#13 Vadim Toader of Proportunity on Outperforming the Property Market with AI
By Nasos Papadopoulos, EF Head of Content
Vadim Toader is the CEO Co-Founder of Proportunity a company that uses machine learning to form accurate real estate forecasts, so investors can make better decisions.
By comparing more than 100 sets of data, including historical price growth and crime rates, Proportunity can spot good deals before the market, which enables them to make a data driven decision and help fund first time buyers by putting up a percentage of their deposit and helping with financing.
Vadim met his co founder Stefan on EF7 and since founding the company they’ve worked with some of the country’s leading property players, have been backed by Savills and are in the process of acquiring a lender, subject to FCA approval to help them offer better financing to customers.
Vadim studied Engineering, Economics and Management degree at Oxford before working as a consultant at Bain & Co for over 3 years where he built up a wealth of valuation and forecasting experience, solving a bunch of interesting problems along the way.
In this episode Vadim and I discuss:
- Vadim’s insights about the UK property market learned from building Proportunity
- The difference between data driven and intuitive decisionmaking in business
- How to do customer development in a slow moving industry that's resistant to change
Whether you’re an aspiring entrepreneur or a property investor, this conversation will give you plenty of valuable insights as well as solid practical advice that you can take away and apply.
How To Partner with Big Companies
How I Pivoted Into The Property Market
Why I Left My Career as a Consultant to Become an Entrepreneur
Nasos: [00:03:00] Vadim, welcome to the show.
Vadim: Thank you very much. Thank you for having me here.
Nasos: It’s a pleasure to have you on. To kick us off, tell me a little bit about what you're doing at Proportunity and how you're going to change the world as a result.
Vadim: Yes. The good old one of changing the world.
[00:03:30] Think of it as a company that doesn't necessarily just give first time buyers what they might need, but actually gives them what they would want. In a simplistic manner, we're trying to become the older brother of first time buyers. The person who looks after you and you always want to go back to them because you really like spending time with them.
[00:04:00] I think there's been a lot of attempts in the mortgage industry of that, and we're trying to see if we could use tech and the learnings from the customer's experience, since all of us in the team are trying to look at buying a home to make that better.
Nasos: So, how does the dream experience look like for a first-time buyer who is working with Proportunity? What are the problems that they've had historically in recent years, and how will interacting with you guys and being customers of yours help them in the process of becoming a first-time buyer?
Vadim: [00:04:30] Well, I have to first disclose that we're not working with any customers yet. Setting up a lender is a complicated business and we're trying to get all our ducks in a row to make sure the process is flawless. We've looked at all the possibilities, and no matter what happens we have the customers’ best interest at heart. We're still waiting for a few approvals, therefore, no customer has benefited yet from the Proportunity product, or whatever legal entity we'll offer it through.
[00:05:00] But as we envision it and what we would like it to be, is someone who has a sense of what the property market is doing so they could understand. It's not advice, it's not recommendation, but it's more that we have all these analytical tools that exist out there. If we would crank all of that through our software, the consumer could have a bit more understanding and make a better decision about where they buy. I believe that for most people, purchasing a home is probably one of the most important, if not the largest financial investment you're going to make in the first half of your life.
[00:05:30] From previous experience and recent history, you could see that it could go one of many ways. Therefore, having a bit more certainty and someone that has an objective answer is something that I'd like to offer.
Secondly, we are using technology to offer them a better experience. What I mean by that is being transparent. Something that you see with the likes of Monzo, Revolut; where you feel that the company has your best interest at heart.
[00:06:00] We also offer them tech-driven innovation, which is allowing them to do things that even if you find the absolute best lender or the absolute bank. At the moment, it isn't possible because they don't have access to the latest analysis and therefore, they can't release benefits to consumers that we might be able to for our understanding of the property market. By buying earlier or buying a bit cheaper, we'll see exactly how it ends up being. Something along those lines.
Nasos: [00:06:30] What's been the most interesting thing you’ve learned if there is just one? I imagine there is lots that you've learned from looking at all this data and running it through your algorithms. What things about the UK property market that are somewhat counterintuitive you've come across that have really surprised you a lot?
