In what looks like what might be one of the worst real estate markets in recent memory, one which has been driven by homeowners buying much more of a home than they could afford and not being able to pay their mortgage, we were quite surprised the other day to run across a new company, Santa Ana-based icanbuy (www.icanbuy.com) looking to help consumers find what kind of a home loan they could afford. Then, we spoke to the firm's founder, Alex Aydin, and discovered that he wasn't just your usual Web 2.0 first time entrepreneur, but had taken a company IPO and ran it as a public firm in the 90's--Prostor--which he eventually sold to Sun Microsystems. We thought it would be interesting to hear about his new company and its plans. The firm is in the midst of raising a round of funding.
Tell us a little bit about your background?
Alex Aydin: I've been in the technology sector since 1987. I went to UC Irvine as an Electrical Engineering major, and we formed a company out of school, around a real-time operating system. Around that operating system, we developed a line of network attached storage, at a company called Procom Technology. We grew that business organically, never took any outside financing, and took the company public in 1997. We ran it as a public company for seven years, and eventually sold it to Sun Microsystems. Today's Sun storage platforms are based on the OS we had developed at Procom.
Once that transaction was complete, I got up and started looking around. A friend of mine was in the residential construction business, and at the time the market environment was pretty good for starting a home construction company. He wanted me to help on the financing side, so we started a company and did a few deals. I got exposed to the real estate market, and meanwhile, we also set up a mortgage company to fund buyers for those homes, and I was exposed to the mortgage industry. It was at the heydey of both the housing and mortgage market. I realized from that that experience that technology has not penetrated those two markets at all.
One of the main opportunities we ran across was that when most buyers buy a home, they don't know exactly what price point they can afford. They see a home they like, and they try to qualify for it. That's one of the biggest problems and one of the reasons we are in the mess we re now in the housing market--people overstretching to buy homes. They were thinking that the market will continue to go up, and if they needed to have a quick exit strategy they could flip their house, take the money, and run. But, as soon as the market starting correcting, that went out the door. Now, you have people who have mortgages they shouldn't have taken, based on their personal finances.
We looked at the market, and saw that buying a home is one of the most important decisions families make, and that it should be based on a financial decision, not on speculation.
So that's the basis of icanbuy?
Alex Aydin: There are not many tools that give consumers the ability to understand transactions, and make that decision. We thought it would make sense to develop technology to assist consumers to determine their purchasing power and identify what would be the best purchase for them. We started developing the technology about two and a half years ago. What we do is collect a consumers financial profile, information such as their income, their assets, their debts, and liabilities, and also their credit profile. Then, we try to match it with the underwriting guidelines with the banks, to see if they qualify for a loan, with which programs, what the maximum loan amount is, and what is the best available mortgage rate. Once we establish what their purchasing power is, we tell you based on a specific profile that you qualify for loan amount X and can purchase a home of value of Y. This technology has been quite sophisticated to develop, and we have a staff of about 18 software developers who have been developing the back end engine. Now we have the technology, and are ready to go to market with it. What icanbuy does is help consumers identify which homes they can afford, and also provides a comparison shopping tool of the best available mortgage rates out there, so they can select the lowest cost solution for their transaction.
It sounds like this is more of a financial tool, rather than a real estate tool?
Alex Aydin: Most of the work is on the financing aspects of it. What we have had to do, is go to different banks. Most major banks have 70 to 120 loan programs, and their guidelines are different for different loans. We've create a rules-based engine developed based on guidelines in their system, and have access to their rate sheets and mortgage rates, which fluctuate throughout the day. We login and update our rate database pretty much every hours. Most large lenders have separate rate sheets for each state, because the lending requirements in each state is different. At companies like Countrywide, there might be 100 programs, multiplied by 50 states, which is 5000 rate sheets. We update all of that into our database. Multiply that by 30 lenders and it's been pretty extensive work on the back end, just keeping up to speed with all the changes in the mortgage market. No one else is providing a solution like this today, and we're the only company providing real-time pricing of loans for consumers.
