William Leonard
Ladies and gentlemen welcome back to the Atlanta Startup Podcast. I’m William Leonard, your host and an investor here at Valor Ventures, a leading seed-stage VC firm here in Atlanta, Georgia. This morning, I’m really excited to sit down with Derrick Barker of Nectar. Derrick, thanks for joining me today.
Derrick Barker
Thanks for having me on. I’m excited to be chatting with you.
William Leonard
Certainly. Glad to have you on the podcast. I know the last few weeks for you have been pretty exciting, action-packed, and I’m sure an emotional whirlwind with the TechStars demo day being last week. But we’ll dive into that a bit later. I would love for you to dive in and give our listeners an overview of Nectar in what you’re doing here in Atlanta.
Derrick Barker
Nectar is a two-sided marketplace for real estate cash flow where real estate owners or operators, specifically starting with Airbnb hosts. If you own and manage short-term rentals, you can sell a portion of your future income, in exchange for cash upfront so you can grow your portfolio. Usually, people use it to buy a house, a new property, new furniture or do some upgrade. And on the other side of the marketplace, investors can buy income streams that are managed and operated by experienced and expert real estate operators.
William Leonard
Awesome. How do you, as the Nectar team, define experienced Airbnb or real estate operators?
Derrick Barker
With Airbnb, specifically, we look at the five pillars of underwriting. To start, we like to see at least two years of experience in the business. We like to see that we have a minimum of a four and a half star average rating on Airbnb, then we take a look at the financial history of your property. See how consistent you are and how strong your operations are. We look at your systems and your team. Make sure that there’s a professional management system in place even if you’re a smaller operator and you only have like one to five or fewer units, and there’s still no high-quality operations. In detail, through the reviews, you can tell through the financials, you can tell through just talking to somebody for 15 minutes, and just hearing that they know what they’re doing.
William Leonard
Nectar is doing some pretty thorough vetting, I see, to ensure that both sides of the equation here are getting access to quality counterparts that they’ll be working with so that’s really reassuring for especially the investor on the platform. Before we go too deep into the weeds of Nectar, I want to have you talk to our listeners about your background because I think once they hear your story, it’ll really put the puzzle pieces together as to why you decided to build Nectar, and how you bring more so a fair advantage to solving problems here for operators and investors.
Derrick Barker
Definitely. I’m from here. I’m from Atlanta, from Southwest Atlanta, actually, born and raised. I went to Mays High School and graduated from Westlake High School for any fellow Atlanta Natives.
William Leonard
Cam Newton went there, too, I think.
Derrick Barker
I actually played football with Cam Newton back when we were little kids at North Clayton Park, all the way up through high school. We’re there at the same time. Haven’t had the illustrious career he’s had though. He’s gone on to do some crazy things. But yeah, I’ve been pretty entrepreneurial all the way through. I started several clubs at Westlake and beforehand. My first really successful venture, I started freshman year where I played football at Harvard. I guess I left that out. But I started a venture my freshman year. It got really big really quickly with a couple of my buddies there. We exited the stage junior year and then started buying real estate. I’ve been in the real estate business of owning property. I’ve owned property in Atlanta really ever since senior in college. I did a quick stint at Goldman Sachs, where I was trading structured products, which is pretty exciting. It was great in and of itself. I kept building my real estate business. We went from like a single-family house portfolio to duplexes to small apartment complexes, then to bigger apartment complexes. And by that time, I think our portfolio was somewhere around 500 units. I was at a fork in the road, and I have to make a decision. I can do this real estate thing that I’m excited about, or I can stay at Goldman, which was also really exciting. And it was a no-brainer for me, really, this is after the financial crisis. There are lots of just messed up blighted apartment complexes, scattered all throughout the country. But definitely in the neighborhoods, I’m from, like in College Park, South Atlanta. I mean, there’s a lot of work to be done. It was a no-brainer that I was in a position to go do that work. So I left Goldman, I came down here, and our core business was buying and renovating old, rundown apartments. Chasing off gangs, making high quality, safe, stable places for people to live. I did that for a while and it grew to about over $300 million in assets under management. We had an asset management business as well. We had 4500 units all throughout the southeast of California. It was pretty good business. At some point, probably in 2016, I started focusing more and more on larger apartment complexes, and my partner Brittany focused on smaller apartments and single-family houses. We kept getting that deal flow. Out of that, she’s about 35 deals in there and we built a 125 unit, short-term rental business. She had a bunch of stuff in that portfolio. That’s really important because, around the state of the 2017-2018 range, I was starting to look around and say, this isn’t the business that I got in here