.
In other times, you know, they sort of tend to struggle.
And so they float a little bit with the wind.
And one thing that I'm really excited about with our company is especially with these acquisitions is that we are now incredibly counterbalanced.
We can survive and thrive in any market rate or economic cycle.
And the reason for that is our origination and our servicing business counterbalance each other.
And so, for example, when rates rise, the value of our servicing portfolio continues to increase and we earn recurring revenue on an increased servicing book.
But when rates fall we can originate more mortgages and refinance and create new opportunities for that same servicing book.
And so the cool thing about Rocket is it's one of the only companies, and I would argue, the only company that is super counterbalanced in the housing industry.
And it has the ability to survive thrive, grow market share in sort of any market or any interest rate environment.
And that's something that I think is tremendously exciting when you think about a company that is in a multi-trillion dollar industry that has single digit market share, where there's a lot of consolidation, a lot of opportunity to really disrupt and transform experiences with artificial intelligence.
And just having these different assets sort of put together in the same place makes us very unique.
I was going to say, so there's a concept in math, it's called the Fourier transform.
And basically what that is is like.
If you have any function, if you have a line, like every business, their revenue and their profit should look like this
If you look like this, everybody's happy.
If you look like this, everybody's not happy.
If you look like this, people are like, probably not happy.
But actually there's nothing wrong.
And what a Fourier transform is is basically you can decompose any function into a bunch of sine curves, right?
So if I have a line that looks like this, it actually might be composed of 50 things that look like this, but to Varun's point they kind of counterbalance.
And a big mistake that entrepreneurs often make is like, I have a business that is a sine curve.
Let's kill it.
I don't like that business.
No, no, no, no.
It's actually a great like.
Most businesses are in some way shape or form cyclical, even if you don't think of it that way.
Like just add another sign curve that has like a slightly different period.
So it just counterbalances.
Like if you're and the banks actually have done it like.
JP Morgan is the most valuable bank in the world.
And they have done this because they have a bunch of sign curves, right?
It's like, should they get rid of their investment banking business, even though, in like 2022, the investment banking business was not profitable?
No.
No.
But they're going to make a lot of money sometimes.
It's like a feast or famine type thing.
But let's add wealth management, because we get 50 basis points on a trillion dollars every single year.
Let's add retail.
They have so many different product lines.
And the reason why is because they all are like if you have a curve that looks like this and then you have the exact opposite curve, you combine this with that and then you get a straight line.
And you want to have straight lines because they're predictable.
But your business actually under the covers typically is not a straight line.
It's composed.
It's like a Fourier transform.
You have these overlapping sine curves in such a way where you actually do get hopefully, a monotonically increasing straight line.
Okay.
You were talking about earlier how there are kind of money printing machines and you know Silicon Valley startups that have, you know, toothbrush tests but don't have a money printing machine attached to it.
You know Rocket has been able to acquire a sort of demand machine.
You know in Redfin and others.
Why is it so hard in real estate if you own sort of the place where people are searching every day to build the money printing machine next to it?
Well, there's so much latency.
I mean, like I think of Zillow is a good example of this.
Like Zillow, a lot of people use Zillow.
It actually doesn't make that much money because it's like it's a lead generation machine for agents.
That's how they make money.
The vast majority of the revenue comes from like you do a search.
Why are you doing a search?
You're not even doing a search with purchase intent.
Like Google makes a lot.
We've talked about Google a lot in many podcasts, right?
Like so Google makes lots of money and it's a freemium model where it's like 99 of the time you're searching for like how do I kill this annoying fly that keeps like buzzing around our pot?
Like, and then
1% of the time, it's like, I want to go buy a fly swatter.
And that's purchase intent.
And then there is a fly in our studio, Varun.
That's what I'm referencing here.
So, you know, 1% of the time, there's purchase intent.
Whereas if I'm – there are people – you know the term Netflix and chill, right?
There are people that have done this with like looking for homes.
It's like oh, I'm going to spend all night looking at homes that I cannot afford in a weird part of the world that I'm never going to even visit.
Why do people do that?
I don't know.
Like it's fun.
Like it's kind of like this aspiration.
I like looking at homes.
Oh, like I heard that, you know –
Cheryl Sandberg sold, like, let me look at that house.
Or I heard that, you know, Sharon Stone this.
Or I heard that, you know, Liam Neeson that.
Like, you're not going to buy Liam Neeson's house.
But you're still curious.
