The text below is a transcript of the audio from Episode 44 of Onward, "Rebuilding the World Trade Center, with Tal Kerret".
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Ben: My guest is Tal Kerret. Tal is the President of Silverstein Properties, the owner-developer of the World Trade Center and one of the largest real estate companies in the world. Tal has also been on the board of directors of Fundrise for the past 10 years, almost since our founding. He’s been a critical part of our success.
Before we get started, I want to remind you that this podcast is not investment advice, it is intended for informational and entertainment purposes only.
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Ben: Tal Kerret. Welcome to Onward.
Tal: Thank you, Ben. Good afternoon. Such a pleasure. It's great to see you.
Ben: Yeah, this is exciting for me because we've worked so long together but never gotten to interview you like this.
Tal: To me, it's exciting, and at the same time, I felt, I think I told you this before, there are other people in the world that would be more qualified, but it's great to see you, and I'm great to be here enjoying this. Should be fine
Ben: Okay, well, we'll see if the audience agrees with me about this. So, I think this is going to be a great episode. Here we go. I want to walk through your past and then get to the present and hopefully along the way you can share some of the experiences and lessons you've learned over the years. So let's just start with where you are now, which is the president of Silverstein Properties.
Most people outside real estate haven't heard of Silverstein. So maybe you could tell the audience about the company and its scale.
Tal: silverstein properties it's a family business it started 68 years ago by larry silverstein my father in law and at the time he was a broker he and his father were running around new york working on deals at a tough time and. He kept on telling his father, I think we should try and find a way to become owners and managers of properties rather than the brokers. That's the place we can do well and we can succeed and since then they started with nothing, grew the business, they did, uh, I think their first deal was a crowdfunding deal where they raised the money, they did not have a penny of their own that they could put into it. That was on twenty third street but since then we developed bought on over forty five million square feet of properties. We are owners and operators of assets that are worth today over eighteen billion dollars of office residential and mixed use spaces. And we own about eighteen million square feet of national portfolio commercial spaces. Mixed use spaces residential we love different categories in different locations. And we have another 12 billion worth of projects in the development pipeline. So that's another 10 million square feet of activity, focusing mainly on green buildings, affordable housing, and taking neighborhoods to the next level. We call it neighborhood revitalization. And we just love to build and to empower communities, take them to the next level.
We build all across the country, New York to LA, Philadelphia, Florida, Arizona, Texas, and other locations. So we always focus on the high end, great quality, sustainability, and long term, but I think the most notable, the thing that people know us when we bring that up, immediately it's recognized, is the World Trade Center.
It's the buildings that we're building downtown in New York, and that big project that came out of a bad thing that happened to all of us here in the country, in New York, and obviously in our family.
Ben: I want to talk about the World Trade Center, but just, it's hard, people hear those numbers, and everybody who's ever done development, construction, I've done some. It's so difficult. It's so much work. And the idea of building billions of dollars of it in New York, where it's probably the most complicated place to build in the United States, maybe the world.
It boggles my mind. One of the things I feel like you told me, which I didn't appreciate, when you're building a building that's a hundred stories tall, just getting the material up the building, because you have to bring up the glass and the concrete, and even that logistical complexity. 10x is the difficulty of building compared to our project where you may be building a little four story apartment building.
Tal: Yes, absolutely. It is so so complicated and i cannot say i'm an expert in any of it but i see how the team is working and the amount of details they have to deal with the amount of concrete that you have in the one world trade in the tall tower they're all tall but. In that building alone, you could build a pavement from New York to Chicago and back.
Ben: And back.
Tal: It's a lot of concrete. So think of putting it in a building one story above the other. At 7 World Trade, the floor plates are very consistent. The building is the same size throughout. You have 52 floors each, and that's the smallest of the World Trade Center new buildings. Every floor is the size of a football field and you have 52 football fields, one on top of the other. So when you start to get the scale, to me, it's amazing. It's magic. It's beautiful. It's mind boggling and it's complicated and wonderful. It's really wonderful when it's full with tenants. That's when the magic really happens.
Ben: I remember I was with you once in the World Trade Center and we were looking out the window and you said, let's see that building over there where they're doing this new construction, this new office. If it was an office or apartment building, it was really tall. And he said, we can look at that and know there's a big problem with the construction.
Just by looking out the window, this building was a thousand feet away. It was far away. And he said, see all those problems? And I was like, I don't see any problems.
Tal: Yes, we have people on our team that they walk into our office and they say, you see that building, we should call that developer. They have problems and I say, how do you see that? What do you see? He says, look at the pace of the curtain wall coming compared to the core. It's not the same as it was a week ago and it's slowing down they have an issue with their subcontractor on the curtain wall and they should know what's happening and we witnessed this obviously we are supervising our own projects very tightly and carefully to find that problem later is really a nightmare it will cause you problems winds and rain will come in and go and chase those who were supposed to deliver and didn't deliver. There is a ripple effect always and i'm sure there was a ripple effect for those developers later when they cannot finish the interiors that they need on time and time in real estate. Is money everything has to be built a certain way at a certain pace that people waiting on the other end to get their apartments or to get the space to move in. You really have to be on the ball all the time.
Ben: You and I also do tech. And it's funny because tech people will build a billion dollar business over, maybe it takes them seven years or something if they're lucky, maybe 10 years to build a billion dollar business. And, you think about building a billion dollar building, and you do that over, well from start of construction to finish is probably three years or something, and has to actually from the beginning, even before you start, every little detail has to have already been thought through, has to have civil and structural and electrical, the details of it.
And you might be building, you're saying, 10 of those buildings, 10 billion dollars all at the same time. So people in tech, it's like they don't appreciate how each project is an entire tech company, is an entire unicorn.