for. Originally, I was buying properties that were 75% vacant and they’re like 50% occupied in turning them around. Making a nice stable place to live but by 2018, a lot of that work was done, and I was buying properties that were fine, making them a little better, and renting them to a little bit higher rent. That business model is cool, I’m not gonna throw any rocks at that because that’s needed. You need to keep the housing stock fresh. But it wasn’t exciting for me to wake up every morning. It’s a hard job. And the pandemic happened. Financing really froze up. We had some deals fall apart because the equity and debt just weren’t there. But we had our short-term rental portfolio, which was on fire. We’re seeing record revenue and record profits every month. That’s where we came up with the idea of taking that income stream, packaging it into a security, and selling it to investors so that we can keep growing our portfolio to finance ourselves. That’s really the foundation, the building blocks of what gave us the idea for Nectar. We spent a year filling out the regulatory structure or legal aspects of it. Then we launched the platform a couple of months ago and it’s been great so far.
William Leonard
That’s awesome. I was gonna ask, you touched on it briefly, the regulatory aspect to this whole equation of packaging this cash flow as security, what were some of the hurdles that you had to navigate through over that year of ideation and thinking through the business model?
Derrick Barker
The important things were, we wanted to create a product that solves problems on both sides of the equation because I got to see up close the problem on both sides. By both sides, I mean, as a real estate operator and as a short-term rental operator. As a short-term rental operator, you want something that’s flexible, where if you have a month that’s off where your income goes down because I don’t know there’s a global pandemic or something, it’s not a hard default. You can keep operating. You have a fundamentally sound business, like real estate. People need space. There are a lot of people out there. If you have a sound business and sound operations, you shouldn’t lose your property or default based on a month of some event. We want to make it so that it’s flexible. The traditional financing options don’t really work well like banks don’t look at real estate income and count as income at all, which is crazy. They will take a lien on your property and give you a mortgage, but they don’t take that income. You want to create something that is flexible, that solves the financing challenges that real estate people have that can be fast and that can be based on traditional actual underwriting. That was something that we structured in. And then on the other side, we wanted something for investors. Right now, there are lots of options for investors. If you want to buy something that’s going to have no dividends, and you’re going to have an appreciation, you can buy crypto. You can buy stocks, you can buy most real estate, you’re not going to get very much cash in cash, but you’re going to have, hopefully, a big upside 3-5 years down the line. We had our investors come in to say, “Hey, that was a great deal. But do you have something with more cash flow?” We want to create something that could give investors those cash flows. That’s what we created. Something that is flexible for the operator and for the real estate person where it works through their seasonality, addresses the fact that you have most of your incomes, real estate income, and works with banks. Our product is invisible to mortgage lenders. But on the other side, for an investor, you can get an income stream, like a big 40-45% cash on cash return every year, which really isn’t out there and available in the marketplace. It’s something that can be pooled, there’s downside protection from a risk perspective. This is less risky than a lot of other asset classes out there. Something that overall just feels like a spot in the market that isn’t there for investors and for operators.
William Leonard
I love how you keep the focus of the conversation on both sides of the equation here. When you think about the operator outside of getting the cash flows, are there other benefits to investing in Nectar and utilizing Nectar as opposed to other platforms that may be out there doing something similar or adjacent?
Derrick Barker
We are real estate people. We created this for real estate people. Not only do we have a product that works with your financial needs and gives you capital to grow, but we know what it means and what it looks like to grow a fast-growing real estate business, a fast-growing Airbnb portfolio. We can bring that expertise, that knowledge in those resources to help professionalize your operations. There are lots of people out there that are good operators. But with some little tweaks, revenue management insurance, we already have these resources. We’ve already built the machine before. Even if you have something going well, we help you get a cheaper cost of capital so that you can grow. But then we can also bring ] surrounding resources to also help you learn to grow in a more efficient way. We’re looking to not just be a capital provider, which we think we can provide a really compelling source of capital that’s fast, and that’s flexible, and fits your needs. But also just a general operating system to help you grow. Whether that be connecting, providing fast and accessible books in accounting or insurance or general operations, operating assistance, revenue management, just best practices, you can see us as your partner in this to help you go from 10 to 20, or 20 to 30. Or even 5 to 7.
