Helping Renters Get Into Homes with Michael Rudoy of Jetty

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December 2, 2021

Mike Rudoy is the Co-Founder and CEO of Jetty, a financial services platform that helps make renting a home more affordable and flexible.

Jetty offers three products to help renters get into homes:

  • Jetty Deposit - security deposit replacement
  • Jetty Rent - rent payment program
  • Jetty Protect - renters insurance

Not only does Jetty help renters, the services makes managing properties easier too. It's a win win situation and example of a successful business model that places the product in the middle of a sales chain.

During the interview, we discussed the business model behind Jetty, Mike's entrepreneurial journey, the general state of housing in America and much more.

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Transcript (this is an automated transcript):

MPD: Welcome Mike.

Michael Rudoy: Thanks for being here.

Very

MPD: cool. Let's start off. Do you mind giving us a quick overview of your background?

Michael Rudoy: Sure. Just like the

MPD: 32nd minute version. So people have a sense of who you

Michael Rudoy: are. Yeah. Grew up in Chicago, went to Princeton, undergrad did two years of management consulting at a company called diamond, which is now part of PWC.

I left a couple of years out to start my first company. It was called big live as a live video streaming platform. We were. Streaming concerts and live red carpet events and film premiers, et cetera. I did that for about four years. Raised a bunch of venture capital, had a team out in LA. That business got Aqua hired.

I came back to New York started up a little consulting shop of my own before getting back into building a venture backed business, which ultimately became.

MPD: Very awesome. You and I have a lot in common. It's a entrepreneurship in the blood. You know, we're investors in Jedi, we're obviously a big fan of what you're doing.

Would you mind starting off by giving us an overview of the business?

Michael Rudoy: Yeah, so we are building the financial services platform for the rental real estate economy. Everything that we do is meant to do basically help both sides of the lease. So for property managers, it's all about helping them manage renter risk more effectively.

And then ultimately for renters, it's about making their lives as a renter, more affordable. We want to be able to get them into the apartments that they want and then ultimately stay in. So to date, we have launched three products. Two of which are insurance and the third is lending and all of them can be sold at the point of lease such that it will help you get in.

So the first product is called Jedi deposit and it is a security deposit replacement. So instead of posting a large security deposit, if you don't have the cash you can now pay a small, monthly fee gain access to the home that you want. And for a property manager, it's about marketing, a cheaper unit and driving occupancy.

And also now being able to get the requisite coverage, they need to protect themselves from bad debt. We also sell renter's insurance and our third product, which is new as of this August is called Jedi rent. And it is a cousin of buy. Now pay later for your. Think about it as we will pay your rent.

On the first of the month, we will give renters 24 days to pay us back. And the reason why that's important is because if you are living paycheck to paycheck or you're in the gig economy, or if you have large bills and you can't get the money in on the first of the month, you are hit with a large, late fee that can oftentimes compound and lead to eviction and abandonment, which is the problem that we're trying to solve for property managers.

So those are three examples of products that we have launched. We have a long list of products to. But all of them, again, come back to helping making, renting more affordable and helping protect property managers from that debt. Love

MPD: it. Who do you sell to? Is it, is this something where consumers should be looking to sign up or they only sign up app?

The renter only signs up after their buildings on it. Who do you sell to?

Michael Rudoy: Yeah, the entire business model is B2B to C. Ultimately sell to the consumer. So the consumer is purchasing the product, so we generate revenue, but it is being sold through relationships with property managers or owners.

So without the property manager owner, we actually can't get in front of the customer.

MPD: Got it. Okay. And Y you've got these three products. The one that always catches me as a security deposit. That I've been in a fortunate life in many ways. It's never been an issue for me. Why is that an important product for a lot of people out there?

Michael Rudoy: So we'll start with the problem at hand, which is 80% of renters in this country are living paycheck to paycheck with about $400 average in their bank accounts. So that's 40% of their income is going to. So this is a financially burdened individual that we are trying to help. And ultimately we are trying to free up liquidity.

You can think about JD deposit as a liquidity tool. So instead of paying both the first month of rent and a security deposit, whatever that cost may be it a month or maybe half of that. Regardless. That is a lot of money, especially when you add on moving costs, et cetera. And so you might not be our target audience actually right.

Are really helping people who need all the financial help they can gaps. And in many cases, without Jedi deposit, they would not be able to access their unit.

MPD: Yeah. It's going to say what happens to a lot of folks now who are paycheck to paycheck. When they have a decent sized security deposit to pay up front, they just don't get.

Michael Rudoy: They would go to a different place. I see.

