I have been writing about the startup Opendoor.com for over 2 years now. And I continue to believe that they are the most promising disruptor in the residential real estate space.
Here is the first post that I wrote back in July 2014 after they raised their first round of funding. Here is the second post that I wrote after they launched in Phoenix. And here is another post that I wrote 6 months ago where I argued, once again, that they are doing something worth paying attention to. (This last post explains how the platform works.)
Well, about a week ago it was announced that they have raised another round of funding: a $210 million Series D. In all likelihood, the company’s valuation is now over $1 billion.
I have been writing about the startup Opendoor.com for over 2 years now. And I continue to believe that they are the most promising disruptor in the residential real estate space.
Here is the first post that I wrote back in July 2014 after they raised their first round of funding. Here is the second post that I wrote after they launched in Phoenix. And here is another post that I wrote 6 months ago where I argued, once again, that they are doing something worth paying attention to. (This last post explains how the platform works.)
Well, about a week ago it was announced that they have raised another round of funding: a $210 million Series D. In all likelihood, the company’s valuation is now over $1 billion.
Here’s the Techcrunch announcement
where the message was: huge ass number; risky business model.
In response to this, Ben Thompson wrote a terrific and widely shared blog post called, Opendoor: A Startup Worth Emulating. I love his post because he says what I have firmly believed and argued for many years: Zillow and Redfin are not disruptive real estate startups.
This is what he says about Zillow:
“And yet, the most successful real estate startup, Zillow (which acquired its largest competitor Trulia a couple of years ago), is little more than a glorified marketing tool: the company makes most of its revenue by getting real estate agents — the ones collecting 6% of fees, split between the buying and selling agents — to pay to advertise their houses on the site. Certainly a free tool that makes it easier to find houses in a more intuitive way is valuable — Zillow has acquired the sort of userbase that allow it to build an advertising business for a reason — but at the end of the day the company is a tax on a system that hasn’t really changed in decades.”
And though very risky, he argues that Opendoor is far better positioned to shake up the status quo.
Here are two of his key points:
“Sellers are uniquely disadvantaged under the current system, which is another way of saying they are an underserved market with unmet needs.” [Sellers are the side of the market that Opendoor is specifically targeting.]
“Opendoor has a new business model: taking advantage of a theoretical arbitrage opportunity (earning fees on houses sold at a slight mark-up) by leveraging technology in pursuit of previously impossible scale that should, in theory, ameliorate risk.”
And here’s what that could ultimately mean for the industry:
“Opendoor has many more reasons why it might fail than Zillow or Redfin, but its potential upside is far greater as a result. First is the immediate opportunity: sellers who can’t wait. However, as Opendoor grows its seller base, especially geographically, its risk will start to decrease thanks to diversification and sheer size; that will allow it to lower its “market risk” charge which will lead to more sellers. More sellers means both less risk and an increasingly compelling product for buyers to access, first with a real estate agent and eventually directly. More buyers will mean lower marketing costs and faster sell-through, which will lower risk further and thus lower prices, pushing the cycle forward. It’s even possible to envision a future where Opendoor actually does uproot the anachronistic real estate agent system that is a relic of the pre-Internet era, and they will have done so with realtors not only not fighting them but, on the buying side, helping them.”
The Martin Prosperity Institute here in Toronto recently published a new report that looks at worldwide venture capital investment by city. The report is called Rise of the Global Startup City.
The data is from 2012, because that’s what was available from Thomson Reuters, so keep in mind that there might be some variation in the rankings if we were to look at more recent data. Some of the cities sit fairly close.
Nonetheless, here are a few of the broader takeaways (from the report page):
“The United States accounts for nearly 70 percent (68.6 percent) of total global venture capital, followed by Asia (14.4 percent) and Europe (13.5 percent).”
“Just two broad regions — the San Francisco Bay Area and the Boston-New York-Washington Corridor — account for more than 40 percent of global venture investment.”
“Global venture investment is highly uneven and spiky — it is concentrated in a small number of large cities and metros around the world.”
Here are the top 20 cities by total venture capital investment (in USD millions):
In 1960, real estate investment trusts were created in the U.S. with the goal of democratizing real estate ownership. Here’s how Yale professor Robert Schiller described it:
“REITs were created by law in 1960 to democratize the real estate market and make it possible for a broad base of investors to participate in this huge asset class. That was absolutely the right thing to do, because portfolio theory tells us people should diversify across major asset classes, and real estate is one of them.”
But a lot of things have changed since 1960. We now have the internet.
And one of the things that the internet is very good at is creating peer-to-peer networks that connect supply and demand without the same kind of intermediaries. This could be people who have MP3s with people who want MP3s or it could be people who have real estate with people who are looking to invest in real estate.
So with the advent of crowdfunding in both the U.S. and Canada, I think we are at the dawn of another era of real estate democratization. Already we have seen the first crowdfunded real estate development project and it happened at a much smaller and local scale than is usually the case with REITs.
Similarly, we are also seeing companies emerge – such as HomeUnion in the U.S. – that allow people to build their own rental portfolios by directly investing, either fully or partially, in real estate. Again, there are differences here compared to how REITs typically operate.
