Jake Aaron Villarreal: Welcome to our podcast, From the Ground Up, where we interview startup founders exploring their journeys, their challenges, successes, and lessons learned. We hope you be inspired in discovering what it takes to build a thriving startup. I'm your host, Jake Aaron Villarreal, and here with us today we have Jerry Chu, the founder of Lofty, a Y Combinator-backed company that's raised $5.5 million in funding and is helping individuals invest in real estate fractionally starting as low as $50 to invest. Jerry, welcome to the show.
Jerry Chu: Thanks for having me here, it's great to be here.
Jake Aaron Villarreal: Great. A little bit about Jerry: Jerry Chu is the co-founder and CEO of Lofty. Prior to founding Lofty, Jerry worked as a quantitative risk management, as a quantitative risk management analyst at Barclays in the Treasury Risk department. He holds a master's degree in financial engineering from Claremont Graduate University and a bachelor's degree in math and economics from USC. Lots of education. I like to see that. Fortunately, now you know, you've been written about a lot in Forbes, Business Insider, NBC, The Business Journal, and the list goes on. Tell us what you're doing with Lofty and where does it play in the marketplace today?
Jerry Chu: Definitely. So Lofty is essentially a marketplace that allows anyone to come and sell, list a property for sale, but instead of the traditional method which is one seller to one buyer, um we fractionalize the ownership of the underlying property for the seller so that they can actually sell to many buyers if they want to. And they have the added flexibility to also sell a portion of their property as opposed to you know 100% all or nothing. Um so that's essentially what we're building and what we do. If you want to think about us in a very concise way, um it's kind of like the NASDAQ for real estate. So kind of like an exchange, but [for] real estate properties.
Jake Aaron Villarreal: What inspired you to build this?
Jerry Chu: Yeah, um it really came down to our team's personal journeys for real estate investing. Um we got interested in it mostly just because of you know financial um you know educational content you read online about passive income. And uh for me personally, I'm an immigrant, and so growing up um you just hear that repeated in the family a lot, like "you need to own real estate, you need to own assets." Um and so when we had tried you know individually to go out and and invest in real estate ourselves, we realized that it was just really difficult. It's typically too expensive, um you know, and and even if you have the funds it's kind of putting all your eggs in one basket if you will, right? Um and the transactional process often takes a really long time. So even if you have the money and you want to do this, it could take upwards of sometimes you know 6 months to, to close on a property. Um and then you know you always think about in the back of your head "if I put all my money into this and close this, what happens if I um you know want to sell it? Uh something comes up, right?" And so uh because of that there's like a lack of liquidity in real estate as well. And so a lot of people just don't bother jumping into this um industry.
And so we just realized like "hey, is there any way we could build a product that takes all these negative aspects of real estate investing and essentially remove them, uh but then you know retain everything that people love about real estate investing?" So they get to have their own thesis about a neighborhood or a property, um generate their own alpha, have control and management of the asset, and just all the things they love about this um asset class. And so that's what we ended up building.
Jake Aaron Villarreal: When you talk about investors building uh a portfolio or investing in whether it's stock or real estate or whatnot, I like the sound of lower price point. How low does it go to invest in real estate on your platform?
Jerry Chu: Yeah, so the ownership is fractionalized into smaller pieces. And so if you want to um... if you have an interest in owning just a single uh fraction, then the lowest denomination you can go right now is $50, right? Um so it's extremely accessible. Literally anyone who has an interest and, and wants to own real estate gets to do it now. But of course you know, in terms of your, your returns and, and pro rata income, if you only owned a single token or a single $50 share, you're, you're probably not getting that much return nominally. Um and you have the flexibility to own upwards of 100% of the property, 5%, whatever you want. So it's just infinitely flexible as we like to say.
Jake Aaron Villarreal: I love that. My family grew up in real estate in Silicon Valley and we know the valuations of the, of the markets there. Across the US it's obviously different. But the fact you can get into something without having to put a large amount of funding upfront and still feel like you're investing as an owner, I think is great. How does it work on the returns? Say I invest $1,000 into a number of different properties on your platform, do I see returns like rental fees on a monthly basis? Is it when I sell my, my, my fractional pieces of real estate? How does, how does that work as an investor?
