Paul Wakim - TwnSqr Real Estate - The Accidental Entrepreneur (podcast)

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That was just in our area, and it was super cool what we were doing. I loved that business model, and since then there have been other people, uh, that have created that business model. But the super cool real estate agent-to-retail seller model that we had was a seller. Let's say you and your family wanted to sell your house. You would come to our platform and you would post your property, and then real estate agents would bid like an eBay auction for the ability to list your house, and they would bid with their commission.

Yeah.

Okay. And cash. And cash. Oh, yeah. So you would get— yeah, you would get cash upfront to sign a listing agreement. With this real estate agent. And obviously there's implications of signing a listing agreement, so you had to be serious about selling your house. Um, it didn't really work out for us, but I loved the business model, and maybe one day we'll go back to it. But there are other people that are doing it now.

Okay, so yeah, I was going to say you're talking in the past tense. So you did that, what, through the pandemic?

And then— yep, yep, did that through the pandemic. It allowed us to raise our first tranche of money. Um, our investors really loved that idea as well. It just You know, to be honest, Mitch, it just didn't work out. We helped 77 homeowners, and for us to be a high-growth, hyper-growth tech startup, it needs to be 777 houses, right? Yeah.

Yeah. So what was the problem? Why didn't it just— too hard to gain traction, or—

I think the problem was that in Pittsburgh, Pennsylvania, where we started that iteration of the business, it's a tight-knit small town in a big city where there are really, really good real estate agents that everybody knows and everybody uses them. So everybody had a good real estate agent. They didn't have the agents bid for them because they knew 3 real estate agents that had just sold 20 houses in their neighborhood. So it didn't work out because I think that real estate agents were doing a really good job for their clients and we just couldn't provide enough value, which is fine.

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The dictionary defines an entrepreneur as a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk. People often start a business without much choice, perhaps due to a job loss or just being dissatisfied at work, and they come up with an idea they just know can be successful. They become entrepreneurs by accident. That is to say, their success or failure happens by accident, not with intention. My name is Mitch Beinhacker. I'm a corporate attorney and a business advisor. You're listening to The Accidental Entrepreneur, my podcast about how to achieve success on purpose, not by accident. Join me along with our monthly guests where we share our knowledge and help you get a hold of your business. And now on to today's episode.

Hey, my name is Paul Wakim. I'm the co-founder and CEO of Townsquare. Townsquare is an off-market property marketplace for professional, active real estate investors to sell their properties to their buyers, buyers outside of their network, and connect with other professional, active real estate investors. I'm super excited to be on the show today.

Okay, welcome back to another episode of the podcast. Good to have everybody with us today. If you're listening on your favorite directory and you can leave a review, please leave us a 5-star review so we can keep bringing you the valuable conversations, as well as the conversation that I'm going to have today with my new friend Paul Wakim. And, uh, he was correcting me on his last name, so we'll get to him in a minute. If you're watching us on YouTube, be sure to hit the subscribe button and the like button so we can keep, uh, getting seen and heard and all that good stuff. So Paul Wakim, thanks for coming. I think it was Mike introduced us, right?

That's right. Yeah. Mike Simmons. He's been an advisor and great friend of our company. So yeah, he introduced us, Mitch. It's a pleasure to be here.

Yeah, I guess he's already roped you into getting on his podcast, right?

Oh yeah. I've been there twice. I think I might be going on in the next couple of months.

You'll be a guest host soon.

Yeah, well, let's hope so. That'd be fun, wouldn't it?

The Jay Leno of real estate. Yes. So, uh, okay, so I told you before, let's go back to, you know, your background and your— because you had told me that off mic too about where, you know, your, your, uh, work history, you know, that type of stuff, and how you got into real estate and then how you built the platform that you have now. Because you're in real estate, but your company is really a technology company. So maybe you want to go backwards a little bit and then we'll go forward.

Yeah, for sure. So, um, Townsquare as it exists today— and I say that because like many other tech startups, we've gone through, I would say on a, on a broad level, we've gone through 3 different iterations, 3 different pivots. But yeah, if you, if you really drill down to it, we've pivoted probably 30 times in the last 3 years. Sure. But and some of those pivots have been for all of 30 seconds.

Yeah.

But yeah, Townsquare as it exists today and the business model that we are having a lot of success with and are really excited about is a marketplace for off-market properties. Those are real estate properties that don't really touch the real estate agent, real estate broker world because the individuals who have those properties to sell are experienced enough or have the people in their corner that are experienced enough to sell those properties. So we help real estate investors sell their properties and we help buyers find high-quality properties in the real estate investment world. Um, I got my start out of college as a real estate photographer. My real estate roots are much deeper than that. My grandparents were high-powered real estate agents and real estate builders. It's really in your blood. I'd say so. Yeah. Whenever I was growing up, like middle school, it really hit me that my grandparents were doing well because of real estate. They were in the Palm Beach, Florida market where there's today like $100 million houses. My Grandfather would build those houses at the time. They weren't hundreds of millions of dollars, but he would build those houses and then my grandmother would sell them as a real estate agent. So yeah, definitely in my blood.

They were speculating, they were building them ahead of time and then selling them.

Yeah. Or renovating them. Like, I'll never forget my— one of my grandfather's biggest projects was he renovated a house that recently sold for $84 million. But that was like back in, back in like the '70s. He renovated it.

Yeah, it's turned hands a lot. Yeah.

Well, yeah, but everything was relative, right?

Because the cost of living lower, things were less expensive.

Yeah, yeah, yeah. So yeah, real estate's in my blood for sure, and real estate technology is a new thing over the last 3 years, but I'm, I'm excited that I'm in this space for sure.

Right, but you, you also manage your own real estate, like you have a portfolio of properties that you bought and managed too?