Vadim: [00:07:00] That's a very good question. I would say that the number one thing I’ve learned is that there are “Proportunities” out there. It doesn't have to be a pain. I think it's interesting because you see all these articles now with people saying, "Ah, renting. I don't want to buy, I want to rent." I fundamentally believe that. I think everyone wants to own a home, have their own furniture, have their loud parties without having to ask for permission from their neighbors. Or not have to wait for the shower in the morning or find dirty dishes in the sink. All of those things are annoying.
[00:07:30] But they've looked at it, they saw how painful it is, how much they have to save, and then they kind of just said, "Oh, it's too annoying. I have to give up. I have to forego this dream. And now, renting is better."
That's something I realized - it doesn't have to be like that. It can actually be much better.
The second bit is that with some data you can make much better decisions. I don't know if people know this, but the reason I started Proportunity was out of competition with my wife, girlfriend at the time. She was in the process of buying a home in New York.
[00:08:00] In New York, $1 million buys you a cubicle, more or less. Even if I had that money, I wouldn't want to buy that. So she says, "Okay, where can I make an investment around Manhattan that gives me a decent home and I can still get to work?"
The first problem we found was that there wasn't any research. No one has subjective advice. We went to a real estate agent here, we went to a real estate agent there, and they all said that their area was the best and they could show you the best properties there.
[00:08:30] I used to work in consulting and she was working in banking. It was weird not to find some sort of case study or report that you could buy which listed all the areas. They did the research by either tech-driven or survey-driven, which said that these are the areas ranked by forecasted growth.
We started asking our friends. We sought out people who bought properties around us. Some people were smart and they were working within this industry. They actually worked within banks looking at real estate, so they had some tech. They said, "Yeah, I made investments here. Go and look there." We rented a car, we went there, we found a home.
[00:09:00] Anyway, long story short, she managed to buy a six bedroom home next to a park for about half the price of what a cubicle is in Manhattan. At that time, the same price in London would buy you a one bedroom in zone five.
By analyzing the market, there are much better opportunities - proportunities, hence the name. What was interesting is that the home was also in a growth area.
[00:09:30] Whole Foods had just opened up; a lot of banks were giving hundreds of millions of dollars to new developers. I think Shaquille O'Neal was building a condominium in the area. Mark Zuckerberg was a good guy at that point. He was giving $150 million to charities, schools to improve.
[00:10:00] You could feel the change. Low and behold, a few months later someone wanted to buy her house for 60% more. She didn't even put it on the market. There was just an executive coming into the city looking for a house, he talked to the same real estate agent and said, "I'll buy."
For me, it was weird. She went and bought this house. She wasn't a typical real estate investor and didn't need connections with agents. Didn't need cash, and she still found a great deal.
[00:10:30] That’s what I realized with Proportunity. By looking and using analysis, you can ensure that you find the best in the market. It might not be that much better, but it's not going to be worse because whatever it is, at least you make that decision being more informed.
That's what it took for me to realize - if we have the tech here, can analyze it to give better estimates and remove some of this cloud of uncertainty, why not? If that unlocks even better financial possibilities, then we have to. It's our duty, especially for me, since I am a guy looking for a home.
[00:11:00] My wife and I want to live somewhere and stop renting. Our employees want that. It's so hard for them to access home ownership because most of us are in our 20s. Just as an engineer, its “Why not remove this pain if we can?” That's what we learned.
Nasos: I want to go into the product and the problem you're solving more because I think, like you said, it's a pain point for a lot of 20 somethings and 30 somethings certainly in the UK and in other markets.
Nasos: [00:11:30] You mentioned in that answer a little bit about your career background and that you were in consulting. You were working for Bain. It was a comfortable job, I'm sure it was stimulating. Why entrepreneurship? What made you stop, do a double take and say, "I want to start my own company"?
Vadim: So, it's funny enough, many people didn't know this, but I applied to EF before applying to Bain. I got rejected because I think I'd boasted too much about business and not enough about tech. At that point, EF was super, super techy - It was 2013.
[00:12:00] I'm the son of two entrepreneurs. My parents have had their company since I was eight years old. I was assembling computers with my dad when I was 10 for his online gaming store, and things like that.