Tal: Yes. Each project is a unicorn and can be sometimes bigger than a unicorn in advance. I think what I misunderstood before, I came from a different category altogether, and to understand the complexity of a project like this is really special. You have to be in it in order to understand it. Just like a person a building is almost like a person when you look at a child coming to the world you don't know all the things that they will do well and they will do wrong the personality when you start a building in order for it to be successful, you have to invest so much energy ahead of time most of the work is ahead is before you start the project. And once you start going vertical, I wouldn't say it's trivial, but it's managing what you know and what you have as a plan already in place. Now it's managing the plans, just do it the right way and make sure that you supervise and you don't make mistakes in that process. If you make a mistake, sometimes a tiny mistake on the design, on the planning, on the negotiations, on the deal terms. On anything you did on the financing before you can end up in such a disaster at the end that there is a building that we see from our window every day that is stuck for the last eight years and it's already topped out, but the curtain wall is not all the way up. I don't know what they will do. It saddened me to see it.
It's so sad, but if you do not have the right infrastructure before and the team that knows how to manage it, the end result will almost always be so bad. The ripple effects that you get through a project like this are disastrous. But when you have a great team, if they face a challenge in the middle, they will solve that challenge.
They will solve the problem one way or another. They'll figure it out. When we get the glass provider the curtain will provide a come to us at some point and telling us as a surprise i'm sorry if you don't give me another ten million dollars i have to stop the project, but we said well we wired you all the money for the remainder of the building for the glass and you were supposed to deliver on time. And that's part of our budget. He says, well, I just can't because I'm overly stretched. The interest rates went up. I did not hedge. You told me to, but I didn't. And luckily our team predicted that. And we managed at that point to immediately on the spot deliver documents and legal documents and solve the problem immediately with that glass provider.
That was years ago and finished the building while many others that didn't have that were stuck. I'm not happy that others were stuck. I'm just happy that our team predicted and prepared for that situation. So if you prepare for all these edge case situations and you can see them coming, and we always do a post mortem of bad situations, we always look back and do a reflection, how can we do it better next time? Then if you can do it, you will solve the problems. There will always be challenges. As you know, in a tech world, in a startup, What do you think? Do you see challenges on your end since you started?
Ben: Yeah, the challenge with all projects that take time is that during that time, the world changes. You can have COVID. You can have war. You can have interest rates go up. You can have all sorts of things happen you never expect, and then you have to figure out what to do about it. And that's the part that people just can't appreciate with development.
Again, you're building a billion dollar building in the middle of the building. This happened to me when I was at the beginning of my career, but 9 11 happened. We were in the middle of a building. How do you predict that? You're never going to predict it. And everything that you thought was going to happen changes.
So, would you mind if we just talk about 9 11, because it's such a seminal story, it changed my life. I've obviously heard many of the stories over the years, but I never really appreciate what it did to your guys lives.
Tal: In 2001, on July 24th, that was my birthday, we bought the World Trade Center, seven weeks before 9 11. We received those big keys. Larry and the family thought, this is it. We can manage these buildings. We can sit back a little bit and work hard on the existing portfolio and we'll be fine. There he was 70 and said to himself, everything will be great. And then seven weeks later, we used to live in Scarsdale back then. And my wife was taking the train and she was driving to the train, taking the train and then taking a subway to downtown to meet her father and then go to the 107th floor to windows on the world restaurant to meet a different tenant every day to ask them questions.
How are you doing? Do you see any challenges? What are the good things and the bad things? We always like to sit with our tenants. We have some of the best companies in the world. We have over 254 of the global 1000 companies. We love to spend time with them. These are smart, great people, and they're very nice to meet with us and spend time.
And she was on her way. But this day she decided to try a driver and he could not find the house for 40 minutes. And she got in the car, drove to the city, she wanted to see if it will be faster or slower, and then 20 minutes from the office on the west side highway, the traffic froze, the buildings were hit, and she didn't understand at first what's happening, and she couldn't call anyone, she tried to call all the phone systems in New York, went dark. And her heart was racing, she couldn't reach her parents, she knew that her father, she thought, is supposed to be in the building. That morning, Larry was planning on getting dressed like he would do almost every morning since we bought the buildings seven weeks before. And Clara, my mother in law, is telling him, what are you doing? He says, I have a meeting, I want to meet a tenant at the building. She said, no you don't, you have a meeting with me. You scheduled it with me, we're going to the dermatologist. And he wanted to tell her to cancel it, but she said, we cancelled before, we're not cancelling, you come with me. And he did what he taught me decades ago, which was, when you're married, you have to say three times a day at least, yes dear.
And he ended up saying yes dear, and that basically saved his life, so he was planning on going to the dermatologist. But he didn't know that Lisa, my wife, was stuck on the West Side Highway, she didn't know that he was changing his plans. They could not communicate, but there were so many terrible stories that happened that day, so many lives lost, a disaster.
It was a shock to everyone. We lost friends. We lost employees. We thought we lost everything. It was a disaster to every individual, but it was such a shock to the system. I don't know if you remember, young people won't know that as much if they didn't live through it, but the city was in shock, the country was in shock, nobody knew what will happen the next day because nobody knew if this is a beginning or is this the end, is it one event, is it a series of events that will happen across the country, it was the biggest terror event in the history of the United States. And we vowed at that point or close after that we are going to rebuild it back. We don't believe in leaving a hole in the ground and letting terror win. It should never win. And that was a commitment Larry made. He spoke with Clara about it because he could have decided to walk away. Get whatever he can and walk away from this and not give the rest of his life.
He wasn't young at this point, but I think he felt and the family felt a very deep sense of responsibility, a very deep sense of commitment to all the families who lost loved ones to the city of New York to America. And over the next 20 plus years, we've been working all the time through legal battles, political negotiations, negotiations. Dealing with the financial elements of this that are not trivial, how do you transform a site that is very complicated and you have to pay a big tribute to what happened and you have to bring things that bring the new, the future of the city into this beautiful place. So now you have over 250, 000 people a day that come through the transportation, 90 million people pass through it a year. Tourists, employees, families, I see more strollers on the streets here, young families than ever before. And it became the most vibrant place I've seen. So, you can read about it. A few weeks ago, Larry came up with a book that it took him three years to put together with all the materials and the history.
