Patrick Burns is the co-founder and CEO of Spruce Holdings which aims to improve title insurance assessment and issuance to reduce the time needed to close a real estate deal. The company has raised over $50 million from investors like Bessemer Venture Partners, Omidyar Network, Scale Venture Partners, and Collaborative Fund to name a few.

In this episode you will learn:

  • What makes the best business ideas
  • Working at a startup before becoming an entrepreneur
  • The future of real estate and financial transactions
  • How to vet and evaluate your startup idea

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About Patrick Burns:

Patrick is the CEO and co-founder of Spruce, the proptech company powering online real estate transactions. Spruce has raised more than $50M from investors including Bessemer Venture Partners, Scale Venture Partners, Third Prime, Munich Re Ventures, Collaborative Fund, Omidyar Network, and Zigg Capital. Prior to founding Spruce in 2016, Patrick was a product manager at Betterment, the largest automated investment service with $20B under management. Originally from Scotland, he holds an MA in Statistics from Yale, and a BA in Physics from Oxford.

Connect with Patrick Burns:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have a founder, originally as well from Europe. So we’re going to have here the battle of the accents. We’re going to have the Spanglish, the Scottish, so you name it. And I think that we’re going to be learning quite a bit today. It’s very interesting what this founder is all about in a regulated space. Let’s not make anyone wait longer, so welcome to the show, Patrick Burns.

Patrick Burns: Thanks, Alejandro. Thanks for having me.

Alejandro: So originally born in Glasco, Scotland. How was life growing up there?

Patrick Burns: It was great. I loved growing up in Scotland. I love Scotland. I grew up in a big family with six kids, so there was always a lot going on – some craziness there. I guess I have to say I had a really comfortable childhood, but we were aware that comfort came from my parents working really hard to create that for us. They were both doctors and really hardworking. It never turned into a sense of pressure for us to be high achievers or anything like that. It was more a sense that we had to realize the opportunity that we had in a very comfortable and natural way. I would definitely say that I always remember feeling that very strongly, and that meant I took the opportunity to play football or soccer in the streets until midnight during the summer, but more often than not, it was an opportunity to be curious as I was and start learning about different things. I was always very driven by a sense of curiosity about how things work in the world and driven by a desire to learn.

Alejandro: Would you say that gave you that love, as well, for physics?

Patrick Burns: Yeah. It’s definitely a part of it. It’s funny looking back on these things. You make decisions when you are a young kid without really perfect information, but definitely, I was curious about physics, and I always wanted to challenge myself, I would say, and physics seemed like one of the harder things I could go and study at the university to challenge myself.

Alejandro: And you did that at Oxford, so a very good university, and then you dive and do your Master’s at Yale. So, why statistics at Yale?

Patrick Burns: It comes back to that desire to learn about things. I studied physics and learned a lot of math and learned a lot of things that I frankly wasn’t going to apply, at least directly in life. This was around 2011, which was right around the time when applications of statistics and data science were becoming prevalent, democratized, and used in the working world. I came out of physics knowing a lot of math that they needed. So, I wanted to see if I could basically take that and retool it into something that would be applicable in the broader business world and the broader world. Fortunately, I was able to do that. I did the Master’s Degree where I spend not a lot of time studying in an academic sense, and really a lot of time using statistics in a very applied sense to things like gambling, behavioral finance problems, things like statistical biases that we all have very innately and it’s because of the way we evolve, but that comes out in the way we make decisions and so on. That was, in a sense, also very formative for me. It was a practical skillset that, even though I’m not using statistics every day, or even any days are certainly a mental framework that’s been useful to carry with me.

Alejandro: And this was the segue to you getting exposure into the world of startups, and literally, your first professional day in your professional career was sitting down at a ping-pong table. So how was this? Tell us about it.

Patrick Burns: Yeah. I had always had odd jobs or, say, hustles growing up, but I never had any exposure to what a startup was, not in the sense that we think about it in the U.S. or even in the startup scene in general. I think I was always destined for that world, just never knowing it until then. But I met someone at Yale that introduced me to a guy that worked at a company called Betterment, which I never heard of at the time, but it seemed pretty cool. It seemed like we were doing some interesting things in finance and wealth management; they had interesting behavioral finance applications, and so on. I met with the folks there; I met with John, the founder. I showed up on my first day as an intern. They didn’t have a position for me. They weren’t hiring for a full-time role. I showed up as an intern, totally like a fish out of water walking to their Soho loft and actually wearing a suit on my first day. That’s how little I knew about what sort of what the expected behavior was in a startup world. Not only was I wearing a suit, but, as you said, they had outgrown this office – I think there were about 30 people at the time – they had already outgrown this office so much that I was sitting at a ping pong table, and it wasn’t even – so I didn’t have the full ping pong table or even half of the ping pong table. There were five or six of us around this ping pong table at the same time. Once I got over that initial realization of my dress faux pas, I immediately thought, “Yes, this is the kind of environment that I want to be in where the most interesting thing was the work; the most interesting things were the problems we were solving and the best ideas. One, everything was thought about with the consumer in mind. I immediately realized that it was a great fit for me, and this was the industry where I was going to spend the rest of my career.

