Compass Raises $370M As Increasingly Crowded Real Estate Space Heats Up

Compass, a tech-focused startup building out a platform for residential real estate professionals, has raised $370 million in a Series G round that takes its valuation to $6.4 billion as the space continues to grow hotter and bigger.

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According to Fortune and the company’s Crunchbase profile, that’s up 45 percent from its $4.4 billion valuation when it raised its $400 million Series F last September. The round brings the company’s total funding to over $1.5 billion since it was founded in 2012 as Urban Compass. (It dropped the “Urban” in 2015, according to its Crunchbase profile). A mix of new and existing investors participated in this latest round including Canada Pension Plan Investment Board (CPPIB), Dragoneer Investment Group, Qatar Investment Authority (QIA) and the busy SoftBank Vision Fund.

In a press release, Compass said it plans to invest in “platform software and scaling operations, including continued expansion of its East and West coast product & engineering hubs.” It’s also planning to use its new capital to invest more in “cloud, mobile and AI.”

Compass said it is building an “end-to-end software platform” aimed at streamlining the buying and selling of homes. It also offers a concierge program that “fronts” customers money to do home improvements such as staging and painting.

Indeed, the company appears to be growing robustly with revenue surging over 250 percent in the second quarter compared to Q2 2018. (It did not provide specific revenue figures). A spokesperson told me that Compass now employs about 2,200 people, up from under 1,000 a year ago. Specifically, it’s tripled the size of its product and engineering team to over 300 employees since its last raise in September 2018. Currently, Compass has more than 300 offices across the country and a team of more than 13,000 agents that work as independent contractors.

Also since its last raise, Compass acquired Contactually, a cloud-based software company that has built a customer relationship management (CRM) system for the real estate industry. It’s also made a slew of new hires including tapping Joseph Sirosh, former CTO of AI at Microsoft and ex-VP of advanced technology at Amazon, to serve as its Chief Technology Officer. The company opened its first West Coast product and engineering “campus” in Seattle, Wash.

Looking ahead, the company declined to comment on whether it’s planning further acquisitions. According to its Crunchbase profile, it’s made seven acquisitions over time, including three this year alone. Besides Contactually, Compass has also picked up luxury brokerage Alain Pinel Realtors and Stribling & Associates.

The company said it is planning to launch in August “a completely redesigned consumer search and app experience.” Also according to the Wall Street Journal and validating its brokerage acquisitions above, Compass has put lots of money into “wooing high-profile agents with hefty marketing budgets, slick technology and stock options as it dangles the prospect of an initial public offering.” An inside source confirmed the company indeed sees an IPO as “a potential option.”

The real estate-focused space is expanding by the day with the number of brokerages increasing left and right. This year alone, the industry has seen a number of mega rounds as well as a slew of upstarts (such as this one) raising money to compete in the space as well.

As I reported earlier this year, U.S.-based real estate companies as a whole raised a combined $4.99 billion across 105 transactions in 2018, according to Crunchbase data. While that’s down from the $5.8 billion raised in 95 deals in 2017, it’s still a staggering 10 times higher than the $520 million raised by such startups in 2013, as you can see in the chart below.

I’ve been watching the real estate space for a while now and it’s no surprise that an industry that’s been (pardon the cliche) “ripe for disruption” is seeing so many startups raising mega rounds. All this is fine and dandy when the economy is good. But the true test of how viable these companies are will be when we hit another downturn. We’ll see.