Jerry Chu: Yeah, great question. So one thing to know about Lofty is it basically mimics and, and does exactly what you would do if you went out and bought your own property right. Um and so all these properties are owned by a unique LLC right. And so investors do this all the time to limit their liability exposure right. So if you own a house under your personal name and you know, God forbid somebody slipped on your driveway, they could technically if they wanted to, sue you, and your own assets would be at risk of that. So a lot of um homeowners, not just investors you know, a lot of people would just put their property under an LLC and then they would own the LLC. And the result of that is the um LLC structure shields you from liability. So the worst case that could happen, your only exposure is you know the assets held in the LLC, in this case the underlying property. So that's the worst case that would happen is you might lose the house, but all of your other assets are safe.
And so all the properties um on, on our platform are you know single properties that are held by a unique single LLC. And as an owner you basically become an owner in this LLC right. And some may have 50, some may have 500, depending on you know what percentage people are owning this underlying property. So it's direct ownership. You're not investing in a fund that we manage right. We don't make investment recommendations. You're directly buying ownership in the house. And as a result of that, you get basically the ownership rights that owning a house entitles you to. Um so you actually collectively manage it with your fellow co-owners through what we call a governance program. So essentially you vote on how you want to do certain things, and any owner can propose a vote. So we've had owners vote to sell the underlying property, we've had owners vote to change the uh property manager. So there's typically a third-party property man- uh manager that's set up there to handle the day-to-day stuff like the rent collection um and distribution. And then also uh you know if the tenant has a 2:00 a.m. call because a pipe is leaking, they're calling the property manager and not waking you up right. Um and so people have voted to replace these property managers, people have voted to take out loans when repairs needed to be made to handle that. So it's extremely flexible, anything that's... you can as an owner propose even if you only own $50 in the property.
And so in terms of how the income and distributions is all set up, um it all goes through our platform. So every property has its own unique bank account under the name of the LLC. So it's not under our ownership. And through API access our platform ensures that each owner is able to withdraw the income that they've earned pro rata to their ownership. And that's it, they can't touch other owners' money but they can take their own out. And so the rental income is actually paid out on a daily basis pro rata to your ownership. And you can withdraw at any time, send it back to your bank account or use it to reinvest and keep growing your portfolio of uh rental properties. And the reason that we do daily uh payouts is actually because you know, in the real estate market there's no limitation to when you can buy and when you can sell. So while crazy, if you bought a house yesterday, in theory you could put it up for sale today and nobody comes and tells you like "hey you're not allowed to do that." And so we have a secondary market where you know, as an owner you can just list your partial ownership for sale and other people can come and they can say like "oh that's a reasonable price, I like it, and I like this property," and they can buy it off of you directly in a peer-to-peer transaction. And so we have these tokens trading every day, on a daily basis. So that's why the rent is uh divided up on a per day basis so that it's completely fair. If you own a property for two days of the month, you get two days' worth of rent for that month. Otherwise, if it was done on a monthly basis, someone could you know invest and buy some portion of a property, collect all the rental income on the payout day, and then sell it the day after. Um and that wouldn't be fair to the owner prior and after them during that month. So that's how all that is set up.
Jake Aaron Villarreal: Well you've really thought through this very clearly. Um, what's the difference between a fraction of a rental property or a property, and a token?
Jerry Chu: Uh so they're the same thing. So the fractions are represented by the tokens right. So for example, um you know the numbers are usually larger than this, but let's say a house... or the LLC minted 100 tokens um on the blockchain, then each token would be 1% ownership in the LLC and equivalently 1% ownership in [the] underlying property right. Because the LLC doesn't do any other business, it doesn't own any other assets other than this one property. Um so that's how it's all set up. So basically you know, depending on how many tokens you own in a property, um that is your proof of ownership. Um and also you know you can calculate your pro rata ownership percentage based on that.
Jake Aaron Villarreal: I want to go back to something you just mentioned, the blockchain. Lofty AI is one of several startups aiming to use blockchain technology to create a new form of investment in real estate. What are you doing differently than the others?
