HI & Fidelity
How one local tech firm survived the dot-com crash and is now responsible for the technology behind one of the nation’s premier providers of real estate solutions and services
Long-time real estate veteran Mike Sklarz didn’t know the first thing about starting a business. However, he knew he had a great idea for one, and was positive he wouldn’t have any trouble finding people to finance it. And maybe he wouldn’t have, if the name of his business hadn’t ended with dot-net and if he hadn’t begun money hunting in the final moments before the big tech bubble burst in 2001.
“When we started the company, toward the beginning of what we now know was the big dot-com crash, we called it ISDI.net, just because we wanted to dot something,” recalls Sklarz’ business partner, Jack Willey, co-founder of ISDI.net. “Well, that turned out to be a great liability. Whereas people were investing in all kinds of nothing before, all of a sudden it was, ‘Well, show us your revenues first.'”
In fact, ISDI.net wasn’t even really a tech company per se, not in the traditional sense. It was a real estate business offering a comprehensive suite of tools to realtors and other industry specialists to get a better handle on the market. The initial idea was born when Sklarz realized that he was seeing lots of people spending huge amounts of money on homes, with little or no information behind their purchases. Being one of Hawaii’s top residential real estate experts and a real estate research whiz, Sklarz figured there had to be a way to package the data and trends he had been analyzing for more than 20 years, in a way that others could benefit from, too.
That’s where Willey came in. “When I first moved here in 1982, I started looking for a programming job and, at the time, Hawaii was running a solid 10 years behind the Mainland, technologically. Then I walked into Mike’s office, and there he was in his Jams shorts, with his crazy hair, and he was using technology way ahead of what the rest of the state was using, and I just thought – this is where I need to be,” says Willey.
Not long after that first meeting, the duo combined Sklarz’ real estate savvy with Willey’s technical expertise to build a customized Automated Valuation Model (AVM) – a search engine that does comparative market analysis. When the pair teamed up again in 2000 to form ISDI.net, it was a souped-up version of the AVM that would become the signature product in their suite of real estate tools. “We had been doing valuation models for Realtors for years, charging them, like, $15 a month. We found out, though, that when a bank does valuations, they pay $15 to $25 every time they pull one of those reports,” says Willey. “It didn’t take us long to figure out there was a huge market for what we were building.” So Sklarz and Willey hit the pavement in search of capital to fund their new business, meeting with Hawaii’s leading venture capitalists, like Bill Richardson and Randy Havre, and some smaller angel investor groups. Nobody bit, largely because, the dot-com crash aside, venture capital as an industry in Hawaii was not as sophisticated as it is today. Some of the smaller local funds were just starting up and didn’t have much money to spread around, while the larger investors which did have money (i.e., Kamehameha Schools and the ERS), wouldn’t blink an eye at a small local firm like ISDI.net. “Chasing money to get our venture going was a very frustrating process,” says Sklarz. “The local VCs were kind of saying, ‘Well, we’re only interested in businesses that have net incomes,’ so I’m going, ‘Well, go buy an apartment building. Don’t talk about VC money, because VC means you gotta build the business and it’s going to take some time to grow that net income.'”
Nevertheless, Willey and Sklarz desperately pursued venture financing for six months, meanwhile getting by on about $1.5 million in startup capital they had attained through a partnership with Prudential Locations California (PruCal) and a small amount of self-financing. But ISDI.net needed a lot more money and, in fact, the company was on the verge of bankruptcy, when it finally caught a break in mid-2001. A friend at PruCal had mentioned to ISDI.net that a fast-growing real estate and financial services company, Fidelity National Information Solutions (which has since been acquired by Fidelity National Financial (NYSE:FNF)), was buying failed dot-coms for pennies on the dollar.
But Willey, jaded from months of failed pitches, had no reason to believe talking with Fidelity would be any different. So when they called him in to chat, he threw them a curveball. “I told them, ‘If you want me to come talk to you, you gotta pay me $500,000 up front. And if we do a deal, that’s part of the deal. If not, it’s an interest-free loan,'” he says. “Well, I had the money in two days. And in six months, we had closed a deal.”