He's 93 now, but it came out, it's called The Rising, so if you have time, feel free to read it. I think it gives the story from his perspective.
Ben: When you've taken me through the building, and you guys have videos, and you have all these models, and different parts of the history. It's so moving. It's so different from most real estate or most companies because it's not just about the actual project. It's a symbol in a way that very few other things in ever have been a symbol of America and resilience and strength and coming back from it.
It's impossible to really understand it, but how hard it was to take something that was beyond a hole. It was toxic. It was just such a bad situation. And it took years to clean that up. I don't know how much will be built on the site when it's done. Is it 20 billion?
Tal: It's over 20 billion when it's done. I think we already crossed the 20 billion. There is so much in this. It's the densest transportation hub. Subways, path train. We have 12 subway lines underneath. Just imagine building on top of a subway line. Now you have 12 of them running while you're building underneath you. You're building a memorial, a museum that goes underground, you're building a performing arts center, and you're building buildings that are supposed to be and are connected to everything underground. You can walk from one building to the next without going to the surface. You can take a train to New Jersey and you'd never surfaced, you came from your office. It's very complicated and I think it's built to a completely different standard, all green buildings, energy efficient, the best air quality that you can imagine in any building, but it's more than that. It's the symbolism, the quality, the vibrancy. It attracted incredible tenants larry always said we can build and design with the best architects in the world the most beautiful buildings get me the number one and number two companies in each category. Don't bring me number five number six bring me the leaders in their respective industries if you bring them into our buildings we will succeed help them then make them more successful invest the time to help them. How do we do it? There is a full process and protocol and playbook of how to help, but you bring companies like the spotifies of the world, which is in four world trade or uber and three world trade or McKinsey or WPP or Moody's that is a seven world.
You bring leaders in each category and they are a magnet to other leaders. And eventually the top in every category usually they are the consolidators they will acquire the number 456 and they will grow they will do better not always but usually. And if you bet on the people and on their personality and on their success and track record. I think you can create a great community because if you bring one bad player company, and we had those examples, I'm not going to name names, but of companies that were willing to and interested in being here with us, and we said they're not a good egg. We actually interview other CEOs and said, do you think this will be a good idea to have them here in the campus? And they say, I don't think so. And then we say, okay, it's not about the rent anymore. It's about, we don't want that tenant. If you have one rotten apple on a tree, usually the entire tree goes bad very quickly, the dynamics, the amount of energy and effort you have to spend on that tenant and what they want or what they don't want or what they are not willing to do. They're employees that they hire. It's never a good story. You have the wrong personality on the campus. Everything that you are doing can be going sideways. We don't control everything, but it's important to bring the best quality of people and help them with the best treatment, hospitality, and everything you can do to make them more happy and successful.
Ben: But there's such a difference between like real estate that Silverstein's doing and most real estate companies. Another story I remember, it's not just that you're building what's like a city. There are cities in America that are smaller than World Trade Center. You once told me that this is his building.
It probably will stand a thousand years because the way it's built, it's the pyramids. Can you tell a little bit about that?
Tal: When you look at the buildings, the way they're constructed, it's different than most buildings. And I think we owe it to ourselves and to everyone. The level of design, the concrete used even, I don't need to get into full details, but it's so much stronger than any other property. The core of the buildings is roughly 20 times stronger than any other core of any other building. Density of the concrete is so much higher. The highest I've seen before was the Hoover Dam with 7, 000 PSI. Symmetric, maybe I'm missing a little, but it's around 7, 000. Normal buildings will go 3, 000, 3, 500. This is 14, 000. You have to deal with it differently on the concrete level the steel level everything inside but then you can build floors that are with a very strong cordon need as many columns so you may have a floor that doesn't need any columns in it and you can do any design you want for the company you're giving so much value it's about bringing the quality. In this point in time, it's something that you're building that we're not building it as a monument, we're building it as a house for companies that want to be here for a long, long period of time. They have a great vision, they want to succeed, they want to be in a place where they don't have to think twice about their future. They can expand, we can help them, and they know that this is the best quality. The elevators in some of the old buildings are so slow and you get into a place where the air quality is low and then if you have some incident of the flu or a second outbreak of COVID, people get sick. Not so in these buildings. We are willing to invest more and more and more putting the best air filtration that you find in hospitals. That's what we have in this building. I think it's important to bring the best technology, which we do. Everybody can talk about it, but the question is, are they investing the capital needed to make it at the end of the day. To us, this is a labor of love. It's passion, it's a commitment, and I hope we are doing right by everyone.
Ben: I still think about it just thinking that, okay, this building may be a thousand years from now. I mean, that's how different it is from a normal building, normal house, maybe it's 50 years, maybe a hundred. So it's just such a different project than anything else I've ever seen. Let me transition here to some of your other exploits and experiences.
You're unusual in the real estate industry. You're sort of this combination of real estate and tech, and you come from a tech industry. You've built multiple tech companies. I would be interested if you could tell the listeners about some of the tech companies you've built, and then maybe we can talk a little bit about the experiences and lessons you learned from building those companies.