Jerry Chu: Yeah, um that's a good question. So I think you know, unfortunately blockchain has been used, you know, in our opinion for a lot of things you know with hype like gambling and things like that, that aren't necessarily super useful, and not really what the technology was designed to do. If you think about it, the blockchain at its core is a public ledger or database that when transactions or new entries are made, um can't really be reversed. So it's very transparent. Um you know exactly who owns what and you have the confidence that you know, that record can't be altered by one party or one company if they were to be hacked right. So if you think about that, what is the perfect sort of use case for it? Well, real estate ownership. If you think about how title works in real estate, it's ba- basically just all in a government database. Like when transactions happen, like title companies they you know file the paperwork to the county and then they record it, and you can look up you know... you can look up any address here in the country and essentially find who actually owns it. So it's not [a] private record either.
And so if you look at this, then naturally blockchain is a newer evolution and a better fit um to record real estate ownership than the system we currently have. And it's still similar enough where people would understand it and accept it. And so that's basically why we built on top of the blockchain. Um and one of the major benefits is that um people really know what they own right. Like so again, Lofty as a company, we never custody your assets. Um you know all the transactions on the secondary market when you're buying and selling ownership, it's just like on the real estate market. You're buying and selling from someone else right, like you're not going, going through a centralized company typically. Um and that's all able to happen because of the blockchain. So people can verify their own records. They know exactly what they're buying for how much, and buyers and sellers are happy that transactions go through and there's no way to sort of you know scam or defraud the other party, even though in most cases you don't even know who the other party is. And you know you truly own what you own, and even if Lofty were to go out of business one day, uh nothing changes about your ownership. You can legally go to court, you can go anywhere and prove like "hey, there's this house that's owned by this company, this LLC, and I'm the owner of [the] LLC," right. Um so that's set up in a very different way than a lot of I would say competitors in, in the market.
Um they're typically set up as a fund structure. So similar to a private REIT or a private fund where you give them money and they invest in properties for you, but there's this fund structure and you know funds are kind of co-mingled. Like you don't really get to pick which property you want to invest in, and sometimes they give you the illusion that you are, but if you look at the legal ownership they actually have sort of a special purpose vehicle that owns a bunch of properties and it's [the] company's own database that's making the records of like "oh well actually Jake doesn't own these other nine properties all in the same SPV, he only owns you know $10,000 in property A," and it's all up to the company's records. And so you know, if they were to be hacked or if they went out of business, it makes it very painful for you to then go out and prove that "hey I do in fact own you know $10,000 in this property and maybe I want to continue to own it, I want to continue to manage it." Um you're usually not able to do that. Uh some you know attorneys and people take over and they like liquidate the assets, whereas on Lofty, you know, nothing really changes. So that's why.
Jake Aaron Villarreal: Great explanation. Can you buy fractions or tokens with any currency? Crypto, US dollars, what's the flavor of choice that works in your platform?
Jerry Chu: Yeah, so we're very flexible. One of the things we're most proud is that over 70% of our users are not crypto native people. And in fact, um you know, I, I do calls with our users all the time just to kind of get feedback and, and ask them some questions. And you know we're happy to say a lot of them actually have no idea that this is even on the blockchain. They just sort of benefit from the technology without really knowing it's there, which we think is the, the way to build it. Um, and so to be really flexible, all of these peer-to-peer transactions do you know happen on the blockchain and they use smart contracts and, and all these things. Um but we abstract all that away. And so you know, in order to settle these transactions on the blockchain, you do need to use currency native to the blockchain. So we're built on this blockchain called Algorand. So you can purchase things directly using Algos which is a native currency. You can also use what's known as a stablecoin, so the one we use um is called USDC, which is basically a 1 to 1 sort of digital representation of the dollar, right. So it's still a dollar, but it's a dollar on the blockchain if you will right.
Um and so what we built is a you know fiat-crypto rail that allows anyone you know, even though they don't own any cryptocurrency, to actually use their credit card, bank transfers and, and wire transfers. Um and you know we handle a lot of the underneath conversions so that your funds are actually converted from the original dollars to digital dollars to then settle and make transactions and trades through these smart contracts. And you as a user have no idea that happened, you just think "hey I, I paid something with my credit card and I got what I paid for and it worked and you know, you're happy." And so um you can use dollars, you can use the native cryptocurrencies, you can directly use USDC. Um so those are the currently accepted choices. And in the future we're going to be expanding to other cryptocurrencies as well.