And what a deal it was. Initially, Fidelity agreed to purchase ISDI.net for a fixed cash price and a handful of company shares. As time went on, Fidelity pushed for a more stock-heavy deal and, since Willey wasn’t in much of a negotiating position, he didn’t argue when Fidelity ultimately decided to give ISDI.net a fixed number of shares. What neither business counted on, however, was the stock market fallout from Sept. 11. When Willey and Sklarz locked in the deal, the market was near the bottom, and shares were trading at around $6 each. By the time the deal actually closed in 2002, the stock had risen to $20 per share, resulting in a sale worth around $5 million. “The deal was actually a very nice marriage for both parties,” says Shane Cranton, vice president of national sales for Fidelity National Financial. “We were just launching a new business in the real estate technology space and needed some quality assets and strong experts in the industry. They needed distribution channels and significant amounts of cash, both of which we had.”
In the deal, Fidelity acquired everything ISDI.net had, including its technologies, resources and people. However, instead of dismantling its newest purchase, Fidelity integrated ISDI.net and its executives into the fold, allowing what Sklarz and Willey call a “significant amount of entrepreneurial spirit” to exist.
“It wasn’t our original intention to sell the company, we were just looking for funding. But, in the end, it turned out to be a very good fit for us,” says Sklarz. “Because Fidelity doesn’t just eat up companies. Their M.O. is to buy companies, bring ’em in and make them divisions of Fidelity. In other words, they basically left us intact to build out these tools and to become part of a larger real estate business.” Sklarz and Willey couldn’t have asked for a better arrangement, particularly at a time when other local tech firms were dropping like flies. (Remember WorldPoint and the Ohana Foundation?)
Sklarz became senior vice president and chief valuation officer of Fidelity National Financial and Willey, executive vice president of Fidelity National Real Estate Solutions. In their new roles, Sklarz and Willey helped turn FNF, which maintains 45 percent of the nation’s MLS database contracts, services 85 of the top 100 American banks and touches half of all the mortgage transactions that occur in the United States in one way or another, into the leading provider of technology and processing services for the real estate industry. They created two signature products – ValueYourHome, which generates on-demand real estate stats and market trends, and ValueSure, the aforementioned AVM, which produces single valuations for $10 a pop or provides higher-volume clients (think Bank of America or LendingTree.com) unlimited use for up to $1 million per year – in addition to dozens of other real estate tools geared at making the entire transaction process smoother.
Between their two Hawaii-based offices (Sklarz operates out of Kaimuki, while Willey holds court at the Pan Am Building on Kapiolani), they’ve got a combined staff of around 50 employees and generate annual revenues of around $40 million to $50 million, or about 6 percent of FNF’s overall gross annual sales of $8.3 billion. And, as FNF’s Hawaii-based programmers continue to expand the company’s product lines and build upon its existing technologies, Willey expects the number of local employees and the sales from products designed in Hawaii to double over the next year and a half.
He says the growth will be driven largely by FNF’s exploration into two relatively new and lucrative markets. The first is something called “lead-sharing.” His division created search engines that allow realtors and lenders to share leads and enable both parties to track purchases from start to finish. The second is providing technology outsourcing services to brokerages and mortgage and title companies. Willey says they’ve already got three contracts worth $6 million to $10 million each and are in negotiations with four other companies.
“There’s no doubt that the [ISDI.net executives] have been and will continue to be a huge asset to Fidelity,” says Cranton. “We’ve come a long way since we’ve acquired them. We are now the market leader in the real estate technology arena. And frankly, they gave us a huge head start. They’ve got good, strong technical people with a lot of real estate expertise, and I believe that’s really helped propel us into the place we are right now. We were very fortunate to find these folks.”
Sklarz and Willey both agree that the feeling is mutual.