This content first appeared in the May 2024 Fintech newsletter. If you’d like more commentary and analysis about news and trends from the a16z Fintech team, you can subscribe here.
It didn’t take much to convince Varun Krishna, the Chief Executive Officer of Rocket Companies and Chief Executive Officer of Rocket Mortgage, to join the retail mortgage giant last year. The role provided the Intuit veteran with an opportunity to test out transformative new fintech strategies, think through regulatory and cultural challenges, and guide a large company through the most ground-breaking of new platform shifts: generative AI.
a16z General Partner Alex Rampell, who joined Rocket’s Board of Directors as an independent director earlier this year, recently spoke to Krishna at a16z’s Connect/Fintech event about how he’s approaching his newest role, how Rocket thinks about the intersection of AI and fintech, and the future of real estate.
Here’s an edited excerpt from their conversation.
Alex Rampell: In startup land, 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 akin to 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 being brought on by generative AI?
Varun Krishna: The starting point for me was really founded in learning from companies that understand 0-to-1 and 1-to-100. These are two different things, and they require two different types of teams and people. In the 0-to-1 world, you need more entrepreneurial types who have seen failure, have endurance, and understand product-market fit. In the 1-to-100 or 1-to-a-million world, you’re looking for people who understand growth, have a leadership mindset, and understand analytics. Using product as an example, because that’s in my DNA, your 0-to-1 product manager is obsessed with customer experimentation so they can figure out product-market fit, whereas your 1-to-100 product manager knows how to write query language and is looking at analytics every day.
In the AI world, that’s exacerbated, because you have to understand a different level of technology, a different scale, a different pace. There’s a big, big learning curve. So, you have to figure out how to inject your company with talent that can infect the rest of the populace — you have to figure out how to drive transformation in a bigger way.
Alex Rampell: Gen AI models are known to hallucinate results, which is fine when you’re writing song lyrics, but is disastrous for a regulatory-heavy 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 think about the integration of AI into fintech companies and products?
Varun Krishna: The bar for accuracy in fintech is extremely high, and unlike with open-ended generative AI, in fintech, when users ask a question, they want a specific answer. I think fintech companies must think about how to put guardrails around the prompt or origination thesis, so that users can get a more specific answer. Additionally, as we’re experimenting, we have a higher threshold of accuracy. We also have a high threshold on risk, brand, security, reliability – all those things.
What’s also tricky is figuring out how you experiment at scale. I think the practice of perfecting early adopter programs, where you can work with power users who are more tolerant of things going wrong, is really hard to do in fintech. But it’s incredibly necessary.
Alex Rampell: The National Association of Realtors recently settled a lawsuit that could eliminate the traditional agent’s 5-6% commission and effectively change the way real estate agents are paid. This will obviously have a big impact for Rocket and the real estate industry at large. What’s your take on this change?
Varun Krishna: This is big news. When you look at the mortgage industry as a whole, it’s a massive $1.5 trillion total addressable market with the vast majority of that being purchase transactions. If you take that and say, “Hey, 6% of that is what the realtors command,” that’s a $90 billion market that is on the brink of disruption. So, we’re excited about that, because fundamentally, our thesis is around value creation for the consumer, and this ultimately passes more value to them. Whether you’re the buyer or the seller, you’re either saving more money or you’re making more money, and the commoditization of knowledge plays out. Then, when you add AI on top of it, to provide personalization and simplification, and add transparency to things like fee structures, appraisals, remodeling fees… I could go on and on. It’s going to be a better world for consumers.