You go look at it.
The purchase intent tends to be low.
So you have people like it's kind of like there's some search engines that are very, very tightly coupled to your transaction.
And real estate is not always that way for two reasons.
Number one is that there is this entertainment value to it.
And then number two, there's just a lot of latency.
Like I was looking at homes when I couldn't, when I was just a little renter in Santa Clara.
Having just moved here, I couldn't afford a house in Palo Alto.
And I would look at homes all the time.
And that was actually like there was purchase intent, but just with like years of latency, you know, versus like Google, you don't?
That's not how you use Google.
It's like I want to buy a fly swatter.
I type in fly swatter, and then I see 50 search links pop up.
I click on one of those, and then I buy.
And maybe I'll buy tomorrow, but there's just much more near-term proximity to that.
So that's part of the reason why you've got a DAU product.
And that does not necessarily mean you just bolt on a monetization engine and then you get it to work, particularly with the monetization engine.
It's like that almost like undersells how hard it is to build a monetization engine.
Like, you know, mortgage, I've had to get like fingerprinted in God knows how many states.
Like you know, we're doing this Mr Cooper deal and I had to send, like you know, ink fingerprints to the state of Virginia, like every single bank account I've ever had.
Ah, it's just so complicated.
I mean, I wish it weren't that way.
But it turns out it's very, very complicated to add on and bolt on the monetization engine.
And it's, by the way, it's very hard to build one of these, you know, daily active use products.
But because you have a little bit more voyeurism in the field of real estate.
It's not necessarily like I have very, very near term proximity to purchase intent.
And then, you know, like, why hasn't Zillow done this?
You know why?
I'll tell you why.
It's really, really hard.
And they're addicted to the current business model of selling leads to agents.
Yeah, I would just add that winning in housing is not for the faint of heart.
Like, I just don't expect that an early stage company in a garage is going to be able to deploy.
There's just such an activation energy that's required.
The regulations vary by state.
Products are fragmented.
The distribution is hyperlocal.
And, you know, you have the cyclicality where the volumes swing with rates.
The lenders have to scale up and scale back.
You know you have banks stepping in after the financial crisis.
You have the secondary market with like originators and aggregators and services.
You have a bunch of legacy processes, manual docs, appraisals.
And then like, you also just have all kinds of other things, right?
You have like employers that have to verify income.
You have banks that have to confirm your assets.
You have insurers, appraisers, title companies, and spenders.
So like everyone uses different timelines and systems.
So it's, it's just friction and fragmentation.
And like, Part of it is just the amount of activation energy that's required to decide to do that.
It's just not for the faint of heart, which is one of the things that I love about what we do, is that we have decided to overcome that activation energy.
And guess what?
It took us 40 years, right?
And so it's sort of like you know why is there?
Why is it that, like credit card networks have such a dominant presence in the market like the big ones, right?
The Visas, the MasterCards, you know, the Amexes.
And why is that?
You have a bunch of neobanks that are creating your credit cards, but they're not taking significant share.
And like the simple answer is it took them a long, long time.
Like it wasn't, like something that just happened, where there was this virality and network effect, where suddenly these things grow.
Some of the things are just the simple fact that you know, the easy way is the long way and the long way is the hard way.
There is no sort of easy way.
Right.
That's something that I think gives us a little bit of a first mover advantage.
It's not something that we take for granted, but just the amount of serious fragmentation, the amount of disparate technology and systems.
The incentive models around the different players are all at odds with each other.
And we look at that as a good problem because we've overcome some of that activation energy.
Now you have technology and AI, you have automation, you have the ability to compress turn times, lower fixed costs, connect the different pieces of it and just build a more connected journey.
But that's like you know where.
I think it's a good problem to have, but it's also one that you know we have an opportunity to do significantly more, just given we've overcome that activation in there.
That's a good note to wrap on.
Guys, thank you so much for coming on the podcast.
Thanks for listening to this episode of the A16Z podcast.
If you liked this episode, be sure to like comment subscribe, leave us a rating or review and and share it with your friends and family.
For more episodes, go to YouTube, Apple Podcasts, and Spotify.
Follow us on X and A16Z and subscribe to our Substack at a16z.substack.com.
Thanks again for listening, and I'll see you in the next episode.
As a reminder, the content here is for informational purposes only.
Should not be taken as legal business tax or investment advice or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund.
For more details, including a link to our investments, please see a16zcom forward slash disclosures.