Jake Aaron Villarreal: That's great. Uh building a marketplace is tough, you have to really get awareness and educate people on what it is you're building and then have them want to put their data on a platform. How many houses, how many rentals, how many properties are on your platform today?
Jerry Chu: Yeah um, so our you know we've grown quite fast, mainly because we have an asset light business model. Meaning we're just a marketplace. We don't own any of the assets, we don't go out and buy them and then sell them to our users or anything like that. And so because of that, our model is very scalable. And so we've grown fairly quickly over the last two years. We've tokenized and essentially um you know onboarded over 148 properties to date um onto the marketplace. So right now if you were to go on there's about you know 148 properties to choose from. I say "about" because you know a couple of the ownership groups have voted to liquidate and sell the underlying property um so the number might be a little bit lower than that. And that represents about um you know 32, 33 million uh worth of real estate on the platform now. And you know that's the beauty of you know people being able to perpetually start to trade and, and you know make future transactions on the marketplace. Is that even though the market cap of the properties in aggregate is only about 32 million, um in total there's probably been you know $45 million worth of transactions that's occurred on the platform. Um so yeah that, that's basically been the progress so far.
Jake Aaron Villarreal: And transparently, what's the business model for you? You went out, you got funding, you built this platform. Sounds like a lot of transactions are going through it. People are able to invest, have ownership in real estate at a lower rate, market range than they typically would have to go into [the] market with. Um what's the model that works to build the business?
Jerry Chu: Yeah, so essentially we make our revenue um you know not from charging management fees to our users, because again we don't manage the assets for you. You guys decide what to do with it. Um and we don't charge any um, take on any rental income or profits you guys make from you know selling the house in the future if it's appreciated. Um so our business model is purely based on transactional volume. So that's why we're similar to an exchange right. So every time people are buying or selling these ownership or the tokens, um anytime people are making transactions, uh we make .5% off of that transactional volume. And so as long as people are buying and selling properties on our platform, um we stand to make revenue out of that. And you know, the point of the platform and the goal of what we're trying to build is that at some point... um and I think we're pretty close to that already to be frank because a lot of our users already fit this criteria... um there's over you know a trillion dollars worth of annual transactional volume for just single family investment properties right. People buying houses or condos for investment purposes, not to live in themselves. And that's annually in the US, um every single year like roughly that volume happens.
And a lot of people make the mistake as you, you hear about it, you read about it in the media, that there's you know large institutional investors buying up houses around the country. So they're under the impression the bulk of that volume is from these institutional investors. But that's actually not the case. Only about 30% of that volume comes from the institutional players in the space. The remaining 70% of that volume are all from sort of mom and pop individuals, like mom and pop landlords, right? Like a couple, or like you know, you have friends that probably own a rental property, it's more common than a lot of people realize. Um and so that represents about 70% of the market where people go out and they you know maybe pool some money with friends and family, and then they own a couple properties together. And typically they're self-managed or they also hire a property management company.
And so the goal of Lofty is that you know, that process, there's really no product for those people. And you know again, like we talked about earlier, there's all these frictions and annoying things that people deal with when they go out and, and invest in that way. Um we've spoken to lots of people, and lots of people say, "Hey, I love investing in real estate this way. I love my properties, I love my assets." But not a single person has ever told us that like "I really enjoy the process. I really love the transaction, I love signing all the physical paperwork and having to FedEx it to the you know company the day after." Nobody's ever said that. And so we've successfully removed all the headaches and frictions and like, we even handle taxes. We give you tax forms and things like that. So we removed all the things that people don't like about the investment process and we kept all the things that they do like.
And so the long-term goal is if we're successful in that, in theory nobody should actually want to invest in real estate the traditional way anymore. And they'll just do all their transactions through Lofty. And that's our end goal, is we hope that 70% of the market eventually just all transacts through Lofty. Um and I think yeah, we're getting there. A lot of our early adopters and users are um you know individuals who actually own multiple rental properties on the side. And now they're starting to sell some of those properties through Lofty and then buying new properties through Lofty. And the goal is just eventually they, they always use Lofty for this purpose and uh nothing else.
