20VC 3 Addictions Of EarlyStage Startup Founders, How Founders Should Strategically Think Through Unit Economics From Day 1 & Why Micromanagement Can Be Beneficial In The Early Days with Adena Hefets, CoFounder @ Divvy Homes

In this episode of 20 minutes VC, host Harry Stebbings interviews Adina Hefetz, co-founder of Divi Homes, a company revolutionizing homeownership by turning rent into down payments. Adina shares her journey from private equity at TPG to starting Square Capital, and eventually founding Divi Homes, which has raised over $189 million from notable investors like Andreessen Horowitz and Max Levchin. She emphasizes the importance of positive unit economics, the challenges of raising debt versus equity, and the value of building relationships with investors over time. Adina also discusses her leadership style, advocating for a hands-on approach in the early stages of a startup, and the support system she's built among fellow founders. Reflecting on her experience as a female founder, she offers advice on fundraising and the significance of mentorship.

• Adina Hefetz is the co-founder of Divi Homes, a startup transforming homeownership.
• Divi Homes enables renters to turn their monthly payments into a down payment for property ownership.
• Adina has successfully raised over $189 million from renowned investors including Andreessen Horowitz and Max Levchin.
• Before Divi Homes, Adina was an early-stage fintech investor at DFJ and was part of the original team at Square Capital.
• Adina began her career in private equity with TPG.

"And so with that, I could not be more excited to welcome Adina, her Fetz cofounder at Divi Homes, the startup that turns your monthly rent into a down payment, allowing you to get on the property ladder sooner."

This quote introduces Adina Hefetz and her company, Divi Homes, which offers an innovative path to homeownership by converting rent into a down payment.

• Adina's transition from private equity to startups was unconventional at the time.
• She joined Square when it was a 300-person startup and contributed to the growth of Square Capital.
• Her experience at Square was pivotal, working with a talented team and achieving success with their lending platform.
• Adina's decision to start Divi Homes stemmed from a desire to innovate in the fintech space, particularly in real estate.
• She identified the difficulty in obtaining mortgages post-recession and sought to provide an alternative pathway to homeownership.

"And so I actually did this, what was a very weird path at the time, but ended up going to around a 300 person startup at the time called Square, which now is a really big public company."

This quote explains Adina's unconventional career move from private equity to joining Square, highlighting the startup's significant growth since then.

• Adina believes operating experience is more impactful than investing experience for her current role.
• She values the perspective gained from different roles: employee at a fast-growing company, investor with a broad landscape view, and founder understanding the dedication needed to scale a company.
• Adina posits that her founder experience would make her a better investor, as she now has firsthand knowledge of the challenges and intricacies of growing a business.

"My time as an investor, let me see, kind of the forest and the picture of the entire landscape. But my time being a founder now has really given me just tremendous perspective on the persistence, the hustle, the hunger that's needed to actually scale up a company."

Adina reflects on how her experience as a founder has given her a deeper understanding of what it takes to grow a company, which she believes is an essential perspective for an investor.

• Adina emphasizes the importance of unit economics in business, a lesson from her early career in private equity.
• She was taught by Jim Coulter of TPG that a good company needs to generate cash flow and maintain positive unit economics.
• Adina finds the venture capital approach sometimes uncomfortable due to its acceptance of reckless growth, preferring to focus on creating a business where income exceeds expenses for each customer.

"And I think that that was just drilled so deeply in my head that I always actually found venture kind of uncomfortable in some ways. There's a recklessness about a lot of founders that I find I don't have, which is, for me, I fundamentally would never want to create a"

This quote reveals Adina's fundamental business philosophy influenced by her experience in private equity, emphasizing the necessity of positive unit economics and sustainable growth.

• The tension between pursuing growth and maintaining positive unit economics is a key challenge in the tech industry.
• Adina Hefetz emphasizes the importance of building a scalable business model that ensures positive unit economics for every home in Divi's portfolio.
• The industry norm leans towards rewarding massive growth, often at the expense of unit economics, which Adina finds somewhat contrarian.
• Adina suggests that growth and unit economics are slightly in contrast but not in a perfect one-to-one relationship.
• She advocates for a measured and thoughtful approach to growth, citing Amazon's steady growth in the 2000s as an example of long-term success.