MPD: So that is that often one of the bigger financial considerations is security deposit more than the monthly rent or those kind of way out for folks. Generally,

Michael Rudoy: they're both important. Ultimately. So getting in it's really about the security deposit over time.

It can be about the rent but usually the property manager will make sure that. They're in a financial position, such that they could afford the rent. But what begins to happen is because people might have lumpy incomes or they might have spikes in their financial responsibilities. They might not have the cash on hand to smooth that over.

And so that's effectively what our new product Jedi rent is designed to do. It's designed to give people the time that they need such that they're not financially penalize. If for example, one month they have a large bill to pay

MPD: and what's the shtick for landlords building owners. If they're really, the people have to decide to bring this in house, why are they adopting

Michael Rudoy: the way in which they're managing?

So there's a pitch across each product and then there's a broader catch. The broader catches all about the broader pitch is all about reducing bad. So this is about getting runs in on time, making sure that cashflow is there, making sure that you're not evicting people. This is how their business ultimately operates.

And when there is too high, bad debt it ends up really hurting their business. So it's one of the things that they are very in tune with and trying to reduce specifically Jedi deposit. In today's world, they are trying to number one, get people in the unit. They also want to make sure that they're protecting themselves against lost rent, someone not paying at the end of the lease or damage to the unit.

That's what RJ deposit product covers. And so if a renter is higher risk, they might not be able to afford the. The security deposit and they surely couldn't afford a higher security deposit if they're deemed as a higher risk. And so what our product allows a property manager to do is optimize the amount of coverage for the risk of the renter.

So a higher risk renter equals more coverage, a lower risk renter equals less coverage, but the out-of-pocket cost to the renter is going to be less than it would have otherwise been. If they were forced to post. So that's why we talk about it as a win-win the property gets the coverage they need, the renter gets the reduced upfront fee.

Okay.

MPD: And that talks about this. Yeah. And it gives people a sense of why the landlords are signing up for this. And we've talked about it before. You guys have a mind shift happening. You're shifting from thinking about yourself as an insurance platform to a broader financial services company. Can you explain.

What that means to you? We're involved in insurance and financial services and different plays we're involved with, but I know this meat has very particular meaning to you.

Michael Rudoy: Yeah. We started our company as our identity was as an InsureTech. We built all, all the products that we thought about was through that lens.

And I actually think that's how legacy insurers think about themselves. They think about themselves as we are an insurance company. The way that we grow is through more insurance products. And that is how we started. I think what we began to realize is we ask ourselves, what is the jobs to be done of jetty deposit?

It's ultimately about. Saving people money or making renting more financially flexible. So we extracted away the methodology of the product or the type of product insurance from the problem it was trying to solve, which is about affordability. And we made affordability the mandate and basically asked.

What are the other products and services that we could come up with to solve that problem? And that's the company that's ultimately going to win here. So it may not be insurance. We don't have to grow in insurance just because we have the infrastructure to do it. We should be thinking about what's the most value we can provide to a property.

What's the most value we can provide to a renter in this specific problem. And that's when we expanded, our view as to what we could potentially do as a company.

MPD: It's such an interesting thing. When I was junior in business, I didn't pay much credence to the concept of missions having a north star.

You my thinking was you knew what you were building, you had a set of customer needs and you operate around that. What I've come to realize is there's too many opportunities when you find the right. And defining your mission as essentially drawing a dotted line around the opportunities set that you're gonna chase, an interplay we're at our core, we're a venture capital firm, but we define our mission as trying to do anything we can to accelebrate, accelerate the process of an entrepreneur.

Personally, I believe, I think it's very obvious to everybody. If you think about it, entrepreneurs by definition are they don't succeed, are improving the quality of society. So that expanded our scope out to content, things like this, that I'm doing this. This didn't make sense for me under a VC mandate.

Maybe it was maybe arguably you could argue was marketing, but we're not waking up thinking about just VC. We're thinking, how do we take friction out of the whole thing, right? How do we make it easier for everybody? So this concept, while it may sound trivial to people about really spending time to find that mission, I think to a strategist there is rubber on road where it does change the trajectory of a company.

And it's a little nuanced, but it's practical. So it's interesting to hear you talk about it because it doesn't come up a lot in these conversations because it's frankly, for many it's implicit. Okay. Let me take a step back here.

Michael Rudoy: Looking at your bio.

MPD: You're a highly educated strategy. Tech entrepreneur, serial entrepreneur.

It doesn't read a lot about real estate or rent. How'd you end up doing this.

