The $75m raised by Compass, the US-based developer of an online real estate listings platform, last week shows there is still room for newcomers in the sector despite the presence of established players.
Launched in 2013 as Urban Compass, Compass operates a portal it refers to as “the first modern brokerage” which combines an advanced analytics system with experienced local real estate professionals to help clients effectively price, list and sell upscale properties.
The latest funding, raised at a $1bn+ valuation according to Bloomberg, was led by investment management firm Wellington Management Company and included Institutional Venture Partners, Thrive Capital, Founders Fund and .406 Ventures.
The round took the company’s total funding to $210m, with media group Advance Publications having taken part in a $20m series A round in 2013, a $40m round the following year and a $60m series D round in September 2015.
Compass operates in eight markets in and around major US cities, and founder and executive chairman Ori Allon has said the capital will accelerate its entry into new markets beginning with San Francisco.
Interestingly, Allon also stressed the importance of contact between regional systems, which together with the recent launch of new initiatives including a national new development division, a real-time market report app and a division dedicated to celebrities indicates the company’s potential growth could involve a more strategic growth model than that employed by relatively passive listings platforms.
The online property listings sector is already a fairly well-funded sector, though in practice it is largely dominated by one or two players in each market: Trulia (which was acquired by real estate database Zillow in 2014) in the US, Rightmove and Zoopla in the UK, Juwai in China, and Housing.com and CommonFloor (bought by classified listings portal Quikr in January) in India, while the Rocket Internet-founded Lamudi covers 13 markets in Asia, the Middle East and Latin America.
As a result, property-themed startups are increasingly looking to serve more niche parts of the industry. Companies to have raised funding in the past month include removal services provider Buzzmove and property leasing platform Cozy, with insurance companies investing in both rounds, showing which strategic area the corporate interest is coming from, but the fact both are essentially operating as attendant services in a larger market also makes an acquisition exit a relatively good bet for each.
There are actually several property companies with corporate venture capital units, including Simon and Singapore-based CapitaLand, but their interest seems more directed to adjacent areas like smart buildings, home security technology or, in the case of Simon Ventures, extending all the way to e-commerce. Alexandria Real Estate Equities, which caters to the life science industry, invests in life sciences startups.
The online property listings sector in practice is probably of more interest to companies that can incorporate them into larger online businesses, such as Quikr or Japan-headquartered SoftBank, which has used corporate venturing to build an expansive online services operation across the world, but particularly in Asia.
Perhaps the biggest barrier to that investment is the relative scarcity of residential property acquisitions, at least compared to the temporary accommodation sector where Airbnb has proven so popular.
A company like Compass can make big money by catering to the upmarket property space but in theory it is also significantly more vulnerable in the event of an economic downturn which could cause the property market to crash.
Compass has grown quickly – it was valued at $150m in 2013 and $360m a year later – and it is branching out technologically in a bid to differentiate itself from competitors, but its use of agents means a higher overhead, and investors may still wish to exit sooner rather than later if they do not want to fall prey to the same risks as the conventional real estate industry.