"product that I ultimately didn't think was super long term sustainable and producing positive unit economics. It's quite hard to stay grounded in those perspectives when you're in an environment where massive growth is heavily rewarded in terms of valuations and where that's kind of the norm for the industry."

This quote highlights the difficulty of focusing on unit economics when industry norms and valuations prioritize rapid growth.

"I don't think it's a perfect one for one relationship, but they definitely are slightly in contrast."

Adina acknowledges the nuanced relationship between growth and unit economics, suggesting that while they are related, they can also conflict.

• Adina discusses the evolution of customer acquisition costs (CAC) and the balance between paid and organic growth strategies.
• She notes that there are diminishing returns on marketing spend and the importance of deploying capital thoughtfully.
• Divi focuses on building other distribution channels, such as real estate agent referrals, to reduce blended CAC.
• Adina warns against the reliance on paid marketing and the need to develop proprietary distribution channels.

"So I think that there is a level of you can deploy too much capital at one point in time and thinking about what is the optimal level of spend to get the maximum number of users or customers out there."

This quote emphasizes the importance of strategic capital deployment in marketing to optimize user acquisition without overspending.

"So that's a completely organic distribution channel. And that is what is so core towards ultimately bringing down what our blended CAC ends up being."

Adina highlights the significance of organic distribution channels, like real estate agent referrals, in reducing overall CAC.

• Adina identifies three common "addictions" among early-stage founders: reliance on paid marketing, overhiring, and lowering prices.
• She criticizes the tendency to use paid marketing as a quick fix for growth and the pressure to constantly hire more employees.
• Adina argues for discipline in pricing and the importance of recognizing the inherent value of the product or service offered.

"Second, addiction is overhring. And so most employees, when they come and they join your company, they're really excited and they really want to hire right away and build out a team."

Adina points out the addictive behavior of overhiring and the challenges it presents in maintaining a lean and efficient operation.

"And then I'd say the last addiction is probably lowering your prices."

This quote reflects on the temptation founders face to lower prices for short-term growth, which can undermine long-term unit economics.

• Adina believes that the pressure for rapid growth comes from various sources within the tech industry, not one single group.
• She notes a shift towards more thoughtful growth, away from the previous emphasis on rapid expansion at any cost.
• The conversation suggests that investors, operators, and employees all share responsibility for the growth-at-all-costs mentality.

"I don't think the blame is on any one person. And I also think everyone's intentions are quite good here."

Adina refrains from assigning blame and instead points to a collective responsibility for the pressures of rapid growth.

• Adina discusses her experience as a female founder in the fundraising process.
• She expresses gratitude for the support from her investors and considers herself fortunate in having had a relatively smooth fundraising experience.
• Adina advises other founders, especially women and minorities, to seek mentorship and community support before embarking on fundraising.

"For me, I've been really fortunate where we've had a pretty easy fundraise process in the past, and I feel really fortunate for that."

Adina acknowledges her positive fundraising experience and the role of supportive investors in her journey.

"Yeah, my advice would be, don't do it on your own."

This quote offers guidance to other founders to leverage the experience and support of mentors and investors in the fundraising process.

• Founders should consult with peers before fundraising to refine their pitch.
• Peer support extends beyond advice to active backing during fundraising.
• Community among founders is seen as a "founder's code" to help and support each other.
• The importance of networking and offering support within the founder community is emphasized.

"A perfect example is before I go out for any fundraise, I'll sit down with other founders in the industry and I'll just be like, here's what my pitch is. Tear me apart, tell me how I should be doing this better."

This quote highlights the practice of seeking constructive criticism from fellow founders to improve one's fundraising pitch.

"And what I mean is that it's not just Adina going out and going on random pitches and coffee chats. It's, for example, Eric Wu at Opendoor, pinging his investors and being like, I just heard the divi pitch. It is amazing. Adina is awesome. Let me put you in touch, because you guys should make sure you get in on this round."

