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Looking into the future with Chiris Rolls Pielab Venture Partners

Serial entrepreneur Chris Rolls understands social trends, economic movements and the drivers of disruption. He has started and sold four companies - the most famous being the specialist property management business Rental Express, which he sold for just under $30 million.

Chris is now at the helm of Brisbane based, PieLab Venture Partners - a venture capital business which invests in late-stage start-up businesses, with a particular focus on real estate.

Chris explains, “PieLab Venture Partners runs the Real Estate Industry Venture Capital Fund which is effectively a pool of funds that have been contributed to by people who own significant businesses in the real estate industry. Our mandate is to invest in businesses that provide products and services to the real estate industry, who have a view of improving efficiencies within real estate industries, to provide real estate agencies other sources of revenue and to reduce costs across the real estate industry".

"I love property management. It's a great industry because it's got sticky recurring revenue."

 

He believes the real estate industry is going to go through fundamental change on a scale never seen before. Chris says, “My view is, and certainly the view of a lot of people in the industry, unless you're running a highly-efficient, technology-driven, and profitable business, over the next ten years in the real estate industry you're going to struggle to still be alive. What's interesting in the real estate industry is there has been very little change worldwide in what we do over the last thirty or forty years. I mean, if you look at what you do as a sales agent, it's pretty much what you did ten, twenty years ago except you might use an iPad to take names and addresses at an open home, versus a pen and a paper."

But fundamental change is coming. Chris says, “We’ve looked at trends around money being invested into real estate technology. If you go back just to 2012, so five years ago, worldwide, publicly announced investment in real estate technology totalled $212 million. In 2016 that figure was $2.6 billion - more than a tenfold increase in investment in real estate related technology. A lot of which is designed to disrupt the traditional model of real estate. Our view is, with the Real Estate Industry Venture Capital Fund, we can invest in a lot of fantastic businesses and help them grow rapidly as a result of bringing all of our investors to the table. But we can also help protect them from incoming new technological business models, protect them from those by making these businesses more efficient, easier to deal with, and making the real estate principal more protected from impending potential disruption."

Sticky recurring revenue is a plus

Chris believes that businesses that will do well in the next decade are ones that have sticky recurring revenue. He says, “This is why I love property management. It's a great industry because it's got sticky recurring revenue. There's lots of industries that have that, and the reason I like it is because when you invest in a business that is very transactional by nature or is subject to the ups and downs of the economy, you can't predict sales in the future. When you can't predict sales in the future, it's very, very hard to tell how that business is going to perform longterm. Typically transactional businesses that don't have sticky recurring revenue are more wedded to a key inspirational leader to make them work. When that person steps out, either literally or mentally, the business often declines. We like businesses that have sticky long-term recurring revenue, and of course, the founding team is important. We're not buying businesses outright, we're not talking control, we are investing in teams to help them grow the business."

The bigger a business becomes the more valuable it is

Obviously, a bigger business is worth more than a smaller business. Chris explains, “It's worth exponentially more. A property management business that has 100 properties under management might be generating $200,000 a year and have three salespeople generating $800,000 a year. You've got $1 million worth of revenue. That business is not worth a tenth of the same equivalent business that's generating $10 million worth of revenue. The reason behind that is the smaller a business, the higher you've got a risk of one or two key people leaving and the whole thing folding. Whereas if you've got a business that is ten times the size, you can have some key people leave and it's got enough revenue to sustain, to rebuild, and to fix. It's also got enough revenue to pay highly skilled executives to continue to grow that business. Typically what you find is just because a business is ten times the size of a smaller equivalent, it's typically worth more than ten times the value.

Size breeds value. That's why I think in terms of the Rental Express sale, the price that we got in terms of multiple of the rent roll was probably one of, in fact at the time was, the highest that we'd seen across the Brisbane market."

Chris believes that the great price that Rental Express attracted wasn’t necessarily because of the quality of the property management. He says, “It was because of the quality of the systems, the procedures, the people, and the fact that it didn't rely on me to run it. We had an experienced executive team in there. It was because of the growth mechanisms and the offshoring that we had in place. All of those things added value because we had a very strategic buyer. We had a buyer that wanted big market share in the Queensland market, an experienced team, and they wanted to take advantage of things like our offshoring back end and roll that out across the rest of their business - and that's why they bought us."

Is your business ready to withstand disruption?

 

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