While sites like Zillow, Trulia and Redfin have become synonymous with how people list and find property online, a startup out of New York called Compass has raised $50 million to help secure its place in the mix with a new platform that it believes could revolutionize the real estate market with big data and cutting edge algorithms that provide the most accurate pricing for homes and the most efficient route to selling at the highest price.
Co-founded in 2012 by repeat entrepreneur Ori Allon (an engineer who has built and sold search technology to Google, Twitter and Microsoft) and ex-banker Robert Reffkin, the original idea was to create a better way of finding and renting apartments in the ruthless real estate market of New York that called on not just offering basic listings but by creating hyperlocal information networks to better match residents to locations.
Compass is now valued at $800 million after growing revenues ten-fold in the last year and now handling some $1 billion in listings, and it plans to use the funds to expand into more cities in the U.S., starting first with Boston and then adding with 9 others in the next 12 months including LA, Chicago and Seattle.
That will also likely lead Compass — which originally was called Urban Compass, until the company decided that as it grew and spread beyond cities that the name was no longer as relevant — to make more acquisitions, Allon tells me.
The company in November 2014 acquired a firm in Washington DC and used that to spearhead a concept that it hopes to replicate in other markets: rather than starting from scratch in building networks of agents, it would acquire good-sized, established firms and then roll out its software to them to drive the business.
“After we went to DC, by March we tripled our revenues after implementing our tools and technology,” he says. “That showed us that this is not just about New York City. This tech is scalable and works everywhere.” The company is also active in markets like Miami.
Three years on, its business is mostly focused on sales rather than rentals, Allon says, and as he points out, the local information turned out to be way more useful to real estate agents rather than potential residents. Agents are the ones who need the information in order to do the selling, “and we want to make agents smarter.”
Local information is just one part of the data that goes into Compass’s algorithms: Allon laughs a little and gives me a vague response when I ask what else is: the crux of the platform is that it draws on many different sources of data and then crunches them to provide supercharged information both to help price homes but also to help surface properties that fit clients.
The round, which brings the total raised by Compass to $123 million and coming one year after it raised $40 million, was led by Institutional Venture Partners, with participation also from existing investors Thrive Capital, Founders Fund, 406 Ventures, Condé Nast parent Advance Publications, Inc., CEO of American Express Kenneth Chenault, and Marc Benioff, the founder and CEO of Salesforce.com.
“Compass has developed exceptional technology to improve the real estate experience and is led by a talented management team, whose vision and commitment to innovation has quickly established the company as a leader in the market,” said Todd Chaffee, General Partner at IVP. “We are excited about their long-term strategy and are proud to partner with Compass as it continues its rapid expansion.”
Going forward, Compass is going to continue making revenues from the cuts it gets on sales and rentals completed on its platform, and as part of that it is actually giving away the software for free. That also leaves open the option of another revenue stream in the future. Allon says that some firms have approached him to license the tech for sums in the tens of millions of dollars, but so far this is not an area they’ve explored yet.
“We could potentially license tech to markets where we might not go but I don’t want to do that yet. We still have places where we would like to go,” Allon says.