Entrepreneurship has always been close to my heart. They're also engineers and I'm an engineer, so I like solving problems. It makes sense once you find a problem you're really interested in, to make that your business and your life.
[00:12:30] When I finished university, my dad opened a consultancy. We're from Romania, and at that point Romania was joining the EU. There was a lot of funding accessible from the EU to Romania to businesses to improve European standards, but they didn't know how to take advantage of it because it was complicated forms and bureaucracy. They set up a consultancy to help them access all this money. "You can grow your factory and you can boost your bakery. Let us help you take advantage of it."
[00:13:00] My dad said, "I loved it because it's like having a new business every month. Today I look at this farming company. Tomorrow I look at this computer store." You get to learn so much about so many industries. When I finished university I applied for EF, I was very keen, and they said no. Therefore, the next bit was I didn't know what I wanted to do, but I wanted to solve a lot of problems. So I applied to a few consultancies and I ended up at Bain. I like advising but I like solving problems, and seeing the benefits of removing that problem myself is why I wanted to leave.
Nasos: [00:13:30] Did you come into EF with a clear idea of what you wanted to work on? Or did that develop quite organically as a result of you experimenting with ideas with different co-founders and then eventually working with your co-founder Stefan on what became Proportunity?
Vadim: Yeah, it is Stefan. It was a clear idea but I'm hesitant to say that because it wasn't that clear a few months beforehand. So, I was actually going to do something else when I applied to EF.
[00:14:00] Then when I got in, my wife (girlfriend at the time) started doing this home buying process. It was so much pain and so much frustration because you were investing so much money blindly and the process was slow. I was saying, "No. I need to create something about this." I felt really driven.
The first day at EF, I was very much about house prices. I needed to understand what drives them, how to forecast, how to look at the market, because there are so many inefficient decisions and so much money people just throw out the window. I was very driven by that.
[00:14:30] EF is competitive. It's hard to find the right person, working with them, getting excited about what you want, but them also feeling part of the process. I talked to a few people and ended up working with Stefan on this. He really liked it and we just glued together very well. We got introduced to Savills, we wanted to work with them. They got pretty excited and wanted to invest early on. I had to pitch their global CFO while we were at EF where this company wasn't.
[00:15:00] We had some models, but it was mostly a PowerPoint and an Excel. It was our vision and we were working tirelessly; we had some forecasts, but it wasn't a company. Stefan was a CTO and I was a CEO. That was about it. We were chief of no one - we were chief of ourselves.
That was exciting. They said yes and then we grew it from there.
Nasos: [00:15:30] What was the process of interacting with Savills like in those stages when you had very little to show them other than what you said, a PowerPoint and an Excel?
A lot of people have a perception of these companies as being dinosaurs, not really being open to innovation. Was that what you found? How did you get them interested in what you were doing?
Vadim: It's a good point. I don't know. I think these companies are kind of like countries. They're so big that you can't paint all the people living in one country with the same brush.
[00:16:00] At that point I was emailing any CFO or CEO from any of these companies on LinkedIn. I was lucky enough that one of my friends got introduced to someone from Savills at a conference. They were saying that, "Oh, you invested in this other AI company, it went really well. We're keen to look at others." My housemate knew about what we were doing, put us in touch, and we had a call. Some of those people weren't right but one person on the call was. We had a follow-up call with them. He was brilliant, open-minded and wanted to invest.
[00:16:30] I think every organization has a lot of good bits and bad bits. We always wanted to work with someone in the real estate world because they have so much data and so many connections. I think you see a lot of dead bodies for start-ups to try to revolutionize the world, work with no one, and partner with no one because it's hard.
[00:17:00] So we wanted to partner with someone and we found the right people. I think finding the right people in this organization is hard. But if you have an open mind and you always leave, "Hey, if you're not the right person, please forward us to whoever you think it is. We'd really appreciate it," at the end of the email, and you keep pushing - you'll get there. I would be incredibly surprised to see that there's no smart people in a bank, there's no smart people at a real estate agency, there's no smart people anywhere for you to talk to who see that this needs to change.