I did, I did, but my wife and I sold all of those properties off. Um, we, we no longer hold any of the real estate because we're just We've just been too busy with our own businesses. Whenever I graduated from college, we started a— my wife and I, girlfriend at the time, started what has become a very successful, very large real estate photography company that led us to buy properties and really sink our teeth into the world of professional real estate. My wife now runs that company and it keeps her very busy. Townsquare keeps me very busy, and being landlords right now just isn't in the cards.

Well, then you're not competing with your own marketplace, right? Because somebody would think if you had a marketplace you were in the business, you're going to take the best properties that come through there, right?

Yes. Yes. That is the— that is potentially a concern, no doubt about it.

Right. So, so it's a little bit off the topic, but the photography business, you're taking photographs for brokers, for sellers, for— is that what you're doing?

You're servicing that industry for, for both, mainly people that have their market or their house for sale on the market. So our clients, the people that call the phones and schedule the appointments at the photography business, are primarily real estate agents. We work with around 2,500 to 3,000 real estate agents in the Pittsburgh, Pennsylvania market. Got it.

Got it. So they, they're put— they're listing a property, they need photographs taken, they call you guys.

Exactly.

Got it. Got it. Got it. Okay. So you don't do that. So we'll have your wife on a separate show.

Yes, I'm sure that she would love to be on.

Right.

Of course. All right. So, so take me through, you know, what, what's the whole process? Because basically Writing a business plan, getting space, building a business, it's kind of the same thing. You're building technology out. What started you down that road where you said, hey, I think we could do this better? We just saw the need. Tell me about that story.

Yeah, so we can talk a little bit more about the real estate photography business because it definitely ties into all of this.

Okay, great. Super.

Yeah, I was the only photographer for the first 2.5 years, 2 years or so before we hired our first photographer employee. And I was talking with all of our high-level real real estate agent clients, all of our high-level real estate investor clients. And it dawned on me, hey, there's no real estate without a seller. Like, duh. But right, it dawned on me. But I also knew at the time exactly why all these different homeowners were selling their homes, because I was taking photos of their home and, you know, sitting down and having coffee with them, or they'd offer me a cookie or something like that to just, you know, chat with them. And that's right. Why are you selling your house?

Yeah.

And Everybody for the most part had the same 4 to 6 reasons that they were selling their house. So it dawned on me, there's no real estate without a seller. I know why all these people are selling their house. I know that all of this data exists in the real estate world. Primarily it's controlled by the National Association of Realtors, but the data is out there. Yeah. So in the middle of 2018, I took it upon myself to learn how to code. I taught myself Python.

Got it. And that's big now. My son does Python.

Yeah, if anybody's interested in learning how to code, Python's a great place to start. But yeah, taught myself how to code so that I could build a very, very, very rudimentary algorithm to predict who was going to sell their house next. And I Yeah, I ended up doing it. It was a piece of crap. It worked a little bit though. But it was nowhere near what my business partner who I connected with because of that algorithm, nowhere near what he and I would go on to create. So yeah, started out in real estate photography, realized that I could probably use some of this data to predict who was going to sell their house so that I could buy more properties and my agent clients or my homeowner clients could find more properties. And yeah, that's really the way that I got my teeth sunken into the real estate technology world was teaching myself how to code.

Yeah. So, so I don't, you know, explain the whole algorithm, but there must have been some key factors, right, that would lead the computer at that time, right, to come to the conclusion that this person is more likely to sell than not to want to get out of their home. So what were some of the key, the key factors that figured into this? Because you were— must have been loading in data. You didn't put houses for sale. You were looking for houses that were going to be for sale, right?

Yep.

Okay.

Yep. So believe it or not, the, the key factor in any machine learning or artificial intelligence or really big data— I, you know, people know that, that term of big data and how does big data help your business, right? The key factor. That's right. That's right. And in anybody's business, like, if anybody is listening to the show here and like they're getting pitched by a data broker or they're talking to somebody who can improve their business with data, the biggest factor in any business data or in any business built on top of data like the original version of Townsquare was that prediction algorithm. The biggest factor is the structure of that data. So I got super, super, super lucky that I was in Allegheny County in, or I was in Pittsburgh, Pennsylvania in Allegheny County. And right down the road from where I was living at the time was Carnegie Mellon University. University. Ah, and yeah, right, which is probably one of the best big data schools on the face of the earth, right?

Engineering schools around. Yeah, that's right, engineering, right?

Exactly right. So they did a project, the computer science school did a project with the Allegheny County Tax Assessment Office where all of the real estate data and tax data and liens and deeds and all of that data is stored. Yeah. And the project they did with Allegheny County Tax assessment office was to structure and label that data such that it was easily searchable and easily applicable to programs, programs like the one that I was trying to build. So the key factors in who's going to sell are obvious things like death, divorce, job change, debt, you know, those kinds of things. But in order to actually predict who's going to sell next and form all that data together, The biggest factor was that I had an army of Carnegie Mellon undergrads structuring the data.

Right.

Yeah.

Well, I mean, and I've learned this because my son is an informatics major and he works for an AI company in, uh, Indianapolis. You know, the larger you could have all the data in the world, if it's not mineable, if it's not in a format where you can pull that data out, you really can't predict anything. But that makes sense. You know, people have deaths in the family, get divorced. Things like that that tend to displace people, then, you know, it's not— obviously it's never 100% anyway, but you know that if, you know, somebody's of such an age, you know, and their spouse passes away and they're 85, they're more likely to go to a retirement community or something like that, right?

Yep, yep, exactly. I liken the, the structuring of the data and the reading of the data to— this is a little bit nerdy, but whatever. Um, if you, if you download a CSV file, a comma-separated values file, and you just like open that up in your text editor, what you see is like Paul, comma, Wakim, comma, CEO, comma, Town Square. And it's like, if you have a million rows of that data, you have no way of processing it. Like, it doesn't make any sense. It has to be put into Excel, structured for it to be usable by a human brain. Same thing kind of for artificial intelligence, machine learning, any of those things, you have to like, take the data that you have and structure it so that the machine can learn from it. So yeah, we, we had to— we had a very big leg up that we had the greatest computer scientists in the world structuring our local data.

