This content first appeared in the May 2024 Fintech newsletter. If you want more commentary and analysis on current events and trends from the a16z Fintech team, you can subscribe here.
It didn’t take much to convince Rocket Companies CEO and Rocket Mortgage CEO Varun Krishna to join the retail mortgage giant last year. The role gave the Intuit veteran the opportunity to test transformative new fintech strategies, think through regulatory and cultural challenges, and guide a large company through the most revolutionary of platform shifts: generative AI.
a16z General Partner Alex Rampellwho joined Rocket’s board as an independent director earlier this year, recently spoke with Krishna at a16z Connect/Fintech Event on how he’s approaching his new role, how Rocket envisions the intersection of AI and fintech, and the future of real estate.
Here is an edited excerpt from their conversation.
Alex Rampell: In the startup world, we often talk about the concept of 0 to 1 and building a product from scratch. Rocket is a multi-billion dollar company, which is probably more like 1 to a billion or 1 to infinity. Given the size of the company, how do you start thinking about growth, especially in light of the revolutionary change that generative AI is bringing?
Varun Krishna: For me, the starting point was to look at companies that understand the 0-1 model and the 1-100 model. They’re two different things, and they require two different types of teams and people. In the 0-1 world, you need more entrepreneurs who have experienced failure, who have stamina, and who understand product-market fit. In the 1-100 or 1-1 million world, you want people who understand growth, who have a leadership mindset, and who understand analytics. Using product as an example, because it’s in my DNA, your 0-1 product manager is obsessed with customer experimentation so they can determine product-market fit, whereas your 1-100 product manager knows how to write a query language and looks at analytics every day.
In the AI world, it’s even more complicated, because you have to understand another level of technology, another scale, another pace. The learning curve is very, very long. So you have to figure out how to inject talent into your company that can infect the rest of the population, you have to figure out how to drive transformation on a larger scale.
Alex Rampell:Gen G AI models are known for having mind-blowing results, which is great when you’re writing lyrics, but it’s disastrous for a highly regulated industry like fintech. You can’t have a Rocket chatbot tell a customer they can get a 1% 30-year mortgage just because the customer threatened the bot, for example. How do you envision AI being integrated into fintech companies and products?
Varun Krishna: The bar for accuracy in fintech is extremely high, and unlike open generative AI, in fintech, when users ask a question, they want a specific answer. I think fintech companies need to think about how to put guardrails around the thesis of the prompt or the origin, so that users can get a more precise answer. Also, as we experiment, we have a higher threshold for accuracy. We also have a higher threshold for risk, brand, security, trustworthiness, etc.
What’s also tricky is figuring out how to experiment at scale. I think the practice of perfecting early adopter programs, where you can working with experienced users It is very difficult to make companies more tolerant of the problems that arise in the fintech sector. But it is absolutely necessary.
Alex Rampell: The National Association of Realtors recently reached a settlement in a lawsuit that could eliminate the traditional 5-6% commission for real estate agents and effectively change the way real estate agents are compensated. This will obviously have a big impact on Rocket and the real estate industry in general. What are your thoughts on this change?
Varun Krishna: This is big news. If you look at the mortgage industry as a whole, it’s a $1.5 trillion addressable market, and the vast majority of that is purchase transactions. If you take that and say, “Hey, 6% of that is what real estate agents are ordering,” that’s a $90 billion market that’s on the brink of disruption. So we’re excited about that because fundamentally, our thesis is about creating value for the consumer, which ultimately delivers more value to them. Whether you’re the buyer or the seller, you save more money or you make more money, and the commoditization of knowledge plays out. Then when you add AI to all of that, to provide personalization and simplification, and add transparency to things like rate structures, appraisals, renovation costs… I could go on and on. It’s going to be a better world for consumers.