[00:17:30] Once we got the person, it was really quick. We had the first meeting in October. We already had the plans of the investment in late November or December, and then it was kind of Christmas. But it takes a bit of time negotiating, the same way it takes venture capital firms which vary. They're much younger, smarter, and there are only five or 10 people. Even that takes six months. So, with Savills we closed it in late February.
[00:18:00] It was good. If you're open minded, you show that you have value, you walk them through the steps showing them that, "Look, it's not going to require you to completely change your business model. We can work around you. So you'll consider it."
I don't believe this argument that you can't innovate with other players. If you're asking them to change everything based on you, a company that doesn't even exist, it's kind of like trying to convince your grandfather. If you can make a propelling conversation with your grandmother or grandfather, then you're going to be able to convince these guys. But you have to make sure you find your champion in this organization.
Nasos: [00:18:30] With the Savills deal, was that one of the high points on your journey in the early stages? What did it feel like? How did it make you think about what you were doing and the potential for future growth and expansion?
Vadim: [00:19:00] It was a big thing. The good thing about EF is that you are surrounded by a lot of people trying to do the same thing, so it gives you a good benchmark of where you are. They're very selective people, on top of their game, so you know that if they're doing well, you should also be doing well. If they're doing badly, then maybe you're pushing too hard.
Starting a business, as fun as it sounds, is a pretty depressing journey because you get a lot of no’s for every yes. So, to have a big organization like that come in and say, "Yeah, we believe in what you guys are doing and we really see this going forward," was a big win.
[00:19:30] My theory of fundraising is that it's always going to take longer than you think it is. If you're still happy to see the money coming into your account, then most likely it's going to take longer. Fundraising ends the moment when there is no excitement from the fact that you closed. It's been so draining that you didn't, and if it isn't draining then you haven’t pushed hard enough.
[00:20:00] The best negotiation is when both people leave the room unhappy, because if one's happy it means the other guy hasn't pushed hard enough.
So, from that perspective it's also very annoying because you're already staged, and they see the conditions, they were the first one to come in. But on the other hand, yes, it cleared a lot of air around, “Can this work? Can this not work? Are we going to be homeless in two years? Are we fighting a dead battle?”
[00:20:30] We must say that in 2016, when we started Proportunity there weren't many property businesses around. VC's didn't quite get their head around real estate. People were asking, "But why are you the right people?" Everyone was saying, "Well, if you're going to create a dating app, have you worked for Match.com? If you're going to create whatever app, have you done this?" We were of the firm belief that we're bringing data to the real estate industry. This should come from people that have done data analysis before and real estate in this is purely an application.
[00:21:00] The question is can we work with these people? And us closing Savills had proved that we can work with these people and they want to work with us.
Nasos: How much learning around the industry and the factors that were moving markets did you have to do independently of all the data that you were gathering and feeding into your algorithms? What did that process look like for you? What does it still look like today? Are you still continuously keeping abreast of developments?
Nasos: Yeah, how did that process develop for you?
Vadim: [00:21:30] It's a good point. From both from my parents being engineers, I'm a big believer that whatever solution you create should be implementable. Someone should want it, someone should believe in it. I think that's why I wanted to partner with Savills - to realize that if they accepted something, the world would accept something.
[00:22:00] For example, even now when we're forecasting different areas of growth in London and growth we're more comfortable with, growth we're less comfortable with. I went with my wife this weekend and we started looking at ads, coffee shops, and schools in those areas and said, "Do we believe that this area has a higher growth potential than other areas?"
[00:22:30] We went there and we did the same thing when we bought the house. We looked at the supermarkets. Obviously behind that, there are hundreds of gigabytes that are spinning online and different clusters looking at a lot of different indices both on the area and on the property and crunching all that data.
But in the end, if we don't believe it, how can we ask someone else to believe it themselves? I think from the beginning we've done that.
[00:22:30] To answer your question of how much learning we had to do, learning the real estate data is easy because it's available online. It kind of matches your understanding of how the market's moving. My fundamental belief of why Proportunity should exist initially was that every person could tell you how much they think the house will grow in the next five years. But they couldn't tell you how that ranks versus the area next to them. They couldn’t compare all of the 1000 areas and give them a list.