Right. Well, look, everything is kind of circumstance, right? I had read that when Bill Gates was a kid in— I think it was Washington State, the local— maybe it was HP or one of the big companies— wanted these kids to learn how to do things. They wanted them to, you know, break things, and they would give them a certain amount of computer time, and they would go. I think they figured some way to get more computer time too, but they would get on these computers and program and learn all the time. So they did. They had a— they had a leg up. They, they learned knowledge. They were an outlier, whatever they call.

Yep. Yeah.

So yeah, it's interesting.

Okay. Yeah.

So, so when But you busted— you did it, you said, for your own benefit to start, right? I mean, you were looking for properties and you said, well, I want to get these properties first before other people.

Yep. Yeah. So the two really unique properties came out of that initial algorithm that I built or the initial data processing that I did in Python. One property, it took me 2.5 years. We may have talked about this, but it's just super interesting. One property. It took me 2.5 years to buy, but at the end of 2.5 years, I bought it for $1. I paid about $18,000 in attorney's fees to go through a certain process in the probate world called the conservatorship, but I ended up purchasing the property for $1 plus $18,000 of attorney's fees. Yeah, yeah. But then I turned around and sold it to my landlord who was renting a house to me at the time for $86,000, which then set my wife and I on the course to buy another property about a quarter mile, half mile away from that that we ended up purchasing because I put a sticky note on the front door of the house and said, I want to buy this house, please call me. The guy who owned that house just so happened to be in town for 2 days from Qatar. He had not been in the States. Okay. Had not been in the States for like 4 years before that. He was in Qatar to check on that, or in the US from Qatar to check on that house, saw the sticky note, called me, and then through the next 6 months, we initiated a real estate transaction all through WhatsApp and the US Embassy in Qatar. But because I come over That's right. Yeah, that's right. So all of that, that house that I put the sticky note on the front door, the house that I bought for a dollar, those were both predictions that, uh, the algorithm originally predicted, and it really helped us start our career.

With the Qatar, the guy from Qatar who obviously owned the house or something, what did it identify that made you then go and knock on the door?

Yeah, because he was in Qatar and he's actually a CMU Carnegie Mellon University professor, he wasn't really too concerned about the house. So he had, I think, some mortgage debt against the house that wasn't being paid, or the account was messed up, so the bank wasn't getting paid, right? Yeah, that's right. So it was one of those flags that came up that was very clear because of the CMU undergrads that said, hey, this is the house that's going to sell. And it was— it sold because of that sticky note in the algorithm.

Well, it makes sense. I mean, if somebody's, you know, got a bunch of tax sale certificates out there because they haven't paid their property taxes, something's going on and they want to get out from under it. So you guys approached and said, I'll pay it off and give me the house. Yeah, a lot of people don't think that way.

Yeah, definitely took some serious action. And it was, it was very interesting to coordinate at like 3 AM, him going to the US Embassy in Qatar to use the US-approved notary to sign the documents so that I could send them to my title company here in the US. It was wild, but it was fun. Yeah.

I mean, if you hadn't met him in person, you probably think it was fake. You wouldn't even know.

I never met him in person. I never met him in person. He just got a phone call. Yeah.

Wow.

Yeah.

But you at least know he was there and he saw your sticker. It wasn't like he's some guy from Nigeria and he tells you, you know, got $30 million in the bank, but he can't get access to it.

That's right. That's right. Yeah.

So you used it then to build your real estate business over time, right? Exactly.

Exactly.

How big did that get?

So we did about 35 transactions, and that's a combination of my, my wife and I, our real estate portfolio, our real estate investments combined with my business partner Mitch, our CTO, the improved algorithm that he built, and then the businesses that we built from there. So all told, a little over 30 transactions. And then it's been all tech, no transactions for ourselves.

You offloaded the stuff. So Mitch, I like his name already. He, uh, he helped you rebuild the algorithm to improve the software, the platform?

Yeah, so at the time that I met Mitch, I was very, very into rock climbing, and I met him at our local rock climbing wall, um, told him about real estate, told him about this quote-unquote algorithm that I was building, and he said, dude, that's not an algorithm, I'm going to show you a real algorithm. Long story short, he quit his job and because the data was so well structured and because Mitch is a genius, we got that algorithm to be 95% accurate in predicting who was going to sell their house next. But then COVID hit.

Yeah, and it blew the whole thing out of the water. But if you have— but the problem is you had no data after that. That was the problem, right?

We had data that was pointing in the complete wrong direction. Everybody was selling their house as soon as COVID, the restrictions lifted in Pennsylvania.

Yeah. People were like, I'm getting out of here.

That's right. Yeah.

No, I understand. So how did you go about building the business? Like, if you're building an algorithm, right? I think I told— I think I asked you this. We were off mic. And I assume it's a web platform now, right? It's online. So you turn it on and you just sit there and you're like, is anybody going to sign up? Are people going to use this? Right? And you can't just do that nowadays. maybe in the Facebook days it was different. There wasn't anybody on— it was different world. But now there's a lot of competition. So how do you go about saying, okay, we built something really great, where do we get an audience and how do we get this in front of people? What's the business plan?

Yeah. So the business plan when the algorithm was a thing was let's just use it for ourselves. Whenever that blew up. Yeah, yeah. Let's just use it for our own investments. Okay. And whenever that blew up because of COVID we, since I would say June of 2020, the algorithm has been off. We haven't touched it because there was just the data was not structured anymore. The data was not clear enough for us to run algorithms on. So in mid, early to mid-June of 2020, we totally flipped and went pure tech startup. We created a marketplace to help retail sellers that we thought were going to sell because of what we learned from our time building the algorithm, help retail sellers connect with retail agents, the clients of our photography business. We wanted to bring those people together. And the business plan there was, let's try to leverage the real estate agent connections that I have and the connections that we can form with the data experience we have to find motivated sellers and bring them together on the first iteration of Townsquare.