Jake Aaron Villarreal: It sounds fascinating to me, being from a real estate background as well, um I'm absolutely going to go on the platform and and make some purchases and I'll give feedback on the experience.
Jerry Chu: Yeah, absolutely. We'd love it.
Jake Aaron Villarreal: What, um, what was the experience like going through Y Combinator, uh, and when you came out of that, what have you learned? What, what have you taken with you from that experience?
Jerry Chu: Yeah, um there, there, there's a lot to, there's a lot to say here. I will just say right off the bat, it's been an act- absolute pleasure going through Y Combinator. I can wholeheartedly say both for myself and my co-founders that without going through YC, Lofty would not be where it is today. Um you know, I'm a first time, like our entire founding team are first time founders. And the idea of what you think a startup is and what startup founders should do to build a successful business by watching TV movies or reading TechCrunch and like news articles, is not at all how it actually is or what you should actually be doing. It's actually very counterintuitive. And there was just no way we would have realized that without going through um Y Combinator's program.
And you know, sometimes we make these bets internally uh with the founding team where sometimes YC tells us something, and we kind of don't want to listen to them. Like deep down I think we know they're right, um and we're like, "yeah, but that just no, like we're the exception, like we're going to be different." And then you know, almost I think 100% of the time so far, a couple months later, even a year later, we come back and we're like "yeah no, YC was right about this. We should have just done it that way. Like this, this was stupid." Um so yeah, it's, it's been a joy to go through their program. And it doesn't really truly ever end. It's like a three month process that you know ends with a Demo Day where you're supposed to raise some funding. And then kind of, it's kind of like you graduated, now off you go, you learn all these new things. Um but even today we still you know talk to our group partners and um they still give us like great advice about fundrais[ing], pretty much anything on your business. We still do regular office hours with them where they help us out. Um so yeah that's been our experience. Hugely positive and I, I can't recommend it more for, for other founders out there.
Jake Aaron Villarreal: When you come out of Y Combinator and then you start building or continue to build what you've created, you go out and you raise larger funds, more capital. Today's market's a little bit tight and tough for, for founders. What was your experience like? How many times did you present, pitch, till you got your term sheets signed and you were off and running?
Jerry Chu: Yeah, so that's one of those things I was talking about that YC teaches you and it ends up being counterintuitive. Which is, you know, you see all these fundraising news you know on TechCrunch and, and other publications, and it kind of makes you think that the process is supposed to be easy, and if it wasn't easy for you there's something wrong with you, right? Um and it can be really disheartening. Um but a lot of times people don't realize like the company with the funding announcement, if you actually look at it, it's not like they're a new company from a year or two years ago. Often you'll see the founding of that company was like five years ago, so they struggled for 5 years until that point. And people just kind of don't realize that and discount it. And, and expect like "hey, starting a business and next week I should close my funding round and, and get going." And also a lot of times when you hear those ridiculous funding news where like "hey there's no product, no traction and some group of people just raised $20 million," you know "what's wrong with me, why can't I do it?" If you again investigate that, it is usually because it's a founding team of repeat founders who previously built multi-billion dollar businesses and exited them successfully. So of course investors are you know more comfortable uh deploying capital in that way for those type of founders.
And then you have to look at yourself. If, if you know you're a first time founder, you never raised money before... yeah probably makes sense that you're not just gonna waltz into a VC's office and raise $20 million right off the bat. And so the truth is, it doesn't matter what market you're in, fundraising is always hard. And that's something we talk with our YC batchmates. These are the people you're now like seeing on TechCrunch with fundraising announcements, and it just all seems like everything is great. But we know them personally, so sometimes I reach out and I say "Hey congrats!" and they're like "Oh my god finally, like I spoke to, I pitched like 200 funds and like we almost didn't make it," and you know, and so you do kind of just have to have that grit and, and just not give up so easily. Um I know for us personally, um to get to where we are and how much we've raised, uh we pitched at least probably 200 funds, and probably 190 said no. And some said it very rudely and dismissively. And you know, not, not all investors sort of you know act with the most integrity, to be honest with you. Um but you just kind of have to stick through it and eventually you'll find people that have conviction on what you're building and, and believe in you and the team and then they'll back you. And then from there it kind of snowballs. They'll introduce you to other people um and then you know and it just kind of takes off. But I would say that for the majority of founders, including YC founders, fundraising is, is tough, and, and even the successful ones have all had far more rejections than um you know than acceptances.