The quote illustrates the level of support founders can receive from their network, where peers actively promote one another to potential investors.

• Building trusting relationships with investors is crucial and takes time.
• The current funding market is fast-paced, raising the question of whether founders should always be raising.
• The argument is made for continuously nurturing investor relationships, even outside of fundraising periods.

"Totally agreed. In terms of that community and support. Can I ask as an investor state, for me, it's a huge amount about building that trusting relationship, and it takes time to build the trusting relationship."

This quote emphasizes the importance of trust in investor-founder relationships and acknowledges that it requires time to develop.

"You've got to build out relationships with people over time. It's just a large investment and truthfully, it's good for you and them."

The speaker advocates for long-term relationship building with investors, highlighting that it is beneficial for both parties.

• Raising debt is more challenging than raising equity due to the intensive due diligence process.
• Debt providers require detailed analysis of financials, often more so than equity investors.
• Startups may initially rely on smaller debt facilities from high net-worth individuals before scaling up to institutional investors.

"Yeah, debt is tremendously harder than equity."

This quote succinctly states that raising debt is more difficult than raising equity capital.

"When you go out with our debt providers, they ask for something called the loan tape or the home tape, where they're going through every single number related to every home that comes onto Divi's balance sheet."

The speaker describes the rigorous due diligence process that debt providers undertake, which involves detailed analysis of the company's assets.

• Initially, institutional investors may be hesitant to invest in innovative real estate tech companies.
• Supportive equity investors can help startups raise initial debt facilities.
• The market's comfort with new asset classes can evolve, leading to easier conversations and larger facilities with major institutions.

"So I would say when we started about two and a half, three years ago, I went out to raise an initial debt vehicle. And we were so fortunate that we had great investors who supported us because when we went out initially to the investment banks, they were basically, they laughed at us."

This quote recounts the initial challenges faced when raising a debt vehicle and the importance of having supportive equity investors.

"Today, our last facility that we closed a couple months back was with Goldman Sachs and more capital. So pretty major institutions."

The speaker highlights the progression from initial skepticism to securing facilities with major financial institutions.

• Micromanagement can be seen as necessary in the early stages of a startup due to the urgency and limited time between funding rounds.
• Founders should communicate openly with their team about the need for closer involvement.
• Clear expectations and honesty can make micromanagement effective in the short term.

"You're living year to year. I mean, this isn't a. I have ten years to build a company because maybe if you're cash flow positive as a startup, you do."

This quote explains the time constraints startups face, necessitating a more hands-on management style.

"You are responsible for getting involved and you shouldn't be embarrassed or concerned about micromanaging, and instead you own it."

The quote encourages founders to take ownership of the need to micromanage when necessary and to be transparent about it with their team.

• Female leaders may face expectations to exhibit caring and empathetic behaviors.
• Being a tough, execution-focused female leader can challenge traditional gender stereotypes.
• Authenticity and comfort with one's leadership style are important, even if it defies expectations.

"I think it can be at times tough that people expect you to have a very caring and outwardly empathetic demeanor as a female."

The speaker discusses the societal expectations placed on female leaders to be more empathetic and nurturing.

"I think I've worked a lot to get myself to the point of just being so comfortable with, like, hey, I know I can be tough at times, but this is to grow us and with the be"

This quote reflects the speaker's acceptance of her leadership style and the recognition that being tough can be necessary for the company's growth.

• Acknowledging weaknesses can strengthen a company.
• It's important to work on areas of self-improvement.
• Being direct and transparent about one's identity is key.

"It's owning it, it's working on those other areas, because even though you're not great at some things, you want to still work at yourself and grow through it and just being really direct and transparent with everyone about who you are."

This quote emphasizes the importance of self-awareness and the willingness to improve oneself, while also being open about one's strengths and weaknesses.

• Time is critical in the life of a startup.
• Execution and focus are essential for success.

"Time is the biggest killer of startups."