So it was really a platform for brokers to find properties that they could represent.

Yeah. And after the algorithm—

got it. Okay. All right. So, and was that just in your area or you do this nationwide then?

That was just in our area and it was super cool what we were doing. I loved that business model. And since then there have been other people that have created that business model. But the super cool real estate agent to retail seller model that we had was a seller, let's say you and your family wanted to sell your house, you would come to our platform and you would post your property and then real estate agents would bid like an eBay auction for the ability to list your house and they would bid with their commission.

Yeah.

Okay. And cash. And cash.

Oh yeah.

So you would get— yeah, you would get cash upfront to sign a listing agreement with this real estate agent. And obviously there's implications of signing a listing agreement. So you had to be serious about selling your house. It didn't really work out for us, but I loved the business model and maybe one day we'll go back to it. But there are other people that are doing it now.

Okay. So, yeah, I was going to say you're talking in the past tense. So you did that, what, through the pandemic? And then—

yep, yep. Did that through the pandemic. It allowed us to raise our first tranche of money. Our investors really loved that idea as well. It just, you know, to be honest, Mitch, it just didn't work out. We helped 77 homeowners and for us to be a high-growth hypergrowth tech startup, it needs to be 777 houses.

Right?

Yeah.

Yeah. So what was the problem? Why didn't it just— too hard to gain traction? Or—

I think the problem was that in Pittsburgh, Pennsylvania, where we started that iteration of the business, it's a tight-knit small town in a big city where there are really, really good real estate agents that everybody knows, and everybody uses them. So everybody had a good real estate agent to have the agents bid for them because they knew 3 real estate agents that had just sold 20 houses in their neighborhood. So it didn't work out because I think that real estate agents were doing a really good job for their clients and we just couldn't provide enough value, which is fine.

Yeah, no, no, no. Look, realtors are good at marketing and they're good at all that stuff, so they build that and a lot of it is hyperlocal. Okay, so then where'd you go from there?

So from there, we're still in business.

So we know that.

Yeah, that's right. That's right. We're still, we're still kicking. We're still kicking.

Yeah.

From there, we took the marketplace, we said, hey, this on-market real estate agent model isn't working.

And this is when?

About a year ago, late 2021.

Okay, just coming out of the pandemic.

That's right.

Yeah. Okay.

So we said we have this really cool, nicely formatted marketplace that Mitch had built after building the algorithm, Mitch built this really nice marketplace and we said, okay, let's take this marketplace and go back to our roots. Let's go back to real estate investing. So since November, really Halloween of 2021, we've been operating a marketplace in the real estate investor world and we've had anywhere between 100 properties and 2,100 properties posted to the marketplace every month since then.

Okay, so explain the, the platform. What does it do for me if I'm an investor or looking to be an investor?

Yep. So you mentioned Mike whenever we first got on the call. Yeah, Mike, Mike's got involved. Yeah, exactly, he is. Um, Mike got involved with us because in the world of real estate investors, all the real estate investors have their properties that they want to sell, plus they have buyers or a network that they know will buy their property. Essentially, it's a tight-knit group of real estate investors who buy and sell and trade properties with one another all the time. Okay.

But no, that's okay.

Yeah. So they operate in like hyper— you use the word hyperlocal. They operate in hyperlocal spheres of Paul has a great buyer, his name is John. Mitch has a great buyer, his name is Jim. I don't really have access to Jim unless you and I partner. Mitch. So what we do now is we allow both of us to bring our own properties to the marketplace, and then you can reach out to me and say, I want to talk to John Smith, Paul. I'll sell my property to John Smith and we can split the profit in some certain way. And I say, Mitch, I want to talk to your buyer, let's call him Kevin. And you say, okay, we'll split the profit 10%, 90% if my buyer buys the property. So we're helping investors not only sell their properties to their own buyers, their own network, but also sell to each other's networks and connect in joint venture agreements.

So they're almost acting like brokers, right?

Yes, in some ways, yes.

Right, but they're not licensed.

That's right. That's right.

And they don't have to be?

No, they don't have to be, because it's usually just like, let's introduce each other, let's form this joint venture agreement where we work together as a partnership to sell this property. It's not— you're not representing anybody, uh, in these type of transactions.

Okay, that makes sense. That makes sense. So, uh, and does that vary by state? Like, there's some states you can't do this in or something, or not really?

Um, it does vary by state. There are some states that are like, hey, everybody has to be licensed. Like, our users in Colorado, almost all of them are licensed agents just because it's more protection. But, um, in Florida, in Texas, uh, in places like Wyoming and Arizona, you don't have to be licensed. You can just form these joint venture agreements and partner essentially on the sale of your property.

Got it. All right. That makes sense. So tell me about some of the challenges that you had when we talked about the challenges you had with the first iteration or maybe the second iteration.

Both.

Yeah. And then what kind of challenges did you face here? Like, how did you— I mean, I guess you did. You have a circle of of real estate investors that you were akin to?

Yeah, kind of. I mean, I knew because I had been in this position, I've done these joint venture deals before where I have gone to a more experienced real estate investor who has really strong connections with his network of buyers. And I've said, "Hey man, can we partner on this? I'll give you 50% of my profit if one of your buyers that I don't have access to comes to the table." So I knew what they wanted, thankfully, and the gamble of Paul knows what they want has paid off, or our team knows what they want has paid off. But the challenges really have been towards quality.

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You know, I mentioned that we had 100 to 2,100 properties on the platform at one time, and it's a problem that I'm really adamant about solving for the real estate investing community is how do you know, Mitch, if you're not a real estate investor, but you're like, I want to buy an Airbnb in Mesa, Arizona.

Yeah.

