Move over Zillow–the newest crop of real estate tech companies has arrived. With over $8 billion in funding among them, WeWork, Opendoor, and Compass are operating on a different scale than any of their predecessors.
VCs have long loved pure software businesses like Trulia, a real estate search engine which went public in 2012.
Trulia’s business model is simple: it scrapes feeds of properties for sale, packages them into a user-friendly website, and makes money by letting real estate agents advertise their services to prospective homeowners. Trulia avoided buying buildings or employing agents directly. Scaling up was just a matter of adding more servers.
But today’s real estate unicorns aren’t just about software. They look like more traditional real estate businesses infused with a healthy dose of technology.
Compass, a tech-enabled real estate brokerage headquartered in New York, recently raised $450M from Softbank at a $2.2B valuation. Compass is basically a high-end, tech-driven Coldwell Banker, and employs over 2500 real estate agents directly.
Opendoor is a tech-enabled real estate investor based in SF. They use data science to figure out what homes to buy and at what price. They pay up-front and then flip the homes at a profit. We estimate that they’re buying and selling over 10,000 homes annually.
VCs are paying far more attention to these businesses now. Compass and Opendoor, both already, have collectively raised over $1B in equity from investors.
The total amount raised is even more staggering if you count the co-working space giant WeWork.
Public market investors don’t seem to share the same confidence in the Opendoor approach. Earlier this year, Zillow announced it was getting into the business of flipping homes, marking a shift in business model. Investors were unenthused, and Zillow’s stock price dropped by 9%.
But with forward-thinking investors like Softbank supporting these new hybrid business models, this trend is sure to continue across other industries. Real estate is just the beginning.