Michael Rudoy: It was a bit of a windy road, but it started with a thesis around financial services FinTech at the time in which Jedi was being started was in the midst of a boom. And it was very clear in 2015 that one of the main pillars of financial services that really hadn't been tackled yet.

Wasn't shark. And so the question was what is the insurance opportunity that I could see myself building? What lends itself to my skillset. What's the company we want to be, where do we start? And I chose myself as the customer and I was a renter and I was buying renter's insurance. Didn't have a good experience.

Also recognize that renter's insurance was very much overlooked by incumbents. It's a lower premium product. It's typically treated as a cross sell opportunity. But when your margin profile changes, because you can go direct to consumer that sort of changes the calculus. And that was the original sort of thesis of the company was that we were going to be the next state.

And we were going to start with renters insurance because it was this open, direct to consumer opportunity and one that we could target a younger demographic. We then in addition to selling direct to consumer we realized that there wasn't a lot of it was difficult to build a moat when you're just competing in Google or competing on social.

And with a product like renter's insurance, where the premium was effectively kept and it was quite low relative to other insurance products. If there was a lot of other people competing in the same channel, then your unit economics would erode. And so we were looking for other channels to sell this product, and we also saw another trend happening, which was that now.

The 80% of the institutional real estate market require that renters purchase renter's insurance before they move in. So this has gone from a suggestion to a mandate just to be able to access your apartment. And so people were online looking for it in a way that they never had, historically, because of this mandate.

They were effectively checking a box, maybe not too dissimilar from auto insurance. You need it to drive. That's a regulatory mandate. This is a mandate imposed by a property manager, but nonetheless, that's why people were buying it. So that led us to this channel opportunity where we started exploring what would it be like if we went B2B to C, then once we truly understood the needs of that audience, our eyes were open to other problems that insurance could solve.

And in this case, a security deposit being the main one. Over time that became our main product. And we dropped direct consumer because as we predicted, it became crowded very quickly. Once other people identified the same opportunity. So that brought us in, it was really the channel that brought us into the real estate market.

And then once we were in it, we learned what are the other problems to solve and effectively became. This is

MPD: actually a big insight because there's a lot of industries, a lot of companies were involved with, or we were seeing where, a huge chunk of their fundraising budgets go to customer acquisition through the primary channels of Google, Facebook, and other ad everyone's knowing the cost of acquisition is going up.

It's increasingly competitive and challenging is the first time I've heard of it driving a fundamental shift, not just in channel, but as a by-product of a channel shift. Shifting the model. Yeah. Which is fascinating. So I wonder if this is going to be, actually be a trend as these markets are increasingly saturated where B2B to C becomes more predominant as a result.

Michael Rudoy: Yeah. There's a huge thesis that a lot of VCs are following an entrepreneurs around embedded finance, which is how do you embed yourself in the purchase flow? So you could think about, buying flight insurance. When you're purchasing a flight on delta.com it's sort sitting in front of you.

You're not going to go and buy flood insurance direct. Affirm is a good example. It's, right in checkout. And I would argue that jetty is a good example. It's in the flow of signing a lease is checking the box for Jedi deposit, checking the box for Jedi renter's insurance. Checking the box for Jedi.

And so we want to be where the consumer is and we just think that's the best way to build a defensible and sustainable business. But yeah, I agree. Just bringing it back to your broader point. I think we started to realize that distribution is in many cases, harder than product development cracking it.

What do you mean by that? I think that while there are a lot of steps and potentially money involved in building a call it a renter's insurance product. And you could, you could sell renter's insurance through a lot of different channels, which is the channel that's going to work. That actually is I think, a harder problem to solve than building the product.

And so that's actually the reason why we shifted to this model, where now we think about our business as channel first, what are the products and services that our channel wants and therefore our customer and how do we then build products around that? Because we have a belief that the more value, especially in a B2B or B2B to C mark, The more value you can provide to your customer or your distributor, the higher the switching costs.

And so it behooves us to not just think about what are the uninsurance products we could sell through this channel because we have the infrastructure, but what are the things that the channel needs, because it's going to be a lot easier to sell. And by the way, there might not be other insurance products.

So we have to think about, we have to think about the world more broadly. And since we have this channel, how do we actually leverage it to the best of our abilities and increase the revenue out of that initial channel sale?

MPD: It seems like it would also have important competitive dimensions to it. You're in a fairly some level of commodity market having a channel strategy seems to be a way to create a. Can you talk about what it's like to compete in a market with this level of competitive intensity?

Michael Rudoy: Yeah. So I'll talk about it in two ways. One is insurance oftentimes can get commoditized lending can as well.