Alejandro: And there, you were involved in some interesting stuff, including growth and customer engagement. What did you learn about retention because retention is everything?

Patrick Burns: Yeah, absolutely. We face some interesting problems at Betterment. Fortunately, I was under Jon Stein, who is the founder of Betterment. I think you’ve had him on the show before. He was a really, really visionary in this idea of democratizing good financial advice for everybody, in a way where before, you had nothing, or you could only work through a human financial advisor that may charge you high fees and so on. What that did also as a side effect was that it gave everyone the ability to invest in the stock market, invest in this good passive investment strategy. We had all these customers on the platform and were faced with these problems of how do you encourage good investing behavior, which very often means don’t change anything. Why we start engaging the customer and create a really good value for them or a really good sense of value. Whereas, opposed to the competing models or different models in the industry like the E-Trades or the Scottrades or something where you want to encourage the customer to always be doing things because that’s how they made money. That was an interesting setup for us. Fortunately, the team was phenomenal at building products and creating that value for the customers. I think it taught me this lesson of having to stay focused on the customer journey. Not only stay focused on the customer journey but staying focused on everything that you are incentivized to do as a company from how you charge for your product to how you implement it in the day-to-day to the regulatory framework, thinking about the idea of a product in a holistic way to deliver the most value.

Alejandro: You were in Betterment for three years, and this was what pushed you into doing it on your own; to do your own thing and going at it yourself. Tell us about that day where you came across the idea and how you brought it to life, and how you kept moving forward.

Patrick Burns: I would never say I was pushed to do something myself for the sake of doing something for myself. I was always driven by the sense of curiosity and the love of challenging myself. Actually, I guess what happened was, I had a friend that was starting – he was doing a mortgage startup. He was starting a mortgage company. I thought that was a pretty cool idea. I hadn’t heard of anyone starting a mortgage company before. He was telling me about the problems he was facing, the challenges, and so on, and I thought it seemed like it was a huge opportunity there. I met another friend who was doing a real estate startup and another friend that was working at a company that was doing something in real estate. I started to get the sense that what was happening was that this was a new frontier for fintech; what nowadays, you would call proptech, was then just seemed like an actual revolution of fintech. I started to talk to all of these people, and again, the drive wasn’t that I should start a company for myself, but I was curious about what was going on here. What I consistently heard from them was that a real challenge was building an online commerce in real estate on top of the traditional structure of real estate transactions. If you think about it, traditionally, if you want to buy a home or refinance your mortgage, you have a realtor, mortgage broker, and they work with a host of third parties, most notably a title and escrow agency to put the deal together. That’s a very manual and offline process. Most of them are governed by emails, phone calls, and in-person meetings and things that don’t scale particularly well, and things that, certainly, don’t lend themselves to the kind of experience that you would expect from a digital company. Today, in what these companies are trying to do is create more optionality to buy a home or refinance a mortgage online. The challenge that they were faced with was that traditional infrastructure, the traditional title, and escrow companies just couldn’t meet them where they needed to be. They couldn’t scale the way they needed to. They couldn’t create automation or enable good digital experiences, especially around closing, but really throughout the real estate transaction. What we did was we set out to build that company that was going to be the online native platform on which these companies could build their transaction experiences.

Alejandro: Very cool. How do you guys make money, Patrick?

Patrick Burns: We’re the online equivalent of these traditional third parties. You take this traditional type of an escrow company. We provide these products and services to these online companies, but instead of the manual process, we replace it with automation, data science, API calls instead of phone calls, and digital experiences instead of in-person meetings. For example, if you’re shopping for a mortgage online or looking to buy an investment property online, one of these are a suite of online transactions that you can do nowadays; there’s a good chance that when you go through that transaction, it is Spruce in the background enabling it. So we’re moving the money. We’re issuing a title insurance policy; we’re providing the deed to be executed, and so on. We charge a fee for the services, so we charge a fee for the title insurance policy, for closing transactions, and that kind of thing.

Alejandro: Very cool. In the last year, for example, you guys have grown like wildfire, over 50% on the employee count. How did you go about assembling the founding team together?