You have no idea that the off-market property world really even exists, let alone how do you have any idea if there's enough information to go get a loan on this property or if it's actually even a good deal or all that information that you would go to a real estate agent for. Typically with on-market properties, I'm trying to mirror that with Townsquare, and that's one of the problems that we're facing is, and we're trying to solve, is getting high-quality properties. So in that example where I bring a property and I try to sell it to your buyer, or you bring a property, you try to sell it to my buyer, I want both of us in those hypothetical situations to be able to say, "Yes, Paul, this is a good property. I will sell it to my buyer," or, "No, Paul, this is a terrible deal. It's never going to work out. I never want you to talk to me ever again." And it all comes back to quality. Yeah, for sure.

It happens all the time, uh, because people have junk and they're trying to get rid of it.

Yeah, I mean, you wouldn't buy a house for $100,000 that has a giant hole through the roof unless it was in Beverly Hills.

That's true, right? Exactly. Or you knew there was gold underneath the house, or oil.

Exactly right.

But I think that's what people think about, and it sounds like that's the problem you're trying to solve, right? A little bit. That people think that, you know, well, I can't, you know, make money in real estate because that's guys who, they have connections and they know things and they, they're getting deals in a back alley somewhere and people are making deals. But you're trying to bring that to a more organized, right, formalized marketplace, standardized.

Yes.

Okay, so, so the people that are coming there are not— they, they are the property owners. I mean, is, is the platform all these investors that have a portfolio and then they're trading and selling and buying Yeah, yeah.

Usually it's just anybody who says, I invest in real estate, who wants to sell their property to another user's. But we also have buyers that come and say, I got an email from you that has a link to a Townsquare property. I'm interested in this deal. But usually it's that situation where you are coming to Townsquare because you have a buyer that you know you can sell a property to if you can find that property. And you come looking for me and my property that I've posted Or I come to Townsquare and I say, I have a property, I don't have a buyer. I want to connect with somebody like Mitch so that I can access his buyer.

Right. Because maybe I specialize in, you know, vacation properties and you found a vacation property that's a good deal, but you don't have any way to find somebody to sell except hire a broker and then you got to give up commissions. Exactly. So you don't pay a commission, you just share in the profits of the sale with the other person bringing to the table and the sellers. Don't pay a commission?

Nope, that's right.

Okay, so what's the profit model of Townsquare?

Yep. So it's pure SaaS, software as a service. It's— you sign up for access.

Yep.

You sign up for access to the platform and the tools. So whenever we first started talking, the way that I described our platform is a marketplace with tools built on top to support real estate investors. The marketplace is just a place to hold the properties. But the tools that allow me to share my property with you and then you share that with your buyers, that's a tool that we call post sharing that's built on top of the platform. We also have email technology where I can bring my group of buyers in a CSV, in a file, upload my property, and then email out this really nicely formatted listing page of the property on Townsquare. To my buyers. And for that, we charge $149 a month. It's just a tool for real estate investors, active real estate investors.

As many things as you want.

That's right.

So it's almost like a LoopNet for real estate investors. I mean, I don't—

exactly.

I don't want to diminish the platform.

No, no, you're 100% right. It's Zillow for off-market properties, but with tools built on top to support and attract those people that control the off-market properties.

So how— we'll talk about, and I mentioned this before, we'll talk about some challenges, things you think you did wrong, things you do right, and advice you have. But how do you market the business right now? You can't all do word of mouth. It's not enough. You said you've raised money, right? You're a true tech startup.

Yep. Yep. So there are conglomerations of active tip-of-the-spear industry-leading real estate investors that are known as masterminds. So we've been fortunate enough to join a bunch of those masterminds and be invited to be a part of those masterminds. And just like most things, the guys that are the leaders in the industry, the tip of the spear, if you will, they really influence what everyone else does in the industry. So by being a part of those masterminds and getting in front of the guys that are selling $4 million worth of property every month off market, you know, we are able to get in front of and use that credibility to the guys that are selling $400,000 worth of property every month. That combined with working with influencers in the real estate investing world. Yeah, there are so many influencers, really, really knowledgeable people that we're partnering with to use their audience and pay them to use their audience so that we can get the word out about Townsquare.

Yeah, I think a lot of people don't realize in their industry that there are even what I call micro-influencers. Maybe they have 5,000 followers, 50,000, 100,000. They don't have to be, you know, the Kardashians. you know, something out of Hollywood where you, because those people you don't have access to, it's expensive and sometimes the return's very low because you're paying, overpaying. So I think I did that with the podcast. I reached out to, you know, I found out who are the top 25 influencers online for small business enterprises and entrepreneurs, and I found this list and I sent out emails and about 10 of them said, sure, we'll come on the podcast.

Nice.

And I, and I've stayed in touch with them and, you know, and some of them had, like me, a couple of thousand followers. I might have had 15,000, 20,000, 30,000, 100,000 followers. I learned a lot. But I think a lot of people don't realize, even outside of your business, that as an entrepreneur, there are ways to find people who do have influence, who can kind of play the flute, so to speak, so people will come to your door. So that's a good market. So you're building a network, you're reaching out to influencers. I assume you're also building an email list, right? A marketing list that you stay in touch, post properties, say this is available, join us or whatever. Yeah, the, the $149 is for listings, right? And that's a flat fee per month. You can put up as many properties you want.

So you can actually put up as many properties as you want for free if you want to use those tools to connect with other investors and leverage each other's networks of buyers and send out emails from our platform. That's the $149 a month. But we— the value in Townsquare is, is the volume of off-market properties. If we can aggregate—

obviously, right—

off-market properties on Zillow, if you had Zillow and then you had Townsquare and you could capture 99% of all the real estate transactions with those, then there's a lot of value there. Right now, if you just have Zillow, you capture about 78% of the real estate market because 78% of all transactions happen with a real estate agent on market. The other 22% is or 32% is happening on 22%. Yes, that's right.

Yeah, yeah.