And in a commoditizing market, you can use distribution as a way to differentiate. That's actually where we start. A lot of people had a digital first renter's insurance product and everyone was looking for a channel to sell it through when. So that's one way to differentiate. So for example, going direct, if your Geico is disruptive for selling auto insurance versus brick and mortar, like maybe state farm historically, and that was the distribution was the differential.

When it becomes a little bit more complicated is when you have the same product and you have the same distribution. So there are companies that we compete with for both of our core products, Jedi rent to JD deposit, where I would argue our product is better on a handful of accounts, but for the purposes of this conversation, let's just pretend that they are all equal and we're fully commoditized.

If we both share the same channel and we're selling it to the same district, a distribution channel, how do you then differentiate? You need to yet another way to do it. And my belief is that you do so with a broader value proposition. If you can go to the distributor in this case, a real estate company, and say, I have five products that can make your life easier or better, and your renter's life easier and better.

And a competitor is coming with. They are going to go with us because we're providing more value. And so that is actually our strategy is to provide as much value to the property as possible. Vis-a-vis our competitors who share the same, who might share the same product might share the same channel.

So this

MPD: isn't a totally new concept. It's just an interesting application of it. Instead of calling you mean you're calling the building owner, the channel. But if you were to call them the customer, yes. Having more product features set. And that's, that's a big concept here. People got pushed into channels, which are the embedded finance channels, which is a huge advantage.

And that's leading to different scope of products that I think it's fascinating. I think it's going to change the type of services coming through the system simply downstream or upstream because Corian customers is expensive online. So

Michael Rudoy: interesting. Yeah. In our case, the buyer, if you will, the real estate company or they are the channel, they're not purchasing the product, but let's just call them the buyer for this conversation.

These are companies that I would say have a ceiling in terms of what they are able to integrate as part of their leasing process. To take, to actually partner with a company like Jedi, there is overhead, there is a technical integration. There's a process integration, there's training, there's management of that vendor.

There's compliance. There's a lot that goes into it. And with the boom of prop tech, these real estate companies are being inundated with pitches on a daily basis. And let's just pretend that they wanted to use all of them. They. And so what they really are looking for are platforms, not point solutions because they just don't have the operational prowess to our resources to onboard all these different companies.

And so it is, I think it's really interesting to look at the companies who have been successful in this market. Let's look at the big property management software companies, Yardi and RealPage. They are constantly acquiring companies. Because they are in a re a value proposition race because they realize the same thing, which is they want, they re they recognize that these real estate companies want to deal with as few companies as possible.

So they want to do it all. And so that was, I think, as it relates to Jedi in our current market position, There are, there is at least one company that has a flexible rent product. There are a handful of companies that have a security deposit alternative, but there, there's obviously a number of companies.

That's all renters insurance through the channel, but there is not a single platform that has all three. And as a result, when we go head to head with these companies, we oftentimes will win. So

MPD: as I'm hearing you talk about it, I'm having flashbacks to when I started the business. 15 odd years ago when someone would come in and pitch doing everything, which is a mistake I've made in my own entrepreneurial set of my career.

It was a pretty negative signal. And the reason why is, I think it was so hard to build technology back then, it was so slow, onerous and costly at the odds of being successful in such a vast array of technology was low. Whereas today where a lot of the development's been streamlined, you've got a better software programs.

You've got off the shelf tools. The idea of we're seeing a pattern of a lot of companies coming through who are building kind of robust suite solutions. It's, it's not crazy anymore. And it's funny. It, it's not something I planned to talk about today, but it struck me as you were describing it.

How out of sync it is with the venture market of. Just the turn of the century. Let me switch gears here for a second. You've got an interest for your story. In addition to interplay you've got a bunch of great venture firms on your cap table. You've got firms like Cosla ribbit, many others.

What did you learn along the way that you could advise entrepreneurs listening that has worked for you so well in fundraising, how have you been able to attract some of the best firms to get behind you and support.

Michael Rudoy: Maybe I'll start with like how the original, our seed round and how that happened. We, uh, me and my co-founder were building a thesis around InsureTech and the way we want to attack things. And rather than. Build a pitch stack and go pitch someone in the traditional way. We reached out to smart people and VCs, we were not pitching for money and we were trying to get their take on.

Do they believe in this thesis? What could change? And along the way we received. A white paper that ribbit had penned which was effectively like a call to arms. Where are the insurer? Where are the insurance entrepreneurs? And it was very clear that we shared the same thesis around the fact that this is going to be a big market.

And so we got in touch with them and. Three months. We had a call once a month where we updated them on our progress and we shared our learnings. And I think what that allowed them to do is see the evolution of our thought, how quickly we were coming up, the learning curve considering we were not coming from an insurance background.