Patrick Burns: That was actually – I guess it was very natural. When I showed up in Betterment, which was back in 2013, there was another guy who had joined a few months before me, Andrew. Andrew, over the course of the next three years, became not only a very close friend but first and foremost, a very close thought-partner for me. Anytime I was working on a problem, whether it be related to the product or some internal problem or anything like that, I found myself consistently going to Andrew for advice or for pushback or to tell me I was wrong about something, or take an argument if I wasn’t quite certain in my own impression of these things. It was very natural for me that when I started to think about these things in real estate that I got Andrew to test my ideas or test the way I was thinking about it, I started to explore the opportunity together. It got to the point where Andrew getting excited about these ideas made me really confident that I was onto something. I think that was a natural fit, and I think that’s what you need in a co-founder. I can’t imagine starting a company with someone that didn’t have such a deep respect and appreciation for their way of thinking because I feel like in any company, you’re going to encounter hard problems to solve, difficult moments; hence, when you’re testing and having that counterpart to encourage you if you think you’re right or tell you that you’re wrong when you’re wrong. I think it’s such an empowering component of things.

Alejandro: In this case, this was a completely different industry for you and heavily regulated. Was that a big steep learning curve for you?

Patrick Burns: It was definitely a learning curve, which again, was a huge part of the reason why I was so attracted to it. I would say, in general, it was something that we knew, and we had learned from our time at Betterment that probably always was going to be part of the opportunity. We felt strongly that we couldn’t attack this problem just as a software layer on top of the traditional infrastructure. We had to be vertically integrated, so we decided to get licensed as a title insurance and escrow agency. Of course, in the U.S., this is a state-regulated industry, and so we knew we had to bite the bullet, and I think we were actually excited about doing it of becoming this licensed company and taking on all the regulatory hurdles that were going to come with that, but always trying to be thoughtful about how we were constructing the company, deciding what kind of entities we would have to have, and so on, knowing that was one day going to give us a competitive advantage. I’ll give you an example here. It’s really hard to get licensed in California. We were exploring that and exploring how we could go about doing that. Eventually, we came to the conclusion that it was going to take us two years to get licensed as a title agency in California. Of course, for startups, two years is a really long time. But again, we weren’t building for the short-term. We were building for the long-term, so what we took from that was, “We’d better get started with it.” 

Alejandro: Yeah.

Patrick Burns: Sure enough, it took us over two years and really, really crazy steps to get through that process, but now, coming out of the other side of it, we are incredibly well-positioned to serve online companies that want to operate in New York, California, Texas, Florida, and everywhere because we’ve taken on those regulatory hard roles and being able to overcome that.

Alejandro: How much capital have you guys raised to date, Patrick?

Patrick Burns: In total, we’ve raised 50 million dollars.

Alejandro: Got it. I know that when you’ve raised some of those rounds like your Series A and your Series B, always in very unpleasant scenarios. So, your Series A, your honeymoon, and most recently, the Series B, in the middle of COVID. I’m sure that a lot of people that are listening now are probably wondering how you pulled it off when the markets are literally crashing; you’re able to raise your Series B. How did you do that?

Patrick Burns: Yeah, it was funny, and you know, we were kind of set up for it because the first capital that we raised was a smooth process. We started the company, we incorporated the company on June 10th, 2016, and before the end of July, we had raised our first round of financing, so I think we earned some hard luck from that first easier experience. This year, obviously, we’re seeing first of all this year has been immensely challenging and hugely challenging for so many people in so many different ways, and for many industries, as well. I think for us coming into Q1, we knew we wanted to raise money. We had some great firms we were talking to that were excited about it, and when March came around, I would say we were in a position where we knew what we wanted to do and who we wanted to work with. When things started to get quite scary and obvious that things were going to become serious, and the stock market started to react and so on. It was hard to not get a little nervous. It was hard to not say no matter what, all financial markets are interrelated, even if it seems like they shouldn’t be. So what was this going to mean for us? What was this going to mean for us to normally close our financing but then go and execute on our fund? What we tried to remember, and what I think was always true, is that things like what we’ve experienced this year, if anything, build our conviction for the fact that people need something more convenient, something with more options than the traditional real estate transaction. The home is your biggest financial asset, your biggest financial liability, and so having your only options be to refinance or to sell a home, a process which takes, ordinarily, upwards of 40 to 50 days, is not serving most people. The companies that we worked with and that we enabled with all these interesting different financial products to sell equity in your home, to sell and lease back your home, to get a mortgage, all these things. The demand for them now is greater than ever, and therefore, the opportunity for building the infrastructure for these companies is greater now than ever. Unfortunately, all of our investors and I think especially our lead investor, scale venture partners, understood that and also were in it for the long-term. I think, fortunately, everyone was able to recognize what was going on around us, but if anything, just improve our resolve for the space that we were in and the problems that we were solving.