You've picked what looks to be the most horrible mortgage and real estate market in recent memory to launch into, how does that impact your firm?
Alex Aydin: It has two implications, positive and negative. On the positive side, people are unsure of what mortgages available out there. Not even the mortgage brokers out there do, because the guidelines are being changed so often. We are a reliable source of information for the consumer. They can come to the site, and identify where they can qualify for a loan. It helps them, in an uncertain market, to develop what is the best available solution for themselves. On the negative side, the number of people looking for homes is diminished. People are uncertain if they can get a loan or not, and you have others sitting on the sidelines trying to figure out if the market is bottoming out before going to market to purchase properties. For us, starting from zero, this is a good time to get started, create a beachhead, and grow our business. Once the market is back, we can be the 800 pound gorilla out there.
What's the business model behind your site?
Alex Aydin: It's difficult to buy keywords to drive traffic, which ends up being really expensive. We decided it doesn't make sense to raise tons of money and spend money to establish the site. The better approach is to partner with existing partners, with a traffic base. We want to become like PayPal, and work on the back end with different websites. We've identified 170 different sites in the real estate financing space, who provide content and information to consumers. We've decided the best way to partner up with them is to provide a widget, or functionality which is attractive to consumers. We've started approaching the largest real estate sites, telling them we have a widget they can put on their web site, which can run on top of a database of real estate properties you have, and identify to consumers how much they can afford--an affordability search. Consumers can identify what they qualify for, and can afford to buy. That message has resonated with different sites, and we have been fortunate enough to get traction from some of the largest real estate sites. The way we make money, is that once we run a search, we show users how much of a loan they qualify for, and they can apply to get the best available rates from lenders in the database. At that point, consumers can select one of those lenders, and get a pre-approval letter, which is what you need when you want to do a transaction. We charge a fee to transfer their information to the lender. We charge some money upfront, and also take a success fee on the back end. So, our primary source of revenues will be leads and selling them. Lenders are very interested in our model, first of all, because the consumer has selected them. LendingTree and LowerMyBills are competitors, but they are lender centric--they've captured some information and sell it to lenders, who will call cold. On our site, consumers can select who they want to go with, and once that process happens the chance of a lender closing the deal is significantly higher--it increased closing ratios dramatically.
We have been messing around with the business model for two and a half years, and have been tweaking and massaging it. We think it's now a very viable business model. Most real estate sites are not making any money, because of the basic premise of advertising revenue around MLS data. That's not a profitable model. Some large sites like Zillow and Trulia have raised millions of dollars, but are not profitable because so many of those sites compete for the same eyeballs. Our model is compeltely different. On the new home side, builders are actually paying us a fee to be posted; we're similar to public companies like LoopNet and CoStar there, very successful public companies. They are posting services, which all they do for commercial brokers is to list communities or projects for sale. We're duplicating their model on the new home side, and will have cash flow from the first day, because builders are paying a fee to be listed. On the lead generation side, leads are the bread and butter of lenders, and we'll be generating revenue right off the bat. Also, people who are in the market to purchase property also need to have access to moving services, property insurance, escrow, title insurance, and we'll be selling into multiple channels and multiple revenue opportunities. That's really what differentiates us from everyone else in the space.
How'd you contrast your experience so far on this startup versus your experience with Procom?
Alex Aydin: When we started back in the early days with Procom, we had no business experience. Everything was new for us. We were fearless, because we didn't know what we were dealing with. We learned over time what we needed to do, and how to grow the business significantly. This time around, we have lots more experience on what we need to do, how to go to market, and the least expensive way to get the operation off the ground. We've been internally financed up to this point, and we've accomplished a lot with limited resources--mostly from the experience gained throughout our working experience at Procom. The other difference is back then, there were lots of opportunities in the IT market, which was just beginning. Now, the market is much more mature and saturated, and there are more people trying to start businesses. The Internet is a difficult sector to start a business, and generating traffic to a site or creating revenues is quite a bigger challenge because of all the players involved. Back in the early days--we didn't have the internet back when we started--it wasn't an issue.
Thanks, and good luck on your new venture!