William Leonard
When you think about the Airbnb side of the equation, I feel like the operators can be somebody like myself, who maybe has a full-time job and just runs Airbnb on the side and then eventually turns that side hustle into a full-time job. Is that the demographic of the operators that you’re seeing on the platform?
Derrick Barker
We’re mostly seeing people who are a step past where you are. Let’s say maybe five years ago, it was something that they were doing on the side, then they start getting good at it and they did another one and now, it’s more of a professional, more of the main thing. Those are mostly people on our platform. It was a side hustle, now it’s a bigger side hustle or even the main gig. That’s most we’re working with. And that’s of all sizes, though. We’ve worked with people with as few as seven properties and as many as 1500. We’ve not had someone with this as a full-time job. You have a lot to learn, frankly, from doing one as a side hustle and we can still provide you with those resources. You can still come to our site, you can still apply, we’ll tell you, “Hey, this is what we would give you. If you hit these things, here are the resources you can get to get there.” But the people who were actually transacting right now are probably one step above that. They figured it out, they have something going and now they want to turn it into something big. They want to scale.
William Leonard
When you think about the platform evolving over the next two to four years, that short to medium term timeframe, how do you see it unfolding? I guess another question after that is, are you all strictly working with accredited investors right now? Will there be an opportunity for non-accredited investors?
Derrick Barker
Great question. On the real estate entrepreneur side, on the Airbnb host side, firstly, we want to be a one-stop-shop to help take good strong operators and help them scale their business. That’s providing growth, capital, but also resources so that you can turn a business that is a strong business that’s this size into an equally strong or stronger business. We want to be the place to go when you want to grow for all your growth needs to professionalize or scale your business. On the one hand, we want to do that not just for Airbnb hosts, but also for every single aspect of the real estate space. You own single-family rentals, apartments, parking lots, solar panels, any real estate operator. They all have the same basic business model, take a bunch of money, buy a building, get a little cash flow every month, maybe spend some money on improvements to get a little bit more cash flow. It’s a similar business model. We want to be the go-to place for you to take that business model into an exit, to scale, and do so in a sustainable, repeatable way on that side of the marketplace. Right now it’s accredited investors but we plan on scaling to all investors. This shouldn’t be something that only rich people have access to. That’s our goal. We’ll be launching our different pools of cash flow. You can go in and buy a share in the cash flow of 25 cabins in the mountains. You can just give the cabin a mountain cabin pool or the urban southeastern city pool and get 25 different cash flows in three cities in the southeast to Nashville, Atlanta, Louisiana, and New Orleans. New Orleans, maybe not because there are regulatory issues right now. But that’s the idea that we will assemble pre-package pools with strong operators, strong cash flows that are high yield, that anybody can buy, and get 40-45% cash on cash every year.
William Leonard
I love hearing the vision and the roadmap. They’re so encouraging to hear you’ve already thought this out and I know you’re gonna continue to execute on it as a founder and with your team as well. I want to shift the conversation here, but you just went through TechStars and had the big demo day during ATL Innovation Week a few weeks ago. Congrats on that. I want you to talk about your experience at TechStars a bit. I think this will be helpful as we have a lot of listeners who are early-stage, pre-seed, ideation stage, thinking about, “Is an accelerator right for me?” And maybe you can shed some light on TechStars and how you and the Nectar team thought about how this would be beneficial for us?