Harry Stebbings suggests that poor time management can lead to the failure of startups, highlighting the importance of efficiency and prioritization.

• Divi's culture encourages questioning and critical thinking.
• Challenging assumptions and maintaining high expectations are key strategies.
• The "red team" concept from TPG is used to consider alternative perspectives.

"The way I think that you push people is by really getting to the root of how they thought through a problem and pushing them to question their assumptions."

Adina Hefetz explains that pushing team members involves deep analysis of their problem-solving approaches and encouraging them to critically evaluate their own assumptions.

• Stepping slightly out of comfort zones can lead to learning and growth.
• Encouraging an environment that pushes boundaries is beneficial.

"I want to constantly be in an environment where I'm pushed outside of my comfort zone just a little bit, like not a ton, but constantly a little bit outside of that comfort zone and learning."

Adina Hefetz advocates for a balanced approach to pushing boundaries, suggesting that moderate challenges can foster continuous personal and professional development.

• Reading is seen as a valuable habit.
• "Evicted" by Matthew Desmond is recommended for its insights into American housing issues.

"I really like evicted by Matthew Desmond. It's, I think, really important because it goes through the challenges with renting and housing in America."

Adina Hefetz shares her reading preference and the impact it has on her perspective, particularly in relation to her work at Divi.

• Persistence is a personal superpower, aiding in overcoming challenges.
• Patience is a noted weakness, but there's an improvement over time.

"Persistence. I have this ability to just kind of push the team really hard, push me really hard, and then as a result, as a group, we tend to run through walls."

Adina Hefetz identifies her ability to motivate and drive her team as a key strength, while also acknowledging her struggle with patience.

• The Obamas are viewed as symbols of American progress and success.

"I think like the Obamas, Barack and Michelle Obama. I think that they've managed to stand for so much more than just being presidents, but symbols of where we want America to go towards."

Adina Hefetz sees Barack and Michelle Obama as embodiments of success, not just in their roles as President and First Lady but as representatives of American aspirations.

• Divi was incubated by Max Levchin's HVF.
• The relationship with the co-founder led to the first investment.

"So it's interesting because I would say we were incubated by Max Levchin. He had an incubator called HVF, and we were incubated within it, and he paid for space for us to be able to ideate."

Adina Hefetz recounts the origins of Divi's funding and the crucial support provided by Max Levchin and his incubator, HVF.

• Eric Wu at Opendoor is a significant mentor and supporter.
• The mentorship has influenced Adina's own approach to supporting other entrepreneurs.

"Eric Wu at Opendoor has been a tremendous supporter of me."

Adina Hefetz credits Eric Wu for his guidance and support, highlighting the value of having a mentor in the entrepreneurial journey.

• Hiring a COO was particularly challenging due to the role's broad scope.
• Differentiating between market-specific expertise and general execution skills is important.

"And the reason why is a COO is such a jack of all trades, where they have to be able to do things like understand the finances of the business, to understand marketing spend."

Adina Hefetz discusses the complexities of hiring for a COO position at Divi, emphasizing the diverse skill set required for the role.

• Investors are helpful with network introductions and moral support.
• Founders and executives often have better insights into their business challenges than investors.

"What maybe people are surprised, or at least my perception of what maybe they're not as helpful with is no one's going to know your business as well as you do."

Adina Hefetz points out that while investors can offer valuable resources, the nuanced understanding of a business often lies with its internal team.

• Divi aims to provide 100,000 homes to families, surpassing the largest REIT in the U.S.
• The focus is on simplifying the path to homeownership for Americans.

"I mean, for our company, we have a singular focus which is 100,000 homes for divi families."

Adina Hefetz outlines Divi's ambitious goal to impact the housing market significantly by making homeownership more accessible.

• Carter, Terminal, and Drift are recommended for equity management, remote team building, and conversational marketing, respectively.

"Carter simplifies how startups and investors manage equity, track cap tables and get valuations."

Harry Stebbings endorses Carter for its equity management solutions, suggesting it is beneficial for startups and investors managing significant equity.