There are big investment firms, and then there are big investment firms. Brookfield Asset Management, the Toronto-based,122-year-old outfit whose current market cap is $63 billion and that oversees $600 billion in assets, clearly falls into the latter camp. Think real estate, infrastructure, renewable power, private equity and credit. If it falls into a defined asset class, Brookfield probably has it in its portfolio.
That's also true of venture capital, though venture is new enough to Brookfield that founders who might like its capital are still getting the memo. Indeed, it was a little less than four years ago that Brookfield Technology Partners began investing off the company's balance sheet, and soon after recruited Josh Raffaelli -- a Stanford MBA who cut his teeth as a principal with Draper Fisher Jurvetson, then spent another five years with Silver Lake -- to lead the practice.
Its existence came as a surprise to him, actually. "I've been a tech investor in Silicon Valley," says Raffaelli. "My entire professional career has been in a 15-minute drive from the house I grew up in. And I had never heard about Brookfield before they started this practice because it's in businesses. It's in real estate. It has done things that are not generally tech-enabled."
Not until fairly recently, that is. Raffaelli and his 11-person team have not only made dozens of bets since then, but they’re currently investing out of a pool of capital that features third-party capital in addition to that of Brookfield — which is a first. As for what they are looking for, the idea is help Brookfield reimagine how its many office towers, malls and other real estate might be used or developed or leased or insured. It’s to make Brookfield smarter, better prepared and more profitable. In return, the startups get industry expertise -- and a major customer in Brookfield.
To date, its bets have varied widely, as with Armis, an IoT startup focused on unmanaged device security; Loanpal, a point-of-sale payment platform for solar and other home efficiency products; and Carbon Health, a primary care company that blends real-world and virtual visits. "We're getting our themes effectively from the Brookfield ecosystem," Raffaelli says.
Pulling back the curtain a bit more, Raffaelli says his team writes checks of $25 million to $50 million dollars and that they look for companies with $10 million in revenue that are seeing top-line year-over-year growth of more than 100%. In terms of pacing, they jump into roughly one new deal per quarter.
The fund is also independent and has its own custom committee, but the committee is made up of the senior managing partners from each line of Brookfield's businesses. ("These are the people that actually help us translate our investment themes that we're generating here," Raffaelli notes.)
To highlight how the operation works, Raffaelli points to Latch, a smart access software business that announced last month that it's using a blank-check company backed by the real estate giant Tishman Speyer to become publicly traded. Brookfield owns roughly 70,000 multifamily units in North America, "so we have a lot of doors that need a lot of locks," Raffaelli says. Latch, of course, is not the only smart access lock out there, so Brookfield ran "what was almost like a mini [proposal process], reaching out to all different companies in the market to understand how they compete," he says.
It was a "six-month exercise," but ultimately, his group led Latch's Series B round in 2018 and since then, Brookfield was bought about 7,000 locks from the business. That's meaningful, considering that when Brookfield first invested, the company had less than $20 million in bookings and those 7,000 locks have since brought in an additional $10 million to $15 million in revenue, Raffaelli says. "When we buy a lot of things at that stage of a company," he adds, "we're enhancing their trajectory."
It's not a foolproof strategy, doubling down. If Latch's locks turned out to be lemons (they haven't), Brookfield would be out a big check along with a sizable capital expenditure. It's why Brookfield takes its time, says Raffaelli, adding that if he has done his job right, his team is involved with a company well before it is raising a round and already shown that it is a "strategic partner that has another lever."
Either way, Raffaelli says that while the commercial real estate market has been hard hit by the pandemic, it has, counterintuitively, been a productive time for his group, given the stronger incentive it has given the real estate world to adopt tech tools faster.
Among the bets about which Raffaelli sounds most enthusiastic right now is VTS, for example, a leasing and asset management platform that can show properties remotely, and Deliverr, an e-commerce fulfillment startup that Raffaelli describes as "Amazon Prime for everybody else."
In fact, Raffaelli convincingly argues that while the use case for a lot of real estate is changing, the so-called built world remains Brookfield's strongest competitive advantage, given the size of its footprint. The way he sees it, its options going forward are plentiful. "You're looking at retail locations becoming ghost kitchens; you're looking at retail locations turning into distribution and logistics facilities. We can turn physical locations into healthcare sites for [our portfolio company] Carbon Health, and our mall locations into locations for urgent care and primary care clinics for testing and vaccinations."
It will never be a completely seamless transition. Brookfield has to be "thoughtful," given the pandemic and its devastating impacts, too. But Raffaelli comes across as excited in conversation nonetheless. The idea of turning physical real estate into a "mechanism for change within technology businesses," he says, is a "very powerful place to be."