Tal: So I started, back in the day, I, I was fortunate. I was a co-founder. I didn't start on my own. I was a co-founder of two tech companies myself. I worked before that in a tech project, a government business years ago. And then started two different tech companies here in new york and the first one was back in 1997 when we started it grew it became a leading e commerce platform where people said you're crazy what is this thing but we tried to power with our platform different companies and sites as they were starting today it's everybody goes online and looks at every e commerce brand. But we worked with coach and Spiegel, Neiman Marcus, different companies to give them the best front end solution platform. And the company kept on growing later. It's sold to a public company, but from the team or the ideas that we had there, we came up and identified that there is a need in the gaming space. Not gaming, like gambling, but the casual games that people play at the time on their computers, on the web, later on the phones, and we created a company that was a platform and brought all the content to over a hundred different sites out there, from Microsoft MSN games to Yahoo games, AOL and others, where those companies did not want to run their own game activity, license content and run it on the platform and A, B test and try it and then Create a way for people to buy the games and pay the royalties and subscription services and all that we created one of the largest subscription services at the time on the internet we grew to about seven hundred employees and eleven countries it was a big pressure on the family because i had to travel i always said i need to visit every office at least once a year. The office in new york i would see all the time but i need to visit every office because otherwise people feel uncomfortable i was chairman i was co founder and company before i was also ceo chairman and my wife kept saying we probably need you here my father in law kept calling me and saying i need you in the family business. And as you said when me as a young entrepreneur that doesn't know much saying i want to build a big company and he says let me take you around and he drives me in the car and shows me see this building this is a billion you see this one this is two billion and we're going to build these you need to come here if you're looking for unicorns we can show you how they made. And he says, I'm turning 80 this year. I want you here in the business. And I felt very, I don't know if to say intimidated is the appropriate word. I felt so many things. I felt like I don't know anything about real estate other than what I hear over the dinners. And how can I bring value to the business when I don't understand enough?
Where I am at the time, I felt very good at my position. I had the background. I had the history. That's what I studied. Nobody could tell me I don't understand what I'm doing here. It was different. But I agreed to join. It's hard to say no to Larry and it's harder to say no to my wife. We always call her the BOE. She's the boss of everything. She's incredible. So here, when you see me in the camera, she's behind this wall. We work together now. We All day in our offices next to each other and we can be in the same meetings mostly we try to be in different meetings and then regroup and discuss everything so when i decided to join i gave a year notice sold big part of my shares and said i have to get into the family business i'm sorry. Was a tough decision. That was over 14 years ago, but I joined here at Silverstein as a senior vice president, so that was an okay dynamic. I just didn't know if I'll be able to learn fast enough, and I learned that no matter what I'll do over time, if I'm surrounded by the right people, and I trust that they are the right people and give them the space and only help with decision making together and with how to drive things forward and take away or remove obstacles, I'll do okay.
We'll be fine. So that's my move into this company, into the business of Silverstein. But I still try to keep a foot and a capacity in the tech world, because I think it's always important to move forward and be entrepreneurial, bring as much as you can into the business from your background, because then you can add more value. We became a company known i think now and we were before as well but known for our capacity to accept and to test and to be in the forefront of technology.
Ben: I think that's so essential for any business, and it's increasingly obvious to the world, but it's hard to be good at tech because it means you have to be. Good at starting over and over again. You can be good at internet and then there's mobile and you have to learn mobile. Then after mobile, you have to learn cloud and after cloud, you have to learn AI.
So having a beginner's mind and a willingness to basically make mistakes, it seems like that's a big shift to be at the top of your career and change industries and to go into something that clearly you're going to be in the room and just not know as much as people who are 20 years younger than you maybe.
So it says a lot about you to do that. I'm interested in, I don't know if you have any lessons learned or feel like you came away from, especially those tech businesses were built in a different era, in the late 90s and early 2000s, did you come away with, Oh, if I ever do another tech company again, certain things you thought that were principles that you would always, or mistakes you would try never to make?
Tal: Is there a few questions good
Ben: Pick the most entertaining one.
Tal: yeah i'll try but these are really a mix of questions that you put in here. I think the biggest lesson I've seen both from my past and from companies we are helping now and working with, we have a tech arm that we focus on these young entrepreneurs and startups is that speed beats perfection in most cases. It's not true for building a skyscraper, it's true for mostly building a startup because you don't know in advance what is the perfect product. The goal when you build a skyscraper or a residential tower is to have everything according to plan, but get the plans well. You can iterate many times before you touch the ground, but once you touch the ground, everything is in motion. The people who are going to do it are different than the people who designed it and planned for it. In a startup, you don't know 100 percent what it's going to be, so if you wait too long to launch a new version or test a new feature, and you've seen it probably, I remember from our past board meetings over the decade, that if you don't test, you won't know.
And you have to test more and more variations to know what's right. Then optimize on it, then perfect it, then work on it. Nobody knows in advance until they test it. If it's going to be successful and what is the end product? Of course, you know the general direction, you know the, call it the Z. You know you're at A, you know where the Z is.
You don't know what is exactly B, C, D, E, and how do I get to the Z, but you know where you want it to be. Now, try and iterate quickly so you can get to those stepping stones that will bring you to the end result. And then the next thing I've seen, and I have to say I didn't understand it well when I was younger, was that execution is everything. A great idea without great execution is a dream. There are so many dreamers out there. You need a dreamer to be successful. Without the dream, you will not have a successful company. But you will have a thousand dreamers for one success. That's not a good outcome. So you want people who surround you with perfect execution.
And in many cases, the founders, the entrepreneurs, the innovators are not necessarily the best at execution. They want to be they have a dream of being but they may not be there fast enough so they need to find how to surround themselves with great execution teams and people who can take methodical ways to every process to every measurement to every kpi if i have to reflect the third lesson i've learned that was very important is that culture drives success. So if you hire the right people, it's more important in my mind than a single product feature that you will put up. If you bring people that strengthen the other people around them, not just individual contributors, but someone who is add them to a team and one plus one becomes three or the one plus one plus one becomes five.