Jake Aaron Villarreal: So for somebody that's never raised funding yet, maybe you're a founder on the sidelines, you have a product, you're in stealth mode, you know you're going to do it at some point. What's the exact process of actual, the meeting itself? Is it on Zoom today where you send them all your documentation and you have multiple calls in a day? Are you now driving into an office, sitting down in a board meeting with people getting drilled on your numbers and your projections and your thesis? What's, what's the reality of raising money today in this modern world?
Jerry Chu: Yeah, that's a great question. So I think COVID really shifted [the] mentality, and so there are lingering effects there. Um we started in 2018 actually, um so towards the end of 2018. And so back then it was like, I haven't really heard... I'm sure it's happened to people, but for us and for all the people, other founders we knew, it was always in-person pitches right. Like you have to go down to their office. And I remember I even have to fly... like we started in Los Angeles where I'm still based today, and we have to fly out to San Francisco sometimes to the Bay Area to, to pitch VCs in person. Um but because of COVID, so many deals got done in a remote manner, pitching over Zoom, that overall the industry has shifted. So a lot of investors are now comfortable um meeting you initially on Zoom, hearing the pitch, doing follow-up calls, and then ultimately you know deploying, signing the um investment terms and, and basically wiring the money all without meeting you in person. Um so, so that's really beneficial now for founders who might not be in the Bay Area or in sort of larger cities where there's a lot of um investor networks and, and large amounts [of] capital flowing. Um but I would say you know, depending on the investors, the ones that lead priced rounds right, so as we're kind of looking to grow and, and um you know get to the next uh next tier, uh when we talk to these investors there is definitely still very much of a... we're comfortable meeting you initially, but when you come to pitch the partnership for the final meeting to, to actually you know hear us say yes or no to lead you know a multi-million dollar round for you, that is probably still going to be done in person.
Jake Aaron Villarreal: Yeah, that's good to hear. When you talk about 200 or 250 meetings... or we've talked to some companies that you know, they put a list together of 2,000 um targets to present to. And at the end of the day, maybe they pitch to 150 or 200. But you know, it's a lot of effort and work. If you can do it remotely, if you can do it you know, days at a time versus spending it over weeks or months uh and kind of doing it all together, I think that would be more efficient. But yeah, it's good to hear there's been a change in, in how you go about the process. Um what keeps you up at night today? You've got your company, you're building, it sounds like you're in revenue, you're doing great, you've got funding, you're start- you're scaling a little bit. What, what, what are the two or three things that you constantly are thinking about now?
Jerry Chu: Yeah, um great question. Um you know one is just always is, there's the fear of failure. I think every startup founder's like, no matter how well you do, um you know you're just like "hey, it's, it's kind of the, the territory being an entrepreneur." But there's always just like, "hey, it's good now but like what happens in a year, what happens in two years?" And, and a lot of times it sucks because it's things that you can't control. Like what happens if there's a recession? What happens if the housing market... Like there's just all these things that, that are out of your control, and you know, you but you still kind of think about it because it does impact your business right? Um so there's a lot of macroeconomic headwinds that you know I think about these days. Um but we try to focus on things we can control. And so a lot of it has to do with um you know just talking to our users and what they're unhappy with, what their concerns are, like what problems they have with the platform, um and then looking at you know how can we solve that.
And so those are kind of my worries now is like hey people you know... right now for example um you know people buy and sell and they set their own prices. So they say like "per token here's you know I think this token is worth X dollars, here's how much you want to sell it for." Uh but someone else has to be on the opposite end to also agree. "Like I agree, that's how much I think it's worth so I'll buy it from you." And a lot of times you have people that you know on the buy side and sell side that set vastly different price expectations and then no transactions happen. And um you know, and then people complain. They're like "hey you know it's, it's like been a few days or like been a month like I can't you know sell my ownership, I'm not very happy about this." And so um you know we're coming out with a feature that'll be launched within a month to, to fix that issue. Um but a lot of [it] is just like all theoretical. Because the technology we're using to be able to accomplish this in a compliant way with regulations and, and everything, and also not put our capital at risk um is, is so new that it's never been done before in the world. And so when that happens it's like okay well we think it will work, the calculations show that it should work, the testing internally makes it so that it should work. But who knows when we actually launch it, will it work or not? You don't really know. And so that's probably the biggest thing that's keeping me up at night.