When I was in grad school at Penn and Sam Zell used to come in and talk to the students, he used always mention how when he started out in real estate (1960s) the industry was disproportionately controlled by a small number of players. That’s been changing ever since and it looks like that trend will only continue.
Here’s the Techcrunch announcement
where the message was: huge ass number; risky business model.
In response to this, Ben Thompson wrote a terrific and widely shared blog post called, Opendoor: A Startup Worth Emulating. I love his post because he says what I have firmly believed and argued for many years: Zillow and Redfin are not disruptive real estate startups.
This is what he says about Zillow:
“And yet, the most successful real estate startup, Zillow (which acquired its largest competitor Trulia a couple of years ago), is little more than a glorified marketing tool: the company makes most of its revenue by getting real estate agents — the ones collecting 6% of fees, split between the buying and selling agents — to pay to advertise their houses on the site. Certainly a free tool that makes it easier to find houses in a more intuitive way is valuable — Zillow has acquired the sort of userbase that allow it to build an advertising business for a reason — but at the end of the day the company is a tax on a system that hasn’t really changed in decades.”
And though very risky, he argues that Opendoor is far better positioned to shake up the status quo.
Here are two of his key points:
“Sellers are uniquely disadvantaged under the current system, which is another way of saying they are an underserved market with unmet needs.” [Sellers are the side of the market that Opendoor is specifically targeting.]
“Opendoor has a new business model: taking advantage of a theoretical arbitrage opportunity (earning fees on houses sold at a slight mark-up) by leveraging technology in pursuit of previously impossible scale that should, in theory, ameliorate risk.”
And here’s what that could ultimately mean for the industry:
“Opendoor has many more reasons why it might fail than Zillow or Redfin, but its potential upside is far greater as a result. First is the immediate opportunity: sellers who can’t wait. However, as Opendoor grows its seller base, especially geographically, its risk will start to decrease thanks to diversification and sheer size; that will allow it to lower its “market risk” charge which will lead to more sellers. More sellers means both less risk and an increasingly compelling product for buyers to access, first with a real estate agent and eventually directly. More buyers will mean lower marketing costs and faster sell-through, which will lower risk further and thus lower prices, pushing the cycle forward. It’s even possible to envision a future where Opendoor actually does uproot the anachronistic real estate agent system that is a relic of the pre-Internet era, and they will have done so with realtors not only not fighting them but, on the buying side, helping them.”
The Martin Prosperity Institute here in Toronto recently published a new report that looks at worldwide venture capital investment by city. The report is called Rise of the Global Startup City.
The data is from 2012, because that’s what was available from Thomson Reuters, so keep in mind that there might be some variation in the rankings if we were to look at more recent data. Some of the cities sit fairly close.
Nonetheless, here are a few of the broader takeaways (from the report page):
“The United States accounts for nearly 70 percent (68.6 percent) of total global venture capital, followed by Asia (14.4 percent) and Europe (13.5 percent).”
“Just two broad regions — the San Francisco Bay Area and the Boston-New York-Washington Corridor — account for more than 40 percent of global venture investment.”
“Global venture investment is highly uneven and spiky — it is concentrated in a small number of large cities and metros around the world.”
Here are the top 20 cities by total venture capital investment (in USD millions):
In 1960, real estate investment trusts were created in the U.S. with the goal of democratizing real estate ownership. Here’s how Yale professor Robert Schiller described it:
“REITs were created by law in 1960 to democratize the real estate market and make it possible for a broad base of investors to participate in this huge asset class. That was absolutely the right thing to do, because portfolio theory tells us people should diversify across major asset classes, and real estate is one of them.”
But a lot of things have changed since 1960. We now have the internet.
And one of the things that the internet is very good at is creating peer-to-peer networks that connect supply and demand without the same kind of intermediaries. This could be people who have MP3s with people who want MP3s or it could be people who have real estate with people who are looking to invest in real estate.
So with the advent of crowdfunding in both the U.S. and Canada, I think we are at the dawn of another era of real estate democratization. Already we have seen the first crowdfunded real estate development project and it happened at a much smaller and local scale than is usually the case with REITs.
Similarly, we are also seeing companies emerge – such as HomeUnion in the U.S. – that allow people to build their own rental portfolios by directly investing, either fully or partially, in real estate. Again, there are differences here compared to how REITs typically operate.
When I was in grad school at Penn and Sam Zell used to come in and talk to the students, he used always mention how when he started out in real estate (1960s) the industry was disproportionately controlled by a small number of players. That’s been changing ever since and it looks like that trend will only continue.
And here are the top 20 cities according to venture capital investment per capita:
Given the variation in these two lists, you realize that some cities are largely benefitting from sheer size. London, for example, drops off the list when you look at venture capital investment per capita.
In fact, in this second list, 19 of the 20 cities are in the United States. The only non-American city that remains is Toronto.
And here are the top 20 cities according to venture capital investment per capita:
Given the variation in these two lists, you realize that some cities are largely benefitting from sheer size. London, for example, drops off the list when you look at venture capital investment per capita.
In fact, in this second list, 19 of the 20 cities are in the United States. The only non-American city that remains is Toronto.