These are the people you want. So many times I used to hire people who are on paper rock stars in an interview. Fantastic. Put them in a team, they alienate everyone. Nobody wants to be around them. And then the team becomes toxic. That's bad. That's an extreme. There are people who are, there is a gray zone. But there are people who are excellent. You brought them, you didn't know that. You thought they are okay. But they make everybody else a better version of themselves. And then your team runs so much better, so much faster. So, you're nodding your head, and I remember you telling me that we didn't know that this individual would make such a positive impact, such a huge impact. And my son taught me, he loves basketball, and he always tells me that you want the best point guard, and the best shooting guard, and the best power forward, and the best center. You don't want three great centers and no point guard. He used to be a point guard, so he always would give me that funny example. You want a great in every position, because then your game is a better game. And you can command the court better. You can grow in a better way. So, to build a culture, I think culture always wins. If you have the right culture, culture will beat strategy every day. And if you have a good story to tell and a good company, it's easy to copy. Think of yourself, Ben, you came back over in 2014, 13, we met, there were a hundred competitors to Fundrise over the years, I met more than half of them. Probably they called and they wanted to have me involved in them. Obviously I didn't, but where are they now? I don't see them anymore and the main reason is you build a culture, you have a vision and you push in that direction and you do it the right way. It's easy to copy a PowerPoint, it's easy to copy a story that someone tells because you can sit in a presentation or record them or whatever you do. It's incredibly difficult to copy the culture they built and the ability to move forward. Catch someone as a picture, you don't catch them as a movie. You see a snapshot of people posting something on Instagram, they show you a snapshot in time that shows them always happy. To know how they are, you need to spend time with them and really understand them. And that's very, very different. So, sorry, I spoke a little much, but these are the key lessons I've learned. There are many, many more. If we have more time, happy to do it over dinner.
Ben: You sparked two questions, and I'm struggling which one to go with, so let me just do the FunRise one. I was at lunch only two days ago, and I told somebody there were 150 copycats, because FunRise was the first. We created the first, back then it was called real estate crowdfunding in 2012, 11, 12. And then there at some point there were 150 copycats or 200 copycats and they raised billions of dollars and they're all gone pretty much now.
Somebody said, why? What's the difference? And there's a few reasons. But one of them I always say is because we didn't raise venture money and only people who are other founders. Oh yeah, yeah. I know exactly what you're talking about. I look, I work with VCs and they're great and they're especially good for certain types of businesses, but they're not good for all types of businesses and fundraisers is a combination of technology and real estate and investment.
So I want to talk about venture capital because you also sit at this nexus. So let's talk about venture capital for a minute. So why, when I say that and you laugh, what about venture capital sometimes can be a challenge for tech companies and founders?
Tal: Great question. You never want to generalize without the venture capital world. Many of the success stories will not be there, will not exist. Many of the tech companies will not have enough capital to get to the next level. The big issue is that VCs believe sometimes most of them, that they are the ones that create the success. And they are not the ones who create the success it's you it's the founders it's the entrepreneurs sometimes i hear in board meetings and i don't sit on many boards i try to not sit on boards i sit on your board, sit on the board of family businesses i removed myself from other boards. I see behaviors at times that are counterproductive it's against their own interest it's a model of, i wouldn't say powerplay as much as ego that is involved or the desire to form an opinion and share their opinion at sometimes the wrong moment and the founders they are looking for guidance and help in many cases. They're very smart in their category and they hope that the investor is giving them information and guidance that comes from years of experience and it doesn't always do that and I sometimes say let's take a five minute break and then I take a board member aside and I say, did you ever hear Roosevelt's the man in the arena and he said it's not the critic who counts. The credit belongs to the man who is actually in the arena, those who are covered with dust and sweat and blood and who strives valiantly, they make mistakes, he said it differently, he said who err and come short again and again, this founder is doing a great job. And they dare and they test and they do it again. Your job is to help them make less mistakes, maybe, but not make them feel bad. And I've witnessed cases where the investors, not always VC, sometimes other investors, they use the opportunity to make the founders and the entrepreneurs feel bad, rather than saying, let's talk together. How can we now help and make it a better outcome?
Now, there are some fantastic venture capital investors. There's some very smart ones. They have not just the capital, they also have the methodologies, support systems, and ability to sit and bring additional value. You have the Sequoias of the world, the Andreessen. You have different funds, Bessemer, that have a lot of experience over decades and decades and they know what they're doing. And there are some that show on paper some success because of one company. Sometimes one company can create a great success for the VC, but it's one company. They invested in twenty one made a shooting star and instead of saying wow i'm by coincidence landed on a shooting star i should be glad that i'm very lucky they think that they are very smart and you have to be very careful to identify when is it luck and when is it really something you did so i think not all vcs are bad on the contrary there are many that are good but as a founder. You spend so much time raising money that you compromise or you don't even know how to assess who is the right venture capital for your firm, who is going to add value, and who is going to be toxic to your business. It depends on the business. Some businesses, they go five times sideways and then once up, and I've seen incredible entrepreneurs that managed to take their business and move it from one direction to the next and the next and the next, and then they have a breakthrough, and I'm so proud of them. Luckily, they had a set of investors that supported them through that. At times they call Charlie Fetterman, who is a partner at Silvatech, or Larry Wagenberg, another partner at Silvatech Ventures that we have, and they ask them, can you help me with my board? I have a challenge with my board. Can you talk to them?
And then we take them aside and we talk to them and we say, our job or your job as a board is to help the company steer in the right direction, not to try and highlight every mistake made along the way, because there will be mistakes, unless they are mistakes of bad character. Unless there are mistakes that are detrimental and gonna kill the business, so now we have to put the hand on the brake. Just to make the founder feel bad when they have lack of sleep, challenges that they have to get home late and their spouse is not happy with that situation. You're causing them just extra stress and drama. You're not helping yourself. So I think this was a longer answer than you expected or wanted. I think there are some great stories where the VCs are very helpful. There are stories where the VCs take it to their heart. You need to find the right ones and you need to spend time with them if they invested in your company to help them understand the situation and not be surprised and make sure that they also understand when are they helping and when are they causing damage.