The other 22% is happening off market. So we never want to restrict anybody for, you know, we don't want to ever make somebody pay to post a property because even if it's a bad deal, we still want to see that this property is for sale because there's a lot of value in that data.

Yeah. And obviously if I'm just posting it for free, I'm not being proactive about it. I'm not reaching out to people and say, hey, would you take a look at this? So you just kind of got to put it up in the eBay model and you're just waiting for somebody to come knock on your door, which is fine, I guess. Right. Obviously, the value of the business comes with the amount of listings you have. Right. Because if I'm going to go on there even for free and I'm one of 7 properties, then I'm like, well, this is a waste of time. I'm not going to give them a lot of attention. So what kind of things, challenges did you have, mistakes you made that you would, you know, that you have corrected or are doing differently as you got started?

Yeah, yeah. So the biggest challenge that we have had is we know what our product needs to look like. We released our MVP of our new version of the platform. We did a bunch of updates and we released the minimum viable product in July of this year after going through a bunch of different feedback sessions from existing customers from November to April, November 2021 to April 2022. Then we got, you know, started developing a new product, a new version of the marketplace that was released in July. The biggest challenge we've had since July is not customer acquisition or getting notoriety in the industry. The biggest challenge is finding really high-quality employees and developers that we want to work with. Developers are— they, they're hard to find. Developers that are trustworthy are hard to find, right?

Yeah. I tell my son, you're in the right industry.

Oh, he sure is. Sure, sure is.

Yeah.

Yeah.

Well, I, I mean, look, I was talking to a client of mine who owns restaurants, and they still are all having challenges. But you're talking about an industry that needs technical people. You can't just go out. And I guess the, the virtual remote nature of the world now makes it easier for you because you can hire a developer from Oregon or Uruguay or whatever that might have been harder to do 10, 15, 20 years ago.

Yep. That's exactly what we're doing. We have 7 developers that we've hired in the last 40 days, 45 days from Pakistan, India, and the Philippines.

None of them are here.

No.

Do you have any employees here? You must have some employees where you're located here, Yeah, yeah.

So it's myself domestically, Mitch, my business partner who's here in the States. Kevin is our director of sales and Taylor is our sales development rep. And then I actually have 5 full-time employees in Lahore, Pakistan as well that are just operations employees.

So how do you go about setting up an operation in Pakistan? Is there a company? Obviously there's a manager there, right? So how does that go about?

Yeah, so the whole story there, and you can definitely interrupt me if I ramble too much, but, um, we've had so much success.

I like this.

Yeah, yeah, thank you. We've had so much success with people in Pakistan. Honestly, they are some of the hardest working individuals I think I will ever meet for the rest of my life. Um, the way we got started there was I met, um, a girl, her name was Saniya, online. And she started working with me and my photography company. Like what?

Like Upwork or something like that? Or?

Exactly.

Okay.

Starting working with her. And then she worked with me and my photography company and in the real estate investing that I was doing, helping me with just admin tasks. And then she called me one day and said, hey, my family friends and my family, they're also looking for jobs. And they're super hardworking like me. So she introduced me to 3 families in Pakistan that are all willing and able to work so, so hard. They are, they are the hardest workers, right?

Um, so we have paid relative to here.

Yeah, the minimum wage, I think the last time I looked it up, the minimum wage, which we pay much, much in excess of, in, in Pakistan is like 77 cents oh my God, US.

Yes, right.

Yeah, yeah.

But if you're paying them $5, which is a third of what you'd have to pay here, you're paying them 8 times what, what they'd be making as a low-wage worker. Yeah, and they're probably very smart and hardworking, right?

Oh yeah, they're amazing, amazing people. So we have one guy in Pakistan who oversees all of the different people that are working for us in Pakistan. He makes the most, he's the manager, um, he speaks the best English, um, But his brother, his friends, his cousin, his aunt, they all work for us and they are outstanding people. Outstanding.

Kind of stumbled along, Pakistan, because you think overseas, you think of India, common, right? Where you're getting a lot of tech people. Did you— Oh, no, I was going to ask you, what are they doing? Are they doing development work? I mean, what are they doing? Looking for?

So there's actually a development firm that we're talking to that has super, super smart, high-level developers based in Karachi, Pakistan.

Oh, um, just by coincidence?

Yeah, yeah, just by coincidence. But our guys in Pakistan, they are— they're doing just admin work for us, helping us make sure that clients are being reached out to, support, back office, customer service, that type of stuff.

Yep, got it, got it, got it. So how many How many people do you have? Developers around the world, you have local, you said about 5 or 6 people, you got Pakistan. How many employees do you have?

So we have 4 domestically, 5 in Pakistan to make it 9, and then we have 6 developers. So that's 15.

And is it difficult to pay? I've never— I interviewed so many of my clients and kind of people on the podcast who have people overseas. My friend who does— my friend, my client, and he does my websites and all stuff. None of his developers are here. I don't even think any of them are in the United States either. So, and I do handle his business stuff, but I don't handle his payroll. How do you go about, you know, paying them? Because obviously it's not in dollars. And then all the reporting, and it's got to be Patriot Act things that you got to adhere to, right? All kinds of things. You're not— seriously, that you don't have an office in Pakistan. When you think of Pakistan, you think of that's where we shot Osama bin Laden, right? So, yep, right. So you— they don't know that you got this operation, you're just funneling money to support terrorists. Oh yeah, right. So what, what kind of things you gotta, you gotta deal with from a business and a tax standpoint?

Yeah, so my accountants, uh, admittedly they handle all of our payroll and yeah, yeah, I admittedly, Mitch, I, I don't handle any of this.

You get a good smart tax guy and you rely on them to do the whole thing.

That's right. Yeah, that's right. But if anybody is interested in getting started with, uh, overseas virtual assistants or overseas, um, talent start with a place like Upwork or start with a place like Fiverr because they have all of the legal framework, all of the stuff needed to pay set up. Now, anybody that works outside of Upwork or Fiverr for us, we pay them through a service called TransferWise. It's now called just Wise. Or we pay them through a service called Xoom, X-O-O-M. Zoom is owned by PayPal.