Derrick Barker
TechStars was an amazing experience. It’s unparalleled. I’ve been an entrepreneur for a long time for like, over a decade, my entire career. I’m decently seasoned. I’ve run several different real estates and finance businesses. TechStars was special. You get surrounded by a ton of super high-quality mentors who are committed to giving first, to helping you grow, to helping you through the challenges of being an entrepreneur. You have that community of peers, people in your class, you get to go through it together every day, and build relationships with them. That’s also something that, as a founder, it’s hard to put a value on that. It’s invaluable. It’s great. The people that are in our class, we had nine other entrepreneurs, three of us are in the short-term rental space. Dave Payne, the MD, was really good at helping as a guide, as a shepherd, and then you’ll put us in the center of the tech universe here in Atlanta, which is something that me, as a real estate person, as a real estate entrepreneur, I felt like on the outside looking in, but it gives us contacts, resources, and helps us to view the world and help us view the world in a different way. Definitely unlock a tremendous amount of opportunity for being mentored and for mentorship. I can’t say enough good things about TechStars.
William Leonard
Good. That’s awesome, man. Dave Payne and the team are just tremendous at the value that they provide.
Derrick Barker
I can’t leave the Cox team out and all the mentors. Cox put together and they are truly working hard for the Atlanta startup ecosystem.
William Leonard
Definitely. Cox is very essential to that ecosystem. They’re one of our sponsors, at Startup Runway. We have a strong relationship with Cox as well. How do you think other founders out there should think about whether an accelerator would be beneficial for their business and really worth their time? Is there a certain framework that you thought through or that you can provide as a general guide for other early-stage founders?
Derrick Barker
I would think of an accelerator somewhat like Business School. You go there wanting something not just to go. Don’t do it just to do it. You might as well just work on your business. But if there’s something you want to accomplish, you need to get to the point where you are financeable. That’s a focus for you, or you’re trying to get to a point where you have figured out XYZ in the business, or you’re early, you have something that is a good idea. You’re working on it and it is something worth spending time on. But you want to get from A to B faster. You need to get a year down the line. I would think of an accelerator as something that’s good for that. It can help you get a year down the line in just just a few months.
William Leonard
Great advice, man. I think it’s so cool that you grew up here in Atlanta, you went to Harvard, started a business, and exited that business as a junior in college, where most people are just focused on school and trying to get by from week to week. As a student, you were handling the academic side of things, you’re playing football, and you’re building a business. I think that speaks to you, as a founder, and as an individual. The hustle and the dedication that you have. When you exited that company and had a financial windfall, why did you decide to put that capital into real estate? I think most people would have put that money somewhere else, maybe bought a car or something but you put that into real estate. Was that always a vision for you to be a real estate investor?
Derrick Barker
The windfall wasn’t super huge. We got into a good amount of trouble because we weren’t diligent about our regulatory approvals. Just put it that way. This financial crisis and look, we’re young, if the world ends, then we’re screwed. If the world doesn’t end, then we’re at the beginning of a run in something. We were thinking, what is the best way? It was me and my two roommates who started this. We were wanting to do something entrepreneurial and wanted to take advantage of where we were in the world.
We were thinking the best way to do it is to buy derivatives. You can get a bunch of leverage, you can go really big, and it can move quickly. But as a 21 or 22-year-old with no balance sheet, no one’s gonna take our counterparty risk which left real estate. There’s real estate finance, real estate prices, a real estate crash. At the time, we wanted to make business. We were entrepreneurs, you wanted to go to business. That was exciting to us. Real estate is someplace where that was impactful. We were all focused on impact. Another thing that I did in college at the same time frame was, we started or reinvigorated, student-run after-school program in Roxbury, which is like a tough area in Boston. We were all impact-driven and we finally felt financially motivated. Real estate seemed like a place that we felt couldn’t go down any further and it had a low entry point. You don’t need a million dollars to get in. That’s why we were wrong. It did go down. We started buying real estate, raising money, and it kept going down for two more years here in Atlanta. But we were right in the long term, which is starting a career there, where the market just goes up into the right, up and down, up into the right for like 10 years. It gives you a tailwind to your career, where you can make all kinds of mistakes. We did all kinds of mistakes.
William Leonard
That makes perfect sense. Thinking about the macroeconomic situation that was going on. You have to be opportunistic. I’m glad that you and your roommates were forward-thinking in that regard. You grew up here in Southwest Atlanta and you went to Boston for college. Then you worked in New York at Goldman and now you’re back in Atlanta. Can you contrast how the tech scene was, when you left and how it is, now that you’re back? It’s a full-circle moment almost. You went through a TechStars program in your home city. What does that feel like for you? Have you seen the tech scene here evolve a bit?