Ben: Do you have any stories, you can, you can leave out names, but stories where you know about something that's gone wrong, whether it's the VC or the founders and entrepreneurs, maybe where it went badly, where it went well,
Tal: Oh, I have many stories. Try and make it short and stop me when you're bored, if you're bored. I've seen a situation where a founder that was working day and night, hard, weekends, coming to the board, proud, everything is going according to plan, talking about an event is going to bring a group of all of his salespeople from all over the world. To one location and he's gonna do a retreat to get and share stories between them what works what doesn't work so they need to bring them together once a year and the board is asking them questions and said what are you doing he said we're bringing them we actually are making a shirt for everyone with the brand of the company so they can be proud with the name of the product on it and they started to discuss should it be a sweatshirt or maybe you should do it as a beach towel. The founder at that point was so upset that after that he said, I have to leave. I just can't be in this company anymore. I can't be in a place where they dive into decision of the level of the type of gift we give to the salespeople. So that's an extreme case, but I'm sure in that company, it was much deeper in every aspect, instead of letting the founder, the CEO run the business and having high level goals, they did it.
And second guest, every decision made on a daily, weekly, monthly basis. This is not a board decision. This is not investors decision. The CEO needs to run a company. It wasn't a tiny company. I've seen scenarios where founders started to fight between them. They didn't agree on the future. They did not agree on the vision.
And the two founders that I'm thinking about started to argue. Then they went and each one of them aligned with half of the board and tried to tell stories about the other one. And each one of them wanted the other one out. And the board, instead of being extremely professional, the investors, instead of really figuring it out, started to fight amongst themselves.
This is a scenario that reminded me of when you look at, unfortunately, people do get through divorces and then they find the worst out of each other. And that's bad this is a scenario that nobody wins no one can win under that scenario and our job is board members or as investors is to be a support system to try and mitigate identify who is right who is wrong if there is a way, there are ways to do it that are professional rather than just listening to stories of one person or another i've seen stories like this it happens in many companies that founders find themselves arguing and not agreeing. And eventually one side will win and the other will have to leave. And even that needs to be done in a amicable, honorable way that is not causing damage to anyone, not to the company and not to the co founder that is leaving. And I've seen it can tell you how many times. Ideally, you manage to mitigate those bridges and find a solution that works. I've seen good cases where boards are really smart. They spend time. In many cases, board members do not spend the time necessary other than coming to the board meeting, and that is not healthy because you cannot get in a short presentation the depth of what the people are going through over a period of three months or a year. Board meetings should meet at least once a quarter. But you can't get the direction of the company in a snapshot and if you're smart you want to know more so your advice or your recommendations are helpful so that's a couple of stories i've seen companies go under because of bad dynamics on the board i've seen companies that are doing a 10x. Did I give you a book when I met you
Ben: where does that lead? I read it.
Tal: boards that lead if I see entrepreneurs that I'm not sure about their board composition I like to give them that book and tell them please read it and it compares different companies that are on paper identical on valuation there is a 10x to 20x difference and it so many times depends on the board if the board Is composed by people that are helpful.
You can win any mountain. You can conquer every challenge in front of you. If you have smart people on your board and they support you and they're smart, they really need to know and be wise and not picker on small things, but let you do and go through the mistakes of life. Focus on the big picture, focus on the goal and help you when you need it. You will win because if you're in a business that is interesting, like you have at Fundrise. You will have 150 competitors throughout your journey until you get to be big, and the winner will be the one that has the best support system, that is capitalized the best way, and can move the fastest. Because you can always learn from the mistakes and the examples of others.
If they are doing something right, you will do it within a month. It's a winner takes it all, but it takes it all over time. It's a marathon. It's not a sprint. It's not a hundred meter dash. And I like the long distance.
Ben: You've frequently said to me something like, you don't know how lucky you are. You're bored. So good. I'm seeing so many problems, COVID, and this and there's so many situations where the boards are problematic. I feel like people don't have a sense of what percentage of boards do you think are hard? Not even bad, just hard.
Most?
Tal: I think most. Yeah. I think most of the boards that I, and maybe I'm unlucky on that front. Usually I consider myself the luckiest man around. I'm lucky with my family and I'm lucky with everything in life. So I'm just an optimist in this capacity, but even as an optimist, I witnessed that most boards of most companies are just hard. Are just not great. And that's so, so unfortunate because the potential is there and you end up being in a bad place. You have a great idea. You have all the motivation in the world. You have a bad board and you are going to drive yourself deep into the ocean.
Ben: Yeah, it's hard enough without that. I think of two examples of things, one a piece of advice you gave me, and one thing you did to help us. Let me just give you the advice first, because I laugh so much, I remember, this must be five years ago or something, I went to you and I said, Tao, when should we raise money?
When should we do our next round? When should we do that? And he said, Oh, this is like something I tell my children.
Tal: That's true. You raise money when you can, not when you need. It's true. That's one of the lessons is to raise when you can. You will need the capital. You don't know when. You don't know how. Things change and you cannot predict all of them. You cannot predict what is going to happen a year from now. Think of COVID. Think of any big event that happens in the world, wars and everything. You must be ready for everything. And just don't take the downside with what comes usually when you raise enough money. When you raise enough money, some people are not disciplined. And I think that's the next level. And you've been disciplined, but keep on working on it.
You must become capital efficient over time. You must constantly, at the beginning, run as fast as you can, and then try and optimize on what you have. Look back, stop, because you're building a plane while you're flying it. That's building a startup in 13 years, most of them get to a bar mitzvah, or when they see their outcome, they get to the graduation. You need to take the company and look back every few years and say, what can we optimize now? What did we do right? What did we do wrong? And that's a very hard thing to do as a founder, as a CEO, as a leader in general. We don't like to do that. It's less pleasant. It's so necessary. Got to look back, keep the key people, remove the people who are not perfect for the company.
They can be fantastic elsewhere. I used to say unleash them to the competition. Let them do a great job somewhere else. They may not be a perfect match for your team. Improve what you do. Remove products you don't need and focus on the products that are the best. And that derives the people who are the best.