It's almost like an international payroll company.

Yep, exactly.

Yeah.

Yeah.

I mean, you don't think about that stuff. A lot of people just pay people and then they go to take the taxes. They can't take deductions.

Yep. Yeah.

Yeah. So let's take your, your tech, your real estate hat off, your tech hat off, put on your business hat. Right. Did you have you ever written a business plan for the business? Ever?

Oh, yeah.

Right. Because you said you raised money. Stuff.

Yep, yep. Yeah, the, the tech business plan is a deck. So I have— right, you slaved over a deck. Yeah, yep, yeah.

Because you're making your— you know, it's funny, people say, why do I need a business plan? Well, clearly if you're raising money, you need a business plan, right? And yeah, because you have to make a presentation, you have to convince these people why is this a good thing to do. Um, how many rounds have you gone through? Right, I won't ask you how much you raised, like private. Oh, how many rounds have you gone through? Raising money? You're in a like a C round, an A round, a B round?

So we raised, we've raised two tranches of money under the same terms. So it's the same round. We raised friends and family money in early 2021 and then we raised a significant amount more from a family office and a couple other business partners of ours in early 2022 and they were both under our pre-seed round and the traditional document documents that people use in the world of tech startups so that we can go raise millions, ideally more, from venture capital firms. And venture capital firms can say, okay, you guys raised with these documents. I don't have to think too much about the legalities. I know what these documents are. Those documents are called a SAFE, a Simple Agreement for Future Equity. It's like a convertible note without an interest rate.

People ask me about it all the time. They're like, do you know what SAFE agreements are? I'm like, yeah, just convertible agreements. Yeah, that's what a lot of these guys want. That's what a lot of these venture capital companies, firms want.

The venture capital firms, they come up with their own term sheets. Whenever we go out and we raise from true VCs, they'll come up with their own term sheets. But prior to going to talk to VCs, they want to see that we have a clean cap table. And a clean cap table is really like, do your— are your documents clean? Is it super confusing to figure out that Investor 1 invested under these terms and Investor 2 invested under slightly different terms. Yeah, that's not what we do. We just put everything under one safe, and they understand what safes are. So Townsquare is packaged up real nice to say we can put $1.5 million into this and things are going to go great, right?

Well, you know, people don't realize that you gotta— even if you want to sell your business someday, you kind of have to take the approach of, of preparing the business, running it away. Because you're right, look, you can make deals all the time with people, but if you go to make a deal with someone else and they don't understand what the hell you did and all these promises you make. They're just thinking somebody's going to show up at our door and say, hey, what are you talking about? Paul promised me, you know, 50 million shares in the company if I did X, Y, and Z, and now you got— and now you got a problem. So you keep it clean. So the only thing that really changes then is valuation.

Yes, valuation. Yeah, valuation changes. There's also like warrants and drag-along rights and voting rights and board seats and all of that, but the, the primary lever that everybody pulls is valuation.

Right. Well, people don't think about that stuff either. They get involved in private deals and they could either be left behind or they could block the sale and you need to tag along, drag along rights and stuff that, that I do all the time. But people, they don't think about that stuff. I mean, you probably didn't think about a lot of it till you got involved at the, right, in the tech money raising ones, right?

I didn't think about any of it, Mitch. Thank God I have, our primary advisor is an early stage tech startup consultant who has taken a couple companies public for billions and taken a couple companies to be acquired for hundreds of millions and billions. And I just go to him and I'm like, listen, I don't know anything about anything. Just tell me what I need to do and I'm going to trust you. And so far it's worked out amazingly. And I've learned so much that I can now ask questions.

Reg D filings, all that type of stuff, right?

Exactly.

Non-accredited investors. It's a crazy world. It is. It is.

Lots of legal gymnastics, as I call it.

That's really what it is. I mean, if you learn how to go through those hoops, those are the guys that do the deals and the guys that don't, don't do the deals. The cannabis business, same way. I do, I work for a couple of cannabis companies and they, you know, the ones that are more sophisticated on the fundraising side and the business side are the ones that are able to raise the capital because it's the venture capitalists that want, you know, they're really investing in you. So at the end of the day, they got to have confidence in you and your partner, Mitch, pitch that you guys can pull this off. Because at the end of the day, I don't care if you have a safe agreement, whatever. It's like a funny word in the startup business. I mean, how safe is it if the business goes under? It's not like you have, you know, you have jewels somewhere and you can't convert that to capital. So you're putting it up as collateral. Doesn't happen. So they're trying to protect themselves from, you know, holding equity that's not worth anything versus, you know, being owed money or whatever. But What? You know, you can't get blood from a stone. If the business fails and goes under, they're not going to start suing you and go after you. It's going to be a waste of their legal time and fees.

Yeah.

You know, expertise.

Yeah. The way that I always explain it whenever anybody asks about the world of raising money or tech startups is all of the legal jargon, all the really important documents, the SAFE, the valuation, all of that stuff. It's like, it's the foundation that I and Mitch have to stand on to say, hey, we're good and so are the legal documents, so you should invest in us. But if an investor looks at us and says, hey, you guys are good, but you have 20 different investors investing at 20 different valuations with 20 different documents, like nobody's going to invest.

Yeah, right, exactly. Yeah. So either you're two monkeys in a basement on a Davenport or you're really smart, but you don't have your— I hate to say it— your house in a— it's the best. Yes.

Yeah, yeah, yeah.

Look, I get a lot of— a lot of people get older with businesses. They're like, you know what, I built this, this, I can go sell it. And they don't have the books and the records and it's just a mess. Then you have a business broker trying to put together a picture showing, well, you know, I know he takes no money out of this business, but he really takes a lot. They try and make this argument, which is a bit of a tenuous argument that's trying to show that the business is worth, you know, $10 million, even though it's showing no profit because they're managing it for low taxes. Is not for the sale of the business.