They were pushing our thinking and I think it became a really interesting. Sort of test for how we could collaborate, how we could share ideas, how we could influence each other's thinking. And so when the time came and we were like, no, we're actually going to go raise money. I think it made it a lot easier for rebut to say, we're going to lead this round and put in, we're gonna put in a check here, which I don't know, maybe in this market if that's a necessary.

Just given the fact that lots of things are getting funded very quickly. But I think that worked really successfully for us. We have raised money from funds that we didn't know as well. And I think in those cases, it really comes down to being clear about the story and tying the story into probably.

A broader story that you could imagine a VC is looking at, because I imagine, and you can tell me if this is right, you're thinking about the world. You probably have a number of maybe individual ideas, but you're also seeing broader trends. And and you're probably investing alongside those trends. And so if an entrepreneur is able to clearly articulate why they are on track, And why the time is right for this particular idea.

I think it's a lot easier to get someone to come along for the journey and to get up to speed really quickly and pull the trigger. I love

MPD: that story. And I do think that early relationship building with VCs is super valuable, especially if you're working through concepts. It's also hard. The challenge is, as a VC, we're talking about this in the last pod where you.

You get so many inbound from great people that you'd love to talk to you, but you just can't make it work. It's, at VCs love to think that they're smart because they get the inbound in because they're smart, they have money. And so we've got all this inbound coming at us and you want to help everybody.

At least I do. I'm sure most do, but you can't do 10 hours of meet and greets a day and still get your job done. So there must've been something that triggered with Ribit where they saw you guys. Maybe it was your background. Maybe the initial concept was close enough to the mark where they said, Hey, we're going to, we're going to watch this one.

We're already thinking about investing. I do think it's hard for VCs to do the kind of collaborative thinking. If they're not, if it's not on track for deploying capital instead, that's

Michael Rudoy: their job. Yeah. I think for entrepreneurs, it's also important to, just to be cognizant of signals about yourself and your company.

It's not just the idea that is the signal, it's all the other, there's probably dozens of other signals that are going to make you interested in focusing on one versus another. It might be the company that you came from. It might be the advisor you have, it might be the way in which your deck is designed.

It might be there's many different ways to provide positive signals and some signals are stronger. But I think it's probably. Entrepreneurs, especially maybe first time entrepreneurs thinking pretty seriously about what are all the signals that I have control over. And how can I put myself in the best position to get Mark's attention?

MPD: I love that. It's good advice. You're giving it's good advice. Now you've taken money from folks in the real estate industry as well. Yeah, any pros and cons. This is a complicated decision for a lot of entrepreneurs out there about taking money from industry or customer segments. There's concerns about negative signaling or too much information access for future acquisition conversations.

There's all these things that make people anxious. What have you learned about, getting funded by existing players in the industry? Not just institutional capital.

Michael Rudoy: I've learned a lot about the process of doing it. And there's definitely like a different pitch that you might tell to strategic maybe versus a typical financial investor. And I think it depends on the market dynamics of the industry that you're pitching in terms of whether or not it's going to be a negative or a positive signal.

Or if it's going to Hinder your ability to get a deal done with a competitor of your investor. I don't know if you're in a zero sum market and you have two big strategics that are head-to-head and one of them invested in you, but you want to do a deal with the other. Maybe that becomes a problem in real estate.

It does. It's not really a problem because real estate companies, while competitive at maybe a higher level. They don't really see themselves. It's not really that big of a zero sum game. So an investment by real estate company a is not going to block real estate company B from doing a deal. In fact, in this particular market, I think that it just provides credence, but what it really does, and the reason why I'm interested in, um, strategic investors is because it's aligned distributor.

If this means that we can now get access to their apartments faster then it's worth doing, especially if the company you're pitching has scale. What it also does is it allows you sometimes to have more candid conversations with your customer. So in our case, we can now go to one of our investors.

Who's also a customer and say, What do you think about this new product or why isn't our current product working as well with you guys versus others and have more candid conversations such that you can learn faster?

MPD: I love it. I think that's a big insight. The idea that the relative fragmentation or concentration of the market is a significant indicator as to whether or not it's insane to take capital from the, your industry.

I want to shift gears a little bit. I'm a deep believer that innovation doesn't usually most vast majority of cases work unless it's improving society. At some level, people don't pay simply to pay for services or goods that don't make their lives better. They just opt not to do it. That's the competitive dynamic and forces that you guys are touching on a hot topic.

Whenever I think about social issues and the narrative around the economy. And the impact. I think the trends of society, housing issues come up all the time in