And the great people, you always find where they can be in the organization. They may have worked on a product that you say, we don't want it anymore. But they were stars. They were the hardest working. The nicest people, the best part of the group, let's move them to the new product. And that's important.
And I still stick by the first advice I said about going to the bathroom and raising capital. Make sure you go when you can. When I stop the car on the way, when we have a long drive, I say, go now. I don't need to. Okay. But when you will need to, I'm not stopping. So you're not going to be able to raise when you want to.
Ben: That's what I loved about that. So I told him I'm going to raise millions of dollars. What should I do? I expecting this erudite complex answer. And you have this great accent that he was like, Ben, it's like what I tell my children going to the bathroom. You don't go when you need to. You go when you can.
And I was like, okay, so I need to go raise money now. So. Anyways, it was, uh, just let me give you one more example because there were a couple of seminal moments in the company. So one of the challenges with Fundrise was that we had to be credible with our lenders. You can't do real estate without lenders.
When you're doing large real estate, we've done billions of dollars, you need large lenders. And when you're a tech company, you're novel, you're innovative, and lenders don't like novel and don't like innovative. They like old and boring. So we went to one of the largest lenders in the world. I don't know how big that was, huge.
A hundreds of billions of dollars and we met with their head of credit, head of multifamily and you came with me to the meeting and if you hadn't been in that meeting, they've signed off on us. They accepted us as the credit risk, they say. And that is an example of a board member, a venture investor, whatever you want to call yourself in this case.
That was so important. It led us to so many things as a result. So I'm often critical about VC, but it's because most VC is not that helpful, but sometimes, sometimes an investor, a board member, whether they tell you to do something that saved you from, if you're trying to raise money after the bell rang in venture and in real estate, the markets turned overnight.
If you miss the window, You're dead.
Tal: Exactly. 100%. I remember that day very clearly and I remember you calling me before and saying we would like you to help with that meeting and come and it will make a big difference and I said sure and I had cleared my calendar I took the train I came with you went to the meeting I said what I had to say to them and I told them I'm on the board and this is why you should make that loan. And they looked at me and said, ah, and you're with Silverstein. Yes. I'm the president of Silverstein. I think there are some pivotal moments that investors owe it to the founders of the companies they're involved with to find those moments and help them. If you don't have your capacity to do that, don't be on the board. Don't get involved. There are other people that will do better because money is fungible. It's the same color and it's the same digits in the bank account. Those who can add the value should, and they shouldn't just say they can add value, they should do something about it. And we have a lot of companies that apply to Silvertec Ventures.
They want to be here. We tell them, I don't know if I can help you. I'm not going to invest until you sit with us for six to 12 months here in the building with us so we can see each other every day and we can spend time with each other. And if we can find that we can help and we want to help, we need to want to help. If the dynamics between you and us is not good, we will probably not want to help. That means you got some space, you spend time with us, you being part of a community, but we will part ways. But if we can help and we want to help, then we are adding value, then we will invest. We will not dictate also valuations. We don't want to do that. I never want to be on the other side of the entrepreneur. I've been on the side of the entrepreneur. I am too emotionally attached to help the entrepreneurs that I don't want to negotiate with them on valuation. I want to sit there and say, you go and find the investors, the lead, the one who will dictate the valuation.
It's so not important in the grand scheme of things, to my opinion. And we will just join it because if you are going to be a rock star and a successful one, does it really matter what was the valuation of that specific round? If it's not rational, nobody will invest. And if it's rational, does it matter if it was a 20 million dollar pre money or 25 million dollar pre money or 15?
Doesn't matter. Doesn't matter. If you have the wrong investors, you're doomed. Most companies that start fail. Way over 95 percent and those who succeed, they look back and I never heard them regret what was the valuation in my A round or B round or whatever. So to your point, if there are more things I can help with, always let's have a dialogue and I will always want to find how can I bring value. And the moment I can't bring value anymore, tell me and I will step down from the board. I don't want to be on boards where I don't add value to the company I'm on.
Ben: I want to do one more topic because I think about working together for a decade There's so many different stories But one thing that just I think that our listener would really find interesting is sharing some of your experiences in Israeli Because you're born in Israel. You served in Israeli defense forces for six years I guess I have two questions.
One, actually, I didn't actually send this to you ahead of time, so let me know if it's okay, but one thing I think is interesting is that Israeli or any foreigners, you can see Americans as how they are. Americans are not the same as French or Germans or Israelis, so I was curious when you look at How Americans are with these biases and patterns as an outsider.
Are there certain things that always stick out to you? Like, oh, that's such an American thing to do.
Tal: I usually don't talk about exactly my service, but yes, I did serve for six years. But there are a lot of lessons I've learned, and I'm, more years of my life now in the U. S. than in Israel, where I was born. There are so many lessons when you are a small country surrounded by enemies. And the country is young, and they went through all the challenges. Most people don't know where the country is on a map. Now we're in the US, it's a large country with a lot of people, with a lot of history and success, and we are very good at certain things. We are good at marketing, we are good at positioning, we are good at processes, we are good at building things and making them grand. That's the engine of, I think, the world economy is coming from the United States. There are other engines that copy or replicate, and they have other sub advantages, but the United States is the bigger engine at the moment in the world. Because of our culture, because of our entrepreneurship from many, many years ago, the combination of the two, though, is very interesting. A small country needs to find how to iterate quickly and survive, and that's a different culture. Then what we witness here in so many ways, some of it is good, some of it is bad. It's fast, the communication is faster between people. They have to pass a message, they do it sometimes too bluntly, no politeness, not because they're bad.
Ben: Israel. Yeah, that's the famous stereotype.
Tal: That's a stereotype that is coming from need more than anything else. The language has less words than English. Some would say a fifth, and some would say a tenth of the words. It's a lot about the intonation and the combination of things. So that's language wise. But the culture says, if we can do things together, let's figure it out quickly, and let's then be very committed to each other.