Jake Aaron Villarreal: Yeah. How do you go about bringing more awareness to your platform from a marketing perspective? Uh you're online. Is everything growth hacking and digital marketing? Are you... do you have sales teams? Like walk us through that a little bit.
Jerry Chu: Yeah that's a good question. And so to be honest with you, we haven't really focused too much on growth. All of our growth to date has been organic word of mouth. Like we haven't run ads, we haven't really paid for anything. The only thing we pay for is a referral program. So if you you know refer a friend and they invest a certain amount you know, we give you a gift certificate that you can then use to invest in more um properties on the platform. And you know they are given uh something as well. Um so that's pretty much our only paid growth program. And so the reason we haven't really looked into it too much is because um this is something they teach you at YC, which is that you shouldn't focus on growth unless the churn levels are really good right. Meaning you don't have a leaky bucket problem. If you're growing, you get all these new users, but there's some issue... maybe they don't, they just like... it sucks but maybe they just don't want your product, like it doesn't have product-market fit, or there's some specific aspect that makes them unhappy, and so they just quit using it after a month. Um you're just going to end up wasting a lot of money and making like Google and Facebook and you know Meta rich, and, and end up going out of business yourself. And so the first thing you have to do is to make sure that you have product-market fit and that people actually want your product, and once they're there they are sticking with you for a very long time and continuously using your product to solve some sort of problem they have.
And so um a lot of what we do is just talking to our users to make sure that like "hey, people actually do want to use this and here's what they're using it for. Here's what they like, here's what they don't like." And then just iterating on that. Like what don't they like, how can we fix that problem, and then you know doing that over and over again. Um and next thing you know, if you look back it's like "wow, you made a lot of your users happy." And you know what happy users do? They go tell their friends and family like "you have to go sign up for this thing, it's the best thing in the world." And coincidentally you also just get a lot of growth out of that.
Um you know, we talk to a lot of our users who you know, we call them "whales" because they deploy more capital on the platform. And it's still shocking to us how much idle capital our existing user base has. Without any onboarding any new users, I'll talk to people who are you know doctors, surgeons and things like that, they're like "oh yeah you know, this is a really interesting concept. I've been thinking about like why something like this doesn't, doesn't exist. I invest in real estate outside of my you know main, main job and career. Um so I just put some money in to test it out and see how, how it goes." And I'm like "what do you mean? Like you put in like close to $100,000! Like that's a test to you?" Yeah. And then there... so basically we come to realize like a lot of our users are actually like multi-millionaires. And you know they, they even admit like "oh yeah, like if you know I'm comfortable with this and I see how this goes, after a year or two I'm going to put in substantially more money." Um and so that's where our growth efforts are now focused on, which is just making sure our users are happy, they don't churn. And um, and once that happens uh we'll, we'll then start looking at actual you know paid growth efforts on user acquisitions and things like that.
Jake Aaron Villarreal: Yeah, makes a lot of sense to me. How big are, how big is your team today and what's your strategy on people in terms of the culture you're building, the type of individuals you know are fit for, for Lofty?
Jerry Chu: Yeah, that's a really good question. Um so after all these years uh something we realize... like a lot of founders will say this... is that hiring is probably one of the most important things, and that's also probably one of the most difficult things in building a company. Um because you know hiring the wrong people, and a lot of times it's not because they're you know not smart or not capable. It's just kind of not the right fit sometimes at the wrong time. Like if you hire them as employee number 500 they would be phenomenal, but hiring them as employee number three you know terrible idea right. Um and so you know if you hire the wrong employee at the wrong time it can really set your company back like in a very very drastic way.