Derrick Barker
I missed the tech scene bombing, to be honest because when I left here, I was 17. I was not really in the tech scene. I was super into finance. When I was in finance, I was really in real estate. The tech scene as it is today is my first entree into the Atlanta tech scene. Just to be real, it’s hard to contrast where it was back when I left because I was probably too young there.
William Leonard
I totally understand that. What excites you most about the tech scene now? What are you seeing in terms of the frontier of innovation here in Atlanta?
Derrick Barker
I think that has become more and more clear especially with the past year of the pandemic. Great business opportunities and great entrepreneurs come from all over. Atlanta has a ton of talent, a ton of technical talent, a ton of business talent. It’s a big metropolis with a lot of economic opportunities. I think, now more and more of the world is starting to realize that. As you see, there’s a week where I think we had three announcements of exits of billion-dollar companies here in Atlanta. It’s an exciting place to be right now because there’s further around and people both in Atlanta and outside of Atlanta are really starting to recognize it. I’m super excited to be building a business here. And also, because of what else we have from a historical perspective, from a cultural perspective, from a diversity perspective, this is also a place where there is a black middle class that you don’t see in other places, other tech hubs, let’s say. It can create a type of tech ecosystem that has the type of diversity and a difference of thought that you just won’t have in other places. That is something that I’m incredibly excited about because this century, we’re in a gold rush. When there’s a gold rush in California, and everybody went there, they’re mining for gold. You could just dig a hole in the ground and that’s happening in the tech space right now. I’m just excited that it is not relegated just to one town but it’s something that can be more inclusive geographically, culturally, racially, in every way.
William Leonard
I think your illustration of comparing what’s happening right now in Atlanta to the Gold Rush is spot on. Your point to the black middle class, I think people are starting to realize now that when you build inclusively and when you build from a diverse perspective, you build better. Just simple as that. I think Atlanta is really one of the cities that is going to be a testament to that sentiment. You mentioned a few companies that raised those billion-dollar valuations or had exits. You look at Spanx last week, just partnered up with Blackstone. It’s interesting to see everything going on right now in the world. I think Atlanta is going to be really one of the city’s leading innovations for the globe, not just the country but for the globe. Really excited man and circling back for our listeners who may be interested in partaking as an investor or an operator in Nectar, what is the best way to learn more about that opportunity?
Derrick Barker
I say, go to mynectar.co. You can get more information. You can reach out as an investor or as a sponsor, we’ll get back to you the same day. On a weekend, we’ll get somebody on the phone with you either the same day or the next business day. You can reach out to me directly, derrick@mynectar.co. Somebody on our team will get back to you ASAP. We’d love to hear from investors. Buyers of cash flow or sellers of cash flow, if you have a real estate business and you’re trying to grow, let us know. We would love to be a growth capital for you. We love to support you and provide resources to help you do that even if we’re not the best capital partner.
William Leonard
Love it there, man. Thank you for joining me in this conversation. I think it’s been a really enchanting conversation because you opened my eyes to a lot of the opportunities that are out there for investors and operators as you think about real estate and as you think about access to capital. I’m excited about what you and Nectar are gonna continue to build here in the city. What’s the big emphasis for 2022 for you or what are you most excited about for next year?
Derrick Barker
Transaction volume. Really getting entrepreneurs, Airbnb hosts on the platform and seeing them be able to expand their businesses at a bigger scale. We’re already seeing it happen but to see more of that, to go from several 100,000 to tens of millions of dollars in transaction volume, and to do that with a diverse group of operators, sponsors, and hosts, that’s what I’m most excited about. Building the Nectar team and surrounding our customers with resources to help them go from what was a side hustle or a mom-and-pop business to professionalizing, that’s what I’m all about.
William Leonard
It’s gonna be awesome. I’m gonna be here to cheer you on for sure. Derrick, I really appreciate your time this morning, man, and definitely look forward to hearing how Nectar becomes a great big success out of the city of Atlanta and let’s continue to keep the conversation going, man. Appreciate you, Derrick.
Derrick Barker
I appreciate it. Thanks.
William Leonard
Cheers. Take care.
Derrick Barker
All right, you too.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