And if we can't, let's very quickly understand that we can't. So they have less respect and understanding of what it means to sell and listen. These are two important things. Sell and listen. So they're not good at sales in most cases. They're not good at listening in other cases. They're very good at iteration, entrepreneurship, creativeness.
They solve more problems than anyone I've ever seen, but they create more problems than anyone I've ever seen at the same time. So you have an interesting culture. I think the combination is fantastic. When you bring the strength of each side, you have a winning element, but you will find great people on both sides, you'll find people that are not so great on both sides. I think there was so much to learn through the years. You don't have the same elements everywhere else. When everything is mandatory and doesn't matter where you came from, you had money in your family, you didn't have money, everybody takes their clothes, they change everything from their shoes, their shirts, and you wear the same stuff for several years in the service that you have to go to. And then what highlights and what you find is that the good people shine and nobody knows where they came from, nobody cares. And you learn that and it's a great lesson. The lesson is don't just position yourself, be the thing you want to have around you. If you love people that are listening, that are good, that would do everything for you, so be one for other people as well. And if someone is not good, tell them, find a way to tell them without insulting them in public, do it one on one, maybe they can improve. That is something that I've seen in that culture, I haven't seen here as much, I think we have room to learn and grow. But again, there are pluses and minuses. I have respect to every culture I stay in. I always like to find what are the best advantages that I can learn in every place I am. And by the way, I'm not an expert by any means. That's a personal opinion. I don't know more than other people. That's my personal observation. I'm sure that someone else that lived here or lived in Israel or lived in the combination or in other countries will have a different opinion.
Ben: Let me just go with a specific story that really struck me. Because what you're saying is that Israel's culture comes from a place of some sort of fear being surrounded by enemies, and if you think about America, it's about as opposite as that. As you could name a country, it's surrounded by allies, has the longest unprotected border with Canada in the world.
It's very powerful. Other than 9 11, where we had a moment of fear, and probably Pearl Harbor, it's a very different culture of what we take for granted maybe. But there's a saying in Israel about the destruction of the Temple. I'd love for you to share that little insight, because I think it's just the idea that the destruction of Israel is actually, there's this history to it, there's a culture of it, there's a saying of it that just makes the point.
Just, I thought it was so poignant. So, would you share that a little bit?
Tal: Sure, I share what I learned and heard. I'm not an expert by any means, and I'm not a rabbi or a scholar in the space. But what they say is that the temple was destroyed twice, and at some point there will be a third. Because throughout history, empires come and go. And the destruction came, that's the claim. from in fighting, from people who could not agree with each other. Eventually the enemy came from the outside, but they were fighting inside, and then did not defend themselves, did not protect themselves, and they caused the damage, or some of them defected and went to the other side and told them how to get into the city, how to break through the city. If you have a very strong leadership and team and country in that case, The country is just a bigger version of a company we have companies today that are as big as some countries financially definitely but also a number of employees and when you look at that you start to understand that there are many personalities we always like to look at the personalities of the people that are surrounding us closest to us but if you have a company that grows and grows and grows. And you have thousands of people in one side and another group of thousands of people in another side of the country you don't know all of them no matter what you want to say if you don't put a culture that helps them all row in the same direction and there is infighting and arguments and not arguments about let's improve the product and disagreement of the feature this feature that feature what's more important but arguments about personalities they don't want to create the same success. Then you're doomed, because there are coming enemies from the outside that will want to kill, destroy, maim, and cause damage to you. And you cannot fight into your own country. There is a term for that, it's Fifth Battalion. The inside enemy is the worst. The disagreement with each other is the worst.
That's why when I said before and I looked at examples where I see founders or management fighting with each other, not because they just have different opinions on the product that has to be cleaned as fast as humanly possible. If it's not cleaned, it's a distraction, it's problematic, and it's bound to cause lasting damage that will lead to a bigger calamity. So I'm a big believer of collaboration, connection, putting people together, finding the common grounds and figuring it out. You have different opinions. They're all potentially good people, and if they figure it out and they admit it to each other that we have different opinions, let's put it on the table. Now, let's find out how to work with it. In many cases, they can do the right thing. If you have darkness, and it's scary, and it's bad around you, you don't need a lot of lights. You need some light, and you need to make sure that nobody else blows the candle when it's small, and nobody is trying to destroy you while you're doing the right things.
Ben: Can you say it in Hebrew, the third destruction of the temple?
Tal: Churban bayit shlishi. There was churban bayit sheni, the destruction of the second temple. Cheney's second, she is the third, so there are prophecies or expectations that if people don't align themselves with each other, there will be a third destruction one day, but for that, they first need to be aligned now, same with companies.
You have to focus on your company to get to the right alignment. Your main job as a founder and as a CEO is to agree on the path, agree on the end goal and take obstacles away from your team and make sure they work with each other, not against each other.
Ben: Yeah, that's beautiful. I really think that there's such powerful meaning in that saying and then that lesson from history, obviously here and there and everywhere. So I've been so fortunate, the company's been so fortunate to have you on the board and have you helping us over the years and thank you for coming on the podcast.
It's been something I've wanted to do for so long time.
Tal: Pleasure I hope that you enjoyed it as much as I enjoyed it always great to see you to hear you to discuss chat and think on different levels. And I hope that any of your listeners will feel comfortable to reach out to you with new ideas you know what you're saying you know what you're doing and keep on doing the same in terms of driving this company in the right direction and working with the right team. That's such a pleasure. It's a highlight for me every time we spend time.
Ben: Well, it's wonderful. All right, Tal, onward.
Tal: Onward. Have fun and onward.
Ben: You have been listening to Onward, the Fundrise podcast, featuring Tal Kerret, President of Silverstein Properties.
My name is Ben Miller, CEO of Fundrise. We invite you again to please send your comments and questions to onward@fundrise.com.
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For more information on Fundrise sponsored investment products, including relevant legal disclaimers, check out our show notes.
Thanks so much for joining me.