Okay.

So you can chime in if you have advice for people starting a business, running a business, but also tell me what the future holds. What are your plans in terms of where you're growing the business? Because we both know that venture VCs, angels, whatever, they need an exit strategy, so they're not coming in without one. So what's the future plans with Townsquare?

Yeah. So real quick, my, my whole spiel, what I like to say, what I really believe in when it comes to people that want to start a business or are getting started in business is I've been super fortunate in my life to have everything else around my businesses pretty much in order and making me very comfortable. I have a wife that supports me. My parents have always been super supportive and I'm very, very lucky. There's no other way to put it other than I'm very lucky that I have those things that allow me to work as hard as I possibly can.

Right.

So anybody who wants to get started, my advice is maybe you have a life that has been like mine. If you don't, try your hardest to get everything else in order before you start a business. You know, if you have issues in other parts of your life, you're not gonna be able to work as hard. The coffee isn't going to hit as hard in your business if you don't have all of your attention on your business. So yeah, that's my advice anyway.

So if you got more challenges personally, look, a lot Businesses fail for that reason.

Yep, exactly. So in terms of where we're going with Townsquare, my goal is to be— I literally imagine somebody having two cell phones or an iPad that has the screen split down both sides. One side is Zillow with all the on-market properties, with homeowners selling their properties with real estate agents. And the other side is Townsquare, where you can see all of the deals that don't involve real estate agents and that are happening between real estate investors. There are a bunch of companies that are trying to do it. I'm just confident that our ability to build that marketplace, but then have those tools on top that support the real estate investors who control that off-market property world, having those tools will attract them to use our platform and bring that inventory to us. So I think there's a humongous value in there.

Just to give you— that's what the VCs are banking on, that you Yeah, yeah, you can build it bigger and better than the other people. And what's the exit strategy for them? I mean, I don't know if you're going to sell or whatever, but is the exit strategy go public, sell, merge, acquire, all of the above?

Something— yeah, all of the above. Something to the effect of somebody wants to own that data, you know, digging in a little bit deeper here. Somebody who, like one of these giant hedge funds that you heard about during COVID that were buying buying hundreds of thousands of houses every year to keep them as rental properties. Those companies, I've had discussions with them directly. I've had discussions with the guys that are purchasing 10,000 single-family homes every month, or they will.

Really?

Oh yeah. Oh yeah.

How do you find 10,000?

You have an algorithm that goes on to the MLS and makes offers on every single property that remotely matches your criteria. So I've talked to those guys and their limiting factor is not cash. Their limiting factor, at least it wasn't whenever interest rates were super low. Yeah, yeah, is supply. So I think the value for Townsquare is going to be when somebody brings their property to Townsquare and they're like, I'm going to list this on the marketplace. The second they type in 123 Main Street, Phoenix, Arizona, it's going to hit the algorithm for one of these large buyers and they're going to come in and say, hey, I'll make you an offer $10,000 over what you just put in there. The ownership of that data, I think, will be extremely valuable. And that's what we're banking on with Townsquare holding value in the grander scheme of the real estate market is that you would have, by owning Townsquare, you would have access to that data on who's selling their house off market first.

And what's a typical VC, what's their time horizon? They want to be out in 5 to 7 years or 10 years?

So a VC fund is usually 5 to 10 years and they hope to exit all of the companies in 10 to 15, sometimes 20 years after that.

That's a turnover.

Yep.

Got it.

So I think there have been other companies in our space, one in particular that was very much in the data realm, but they were the first company to really service off-market property sellers and off-market property investors and they sold after 4 years of being in business for $175 million because of the data that they had access to. And they sold to an incumbent gigantic title company called Stewart Title. So, yeah, sure, maybe one day.

A lot of real estate work. Yeah, absolutely.

Yep.

Interesting.

Stewart Title is in— I guess it's a different division, but they want the data.

Yep. Yeah.

Yep. Interesting. Okay, so tell me how, uh, because we're coming up on time here, how people obviously it's Townsquare.com, right? They can learn from the website. How can they connect with you?

Yep. So it's Townsquare without the vowels. So T-W-N-S-Q-R.com. My friends kind of make fun of me whenever it comes to how anybody can connect with me.

LinkedIn profile or not really?

I have a LinkedIn profile. That's it. Okay.

I like LinkedIn. I'm a big LinkedIn person.

Yeah, me too.

I like LinkedIn. Right.

That's right. That's right. So I don't really have Instagram. Townsquare, you can connect with us across all the social media platforms. My team and I are on there if you want to connect with us there, see what's going on. Facebook, Instagram, Twitter, TikTok. We just hired a social media manager that will manage all of our social media and bring things to my team and my attention as needed. But LinkedIn, and you can also send me an email at paul@twnsqr.com if you want to ask questions about the real estate investing world or off-market properties or Townsquare in general.

All right, I'll put the— we'll put the link in the show notes. And, uh, Paul, on a, on a, you know, dreary afternoon, at least in Jersey, uh, I thank you for joining me today.

Thanks so much for having me, Mitch. It was an awesome conversation. I really like the digging into the business side more than just talking only about Townsquare and what we do.

Good. Well, let's definitely stay in touch.

Awesome, let's do that.

Thank you for listening to this episode of The Accidental Entrepreneur. Opening and closing music written and performed by Howie Moskowitz and Made 2 Order Music. For information about Howie and his music services, please follow the link in our show notes. If you like the podcast, please tell others about us. You can find us on Apple Podcasts, on Amazon Music, Spotify, Google Podcasts, and most of the other podcast directories. If you like what you hear, please leave us a 5-star review and feel free to share our episodes on social media. If you have any questions or comments, ideas for the show, or you'd even like to appear as a guest, reach out to us by email at info@beinhackerlaw.com.

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