Um so the way we hire... we're only nine people. So... and I intend to keep the team small. In fact one of my you know, I, I don't know if idol is the right way but right way to say it, but like one of the companies I admire most is actually Craigslist. And they just print a huge amount of you know cash every single year and their team is incredibly small, right? So um that's something that I, I try to aim for. And so we have a small team, and the way we hire to make sure that they're a good culture fit and that they're a good fit for our stage right now, is I literally just, I'm brutally honest during the first interview. I tell them all the problems we're facing, I tell them all the problems that keep you know that's keeping me [up] at night, all the ugly stuff that's happening within the business right. And if they're scared off, they're clearly not the right fit. And if someone that despite you telling them all those things they actually get like more excited, they're like "Yeah, like I've been looking for something like this where you know there's not a lot of structure and I have to do multiple different roles at the same time and like solve problems, and I'm given actually a lot of control and power over fixing really tangible things that could you know make or break the business," and they get excited by all that... um then you know they're the right fit. And from testing we've done that versus not doing that with some candidates, and consistently you can just tell the ones that um we're brutally honest to and, and still they, they have an interest are the ones that you probably want to hire.
Jake Aaron Villarreal: I love that idea and that approach. What's your culture? Uh, it's really nebulous for a lot of people, but what are three words in your mind that really defines your culture even as a smaller, earlier stage company?
Jerry Chu: Yeah, um I don't know if, you know, we, we kind of fit our cultures into words. Like we don't have something tangible like a lot of bigger businesses where they have five sentences and they're like "that embodies our culture." Um I think if I were to sum it up, it's basically just a group of you know, smart people working on a really difficult problem that they have conviction on solving. That's basically Lofty in a nutshell. We don't do anything else. Like I you know, a lot of companies have like paid meals or lots of perks and things like that, and they say that's part of the culture. Um you know I straight up tell hires and, and our team members like "don't expect that from us like either now or long term." Um you know the goal is we pay you well enough so that you don't worry about those things you know. Like you can go out to eat and enjoy life and go to vacation on your own. Um and then you know don't expect Lofty to be a place where you socialize and find friends because you shouldn't. Like this is work and you come here and we want you 100% focused on solving problems and, and at work. But then when you're off work, like go join a dance class, like go out, hang out with people in your community, go, go create friends that way, right? Like have your, your own circle. Um and so that's kind of you know the direction we have and, and the expectations so far.
Jake Aaron Villarreal: Well, fascinating story. I love what you're creating and building. I'm definitely going to be a, a customer. I'm going to try it out, give you my honest feedback. I like your transparency, it sounds like you lead you know on with your transparent hands in front of the, the company making sure that you're driving it in the right direction. Um if people wanted to find you or find your company, where do they go?
Jerry Chu: Um you can just find us... in fact you can Google us, our SEO is pretty good, that's one of our other growth efforts. But um the website is lofty.ai. Lofty.ai. Um you can find us on LinkedIn and um Twitter as well. Um so yeah, take a look and see if it's a fit for your uh investment plans in the future.
Jake Aaron Villarreal: Great. Well, big shout out to you Jerry for taking your time to join us. I know it's uh talking about your company on a podcast sometimes can be challenging, might be frightening for others. It's really exciting. [You've] done a great job here today. I also want to give a shout out to our listeners that have spent their time with us today uh to listen with us and about this story. It means the world to me. And Jerry, I look forward to hearing how things go in the future. Uh my name is Jake Aaron Villarreal and I look forward to catching up with everyone on, everyone else on the next episode. Until then...
Jerry Chu: Thanks for having me, Jake.
Jake Aaron Villarreal: Yeah, take it easy. See you.
Before we wrap up, I want to give a big shout out to all the entrepreneurs that joined to make this podcast possible. And for all the listeners for listening, it means the world to me that you chose to spend your time with us today. I'm your host Jake Aaron Villarreal signing off for now. We can't wait to connect with you all soon on the next episode. Take care.
This show is sponsored by Match Relevant, a company that helps venture-backed startups find the best people in the market and they do it in three simple steps. First, they sit down with founders to understand their story. Second, they tell their story into multiple candidate channels. And third, they schedule interviews within 48 hours. Find us at matchrelevant.com to learn more about how we do it.
.jpg)
.webp)
.webp)
.webp)
.webp)
