Redfin, the company that invented property listings on a map, has finally filed for an IPO in the US:
There is a mythology in the US about how the original Redfin founder was showing off his innovation, and then discovered his friends had taken that innovation and started Trulia and Zillow (both ultimately merged).
For those who don’t know, Zillow is the dominant property search portal in the US. It’s also famous for the Zestimate – an automated valuation of every home in the US, akin to what is offered by Zoopla in the UK.
After losing the portal battle, Redfin reinvented itself as an online brokerage. It tried to lower fees, offer better web tools for agents and go from commissions to fixed fees.
Today, Redfin is just another real estate brokerage brand, with little innovation that genuinely differentiates its offering in the eyes of the public.
Why did Zillow win and Redfin lose? I would lay the credit at the feet of their respective investors.
While Zillow had backing from the smartest and most reputable investors, Redfin didn’t.
Redfin raised $770k in 2005, followed quickly by Madrona Ventures adding $1.25m in 2006.
Zillow, by comparison, raised $32m in 2005 with another $25m in 2006. I would mark this disparity as the beginning of the end of the US portal wars.
Zillow went on to IPO in 2011, merge with Trulia and completely dominate property listings in the US.
Here in the UK there have been a whole host of proptech companies funded recently.
Most relevant to EYE readers is property selling platform Settled with another £1.2m, in addition to the £1m they’ve already raised:
Reading the press release, you would be none the wiser on how your life might change.
Settled founder Gemma Young talks about the “dread” people feel when buying and selling a home. She likens what Settled is doing to how Uber changed the way people hail and interact with taxis, and how the industry has been transformed.
Investor Sitar Teli of Connect Ventures gives us no extra clues when she says: “[Settled] is already demonstrating the power of software to transform the experience of selling and buying a home and we think its platform will shape next-generation transaction models in property.”
And that’s why the Settled story is so bemusing for property professionals: we’ve been here before.
We have seen any number of online agents arriving on the scene, offering nothing more substantial in the way of news or innovation than that they have raised lots of money from investors.
In fact, you don’t hear much about them other than when they do raise money from investors.
The one person who didn’t raise ‘dumb money’ was Michael Bruce, the co-founder of Purplebricks. He went after smart money, from smart investors, who understood the aims and strategy.
Purplebricks made use of Neil Woodford’s nous to fund that expensive TV advertising push – and more. Does anyone remember when Purplebricks’s share tumbled and Woodford put more money in to ‘give investors confidence’?
We know that Purplebricks is winning – we see the For Sale boards everywhere and we read the reports on its growth numbers. Because it charges for listing property regardless of selling them, we also know it gets paid.
I’d like to say that the failure thus far of easyProperty’s strategy will spell a painful end to dumb money being invested into proptech. But the continued hype around proptech proves it most probably isn’t.
The moral of the story is that good people can spin the dream of killing off evil estate agents. And let’s be honest, the property industry is full of dead weight that needs clearing out.
But if all these start-ups deliver is press releases about raising yet more dumb money, the public is entitled to ask: what for?
And that’s how proptech will die: by the hand of investors who don’t look deep enough into what it is that they’re funding.
It should be no small amount of shame that the tech in our sector has done so little to change people’s lives for the better.
We all hope of seeing that ‘Uber for selling houses’, but we should not forget that Uber’s defining feature was raising capital from smart investors. And the rest of the story was change in one sector that the business world – and customers – has seldom seen before.