[00:23:30] We were thinking, “Why can't we have a computer that mimics every person's view, and then spits all of them out in the same manner, and then ranks them objectively?” That was the idea.
Officially, most of the computer rankings match reality. The interesting part is more about understanding how to communicate that, how to make that bridge between data and people, understanding the human way of seeing things, and what their pain point is. Talking to a bank and understanding why they set their interest rates in a certain way.
[00:24:00] What do they look at when they're lending to a customer or giving a mortgage? Talking to brokers. We've done a lot of that lately. And we've done a lot of us looking for our own home and saying, Will I use the Proportunity loan, will I not use the Proportunity loan?”
[00:24:30] From that perspective, it's nice to see that there's a lot of excitement for it. It's funny, we've now got to a point where I talk to someone, asking them to provide credit scoring, or asking them to provide some solution and they're working for a company. I tell them what we need and why we need them, and at the end they say, "Can I apply for this loan?" And they're saying, "I didn't know you were a customer but it's good to see that you're excited." So from that perspective, that's a reassurance that we've learned what we've needed to learn.
Nasos: [00:25:00] You were featured in the Evening Standard late last year, and in the article they showed some data from the Proportunity algorithm identifying 10 areas that were massively undervalued. What was the response to that? What sort of inbound did you get after that, and how did your partners also respond to the data that was coming through on that? Obviously, they got to see more than just the small table that was featured in the Evening Standard article. What sort of reactions have you had from them?
Vadim: [00:25:30] The best reaction was from our side because we weren't expecting it. We were helping Post Office Money become the bank for first time buyers as an image. We did a bit of research of the affordable areas that people can actually live in these cities, but which homes can these guys buy that will take them to their dream home? Usually, the first home you buy isn't necessarily the one you want. It might be too far, it might be too small.
[00:26:00] Post Office Money said, "We're having a chat with the Evening Standard and we want you share some of their insights." We started talking to them and suddenly the Evening Standard didn't want Post Office Money on the call, they just wanted to speak with us. So we talked about it and suddenly that ended up being a feature on us and on our areas, and we were very impressed by that. And then we started getting a lot of likes, we got a lot of phone calls and messages. There was even an investor from the US asking if we can forecast in Boston.
[00:26:30] Our investors loved it because they saw that these areas make sense. There was some newspaper that realized some of those areas were in the process of regeneration. It was, "But how did you guess that?" It was saying, "How do you teach your computer that?" We were saying, "We didn't. It figured it out by itself."
That was interesting. Seeing people's reactions to all of the things we built, because until then, we didn't really come out in the media. It was very encouraging.
Nasos: I think I could spend hours trying to pick your brain about insights into the property market. Maybe I'll try and do that after we finish. But in the interest of time, let's just finish up with a little bit of a personal reflection on this process for you. What have you most learned about yourself in building Proportunity?
Vadim: [00:27:00] So far, I think the number one thing is if you believe in something, if your heart tells you to do something, you will find endless pleasure in pursuing it. That was the number one lesson for me.
[00:27:30] When I came to EF I might have known a business I wanted to do, but I wasn't sure if entrepreneurship was for me. I hadn't done it before, I didn't know. For me, just answering that question was useful. I learned that I like it more fast-paced - you have a hunch about something, you push it and then you see if it works very quickly.
[00:28:00] Fundamentally, it was this idea that if you believe in something, it's bothering you and you make it your life's mission to do that, it can be incredibly satisfying. You don't have to be the best person at it. And by no means am I. I suck at so many things. But if you really believe in that and you make the best decisions you can, you will find a lot of people who want to not only follow you on that journey, but actually make it their life mission as well.
[00:28:30] The satisfaction you get when you do it is in and of itself worth the effort. I would do Proportunity even if I didn't get paid because it's interesting. That moment when you ask someone to sell you their product, and their mind stops focusing on that and starts focusing on tapping into your solution, that switch. The fact that you built that and it wasn't there, I think that's pretty nice.
Nasos: There's nothing more to add to that, Vadim. Thank you so much for coming on the show. It was a real pleasure chatting with you.
Vadim: [00:29:00] My pleasure as well. Thank you very much.