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Billion Dollar Unicorns: Real Estate Platform Compass Joins the Club

Posted on Wednesday, Oct 12th 2016

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The number of new Billion Dollar Unicorns has come down drastically in comparison to last year. It is even rarer to find a unicorn in the highly consolidated online real estate industry. Compass is the latest Billion Dollar Unicorn to make this cut with its Big Data-driven real estate platform.

Compass’ Journey

New York-based Compass was founded in 2012 by ex-banker Robert Reffkin and serial entrepreneur Dr. Ori Allon, who had built and sold search technology to Google, Twitter, and Microsoft. Originally called Urban Compass, it was founded to simplify finding and renting apartments in New York. As it grew beyond cities, it changed its name because it was no longer relevant. Today, with 23 offices, it is among the largest owned luxury brokerages across nine regions including New York City, Washington DC, Miami, Boston & Cambridge, The Hamptons, Los Angeles, Santa Barbara & Montecito, Aspen, and San Francisco Bay Area.

Its real estate platform helps agents and clients to streamline and transform the process of finding a home. The platform uses Big Data and cutting edge algorithms to provide the most accurate pricing for homes and the most efficient route to selling at the highest price.

Compass’ Financials

Compass makes revenues from the commission on sales and rentals completed on its platform. Some firms have reportedly approached it to license its technology for tens of millions of dollars, but it is yet to explore that option. Its business has shifted its focus mostly on sales rather than rentals as the local information turned out to be more useful to real estate agents rather than potential residents.

Compass has crossed $100 million in revenue so far this year, and plans to end the year with triple the revenue it generated in 2015. It processes about $7 billion in sales run through the site annually. Information about its profitability is not disclosed.

Compass is venture backed and has raised $208 million from investors including Wellington Management Capital, Institutional Venture Partners, Thrive Capital, Founders Fund, 406 Ventures, Condé Nast parent Advance Publications, Inc., CEO of American Express Kenneth Chenault, and founder and CEO of Salesforce.com Marc Benioff. It raised $75 million in August 2016 at a valuation of over $1 billion. An earlier round for $50 million in September 2015 had valued them at $800 million.

Compass plans to use the funds to expand into new locations and improve its technology for analyzing the real estate market. In November 2014, it acquired Lindsay Reishman Real Estate in Washington DC to build its network of agents. It hopes to replicate this strategy 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.

But Compass has to watch out in this highly competitive real estate market. There are already a number of real estate sites like Zillow, Realtor.com, and RedPad. Last year, Zillow acquired Trulia for $2.5 billion and it reported revenues of $645 million with a loss of $149.5 million in 2015. Its stock is currently trading at a market capitalization of $5.8 billion. An interesting Billion Dollar Unicorn in the real estate segment is Auction.com, which caters to the commercial real estate segment and claims to have a profitable revenue model.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Photo Credit: Johan Hansson/Flickr.com 

This segment is a part in the series : Billion Dollar Unicorns


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