Alejandro: Very interesting. Obviously, in this case, the growth that you guys have had is tremendous. I believe that the revenue has grown by over 400% annually, so how do you think about scale, Patrick?

Patrick Burns: Yeah. It’s really interesting, especially when the whole world went to work from home, which I think for a lot of technology companies, it has been somewhat straightforward. But for us, what’s been interesting is we work with all of these mortgage companies and real estate companies, and they themselves have gone through this phenomenal transition to working remotely or hybrid models, in some cases, and that has certainly created a challenge alongside what’s been, as you say, phenomenal growth. Just this year, we’ve grown 20% month-over-month, every month. I think for me personally, it comes in a number of forms. On the one hand, obviously, it’s growing the team, and it’s maturing, or the way we operate as a company, it’s staying focused on serving more clients and serving more end-consumers as well. I think for us, what we try and stay focused on is not only are we trying to grow a revenue, of course, but we’re trying to drive the experience forward. We operate under a vision of enabling a one-click checkout for any kind of real estate transaction. While we’re not quite there yet, we operate in an ecosystem of like-minded companies and like-minded clients. For us, staying focused on what’s the next product plunge? What’s the next problem that we have to solve? What’s the next hurdle that we have to cross? I think that’s been not only the biggest challenge but also just the biggest focus for us – staying focused on that product vision.

Alejandro: Very cool. For the folks that are listening to get a better idea of the size of the business, how big is Spruce?

Patrick Burns: We have over 125 people now. We’re enabling thousands of these transactions every month. I got a phone call last week from my wife’s aunt, who said, “What’s the name of your company?” I said, “It’s Spruce.” She said, “I just refinanced my mortgage, and you were the title company on it.” I thought that was really funny. I don’t know if that was an okay of hers, but for your wife’s aunt to phone you and unwittingly just used your company, that was a nice moment. I’d say we’re excited about the growth we’ve experienced, but we’re also very cognizant of the fact that this is a massive industry, and our opportunity that lies in front of us is really huge.

Alejandro: Absolutely. Patrick, imagine that you go to sleep tonight, and you wake up five years later – a tremendous snooze. You wake up in a world where the vision of Spruce is completely realized. What does that world look like?

Patrick Burns: I think first and foremost is a world where people’s relationships with the world’s largest financial asset is different. There’s an ecosystem of companies in the way that there is for personal lending or banking or bank management, or frankly, just the broader app ecosystem of products and services that the world is real estate is brought into that dimension as well. That you can bring in the home into your investment strategy more easily, you can assess the capital that it represents more easily. You can change your living situation more easily and more often as it suits your needs. It that, for us, is the kind of ecosystem that we think the real estate industry is heading toward, and we’re excited to play a role in it.

Alejandro: Very cool. One of the questions that I typically ask the guests that come on the show is – you’ve been at it now for a little bit here, and basically, now, in this time since you founded the company, you’ve gone through so many things since 2016 – the ups, the downs, the financing cycles, all of that good stuff. If you had the opportunity to go back in time and have a chat with your younger self, maybe that younger self that was at Betterment, with that curiosity starting to sparkle and to think about that thing that you were going to go after and build. If you could go back and give that younger self one piece of business advice before launching a company, what would that be, and why knowing what you know now?

Patrick Burns: One of the things that stops a lot of people is the fear that you can only start a company with an original idea. If someone else has thought of the idea, then you can’t start the company. I tend to believe that, especially when we’re talking about anything other than real frontier tech, there’s no such thing as an original idea. In fact, you don’t really want to have a truly original idea because if you’re solving a problem that matters to a lot of people, hopefully, a lot of people have faced that problem and thought of a way that it could be better. So instead of being fearful of that, I would think that people should embrace that idea and become a student of why the problem still exists that other people have tried to solve it. That can be anything from the right idea at the wrong time, the right idea with the wrong team, the right idea with the wrong business strategy or product approach, but being a student of other people that have had the idea or have the idea and use it to bring the right solution to, like I say, a problem that hopefully a lot of other people have faced.

Alejandro: Very profound. Patrick, for the folks that are listening, what is the best way for them to reach out and say hi?

Patrick Burns: You can find me on LinkedIn. You can also come to our website, which is spruce.co

Alejandro: Amazing. Well, Patrick, thank you so much for being on the DealMakers show today.

Patrick Burns: Thank you so much for having me.

 

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