Seattle-based online real estate brokerage Redfin is filing to raise up to $100 million in an initial public offering.
The offering paperwork filed Friday afternoon by the 15-year-old company also revealed a new business it has quietly been testing called Redfin Now, which began purchasing properties earlier this year with the intent to refurbish and resell them. (More details on that below.)
Like many high-growth, venture-backed companies, Redfin loses money. Annual revenue in 2016 grew 43 percent to $267.2 million, but the company recorded a net loss of $22.5 million, down from a $30.2 million net loss in 2015. After nearly 15 years in business, the company’s accumulated deficit at the end of the first quarter was $613.3 million, Redfin disclosed in its S-1 filing with the Securities and Exchange Commission.
The IPO market through the first half of 2017 has warmed considerably, with 80 companies raising $22 billion on U.S. markets, according to the EY Global IPO Trends report. Things have remained quiet in the Northwest however. Seattle-based Impinj went public last summer, breaking an IPO drought in Washington’s tech industry that stretched back to 2014.
A successful Redfin IPO would give Seattle a second publicly traded real estate technology company. Zillow, which went public in July 20, 2011, has a substantially different model, providing data, leads, and services to real estate agents and home buyers and sellers—including some that compete directly with Redfin. But Zillow does not act as a real estate broker itself.
Redfin filed for its IPO as an “emerging growth company” under the JOBS Act of 2012, giving it relief from certain disclosure and reporting requirements placed on other public companies by securities laws.
Core technology
Redfin employs real estate agents in 84 U.S. markets, paying them commissions and bonuses based partly on customer satisfaction, and differentiating itself with proprietary brokerage software and technology to create efficiencies and “data-driven best practices.” The result, the company says, is savings for home buyers that averaged $3,500 per home purchase last year. Home sellers, meanwhile, are charged a commission of 1 percent to 1.5 percent, which Redfin says is below the 2.5 percent to 3 percent charged by its competitors.
Redfin believes its technology-driven approach will expand its advantage.
“Our goal is to build the first large-scale brokerage that stands apart in consumers’ minds for delivering a unique and consistent customer experience, where the value is in our brokerage and its technologies, not just a personal relationship with one agent,” according to Redfin’s prospectus.
Redfin has incorporated technology from day one. It was a pioneer in map-based search, and has adopted technologies including: cloud computing for “computationally intensive comparisons of homes at a scale that would otherwise be cost prohibitive”; machine learning to help customers research neighborhoods, home values, and optimal times to buy or sell; and 3D imaging and streaming services to help buyers experience a home before they set foot inside. (And as Redfin’s own research recently illustrated, more buyers are making offers on homes without visiting them in person first—such is the frenzied state of the market in cities such as Seattle.)
Redfin outlines a future in which growing traffic to its website and mobile real estate listings “will let us pair homebuyers and home sellers directly online over time, further improving our service and lowering our costs.”
Redfin Now
Redfin also recently began expanding into adjacent real estate services, including title and settlement, mortgages, and something called Redfin Now.
The company describes in its prospectus a wholly owned subsidiary, RDFN Ventures—operating as Redfin Now—which in January “began purchasing properties with the intent of resale.”
“In the first quarter of 2017, we began testing an experimental new service called Redfin Now, where we buy homes directly from home sellers and resell them to homebuyers,” the company explains in its prospectus. “Customers who sell through Redfin Now will typically get less money for their home than they would listing their home with a real estate agent, but get that money faster with less risk and fuss.
“We believe our industry-leading algorithms for calculating what a home is worth will limit the risk that the price we pay a Redfin Now customer for her home is below the price we charge a new buyer for that home. And we believe our ability to reach more than 20 million monthly average visitors through our website and mobile application, coupled with our network of Redfin buyers, will let us effectively resell the homes we purchase through Redfin Now.”
The company listed $1.8 million of owned properties among its current assets at the end of the first quarter.
Elsewhere in the prospectus, it describes the risks associated with this new business, including estimating resale times and prices, renovation costs, and holding costs—all of which will be familiar to the typical Seattle residential real estate developer.
Redfin Now is operating in two markets, and serving a limited number of customers. As far as I can tell, the company has not discussed the business publicly prior to Friday’s IPO filing (in contrast to Redfin Mortgage, which got the PR treatment back in January). A spokeswoman for Redfin declined to comment.
Neither its new mortgage business or Redfin Now have had a material result on liquidity or operating results. “If we decide to significantly expand these new product offerings, we may seek to raise additional capital through equity, equity-linked, or debt financing arrangements to fund this expansion,” according to the prospectus.
‘Contrarian’ Culture
Redfin is headed by CEO Glenn Kelman, who has been a leader in Seattle and the larger tech industry on topics including diversity and equity, and is well regarded for establishing a distinct corporate culture at Redfin. In a letter accompanying the prospectus signed by Kelman and other senior Redfin executives, that culture is described as “contrarian” in comparison to a tech industry that is “increasingly divided from the rest of the world.” [Disclosure: Kelman was a keynote speaker at Xconomy’s Seattle 2035 event two years ago. I also played poker with him once at the home of a mutual friend.]
Redfin reports on the diversity of its staff, which beats out many larger technology companies in terms of gender representation, including within engineering disciplines, even as Kelman acknowledged in a May post that the company still has a long way to go.
In the letter, Kelman and his team write: “We think of ourselves as idealists, who got into this business to make real estate better for consumers, not just ourselves.”
The letter emphasizes the importance the company places on earning customers’ trust and being humble. “And this is our mission, in a sales-mad, baloney-gorged world, to be the truth-teller, the fee-squeezer, the game-changer. Our idealism may not benefit stockholders over months or quarters, but we believe that over years and decades it will deliver the best results,” the Redfin executives write.
Some additional highlights from the company’s IPO filing:
—Redfin began life in October 2002 as a Washington corporation under the name Appliance Computing Inc. It reincorporated in Delaware in February 2005, changing its name to Redfin Corporation in May 2006.
—Investors have backed Redfin to the tune of $170 million, including its most recent funding round of $70.9 million in late 2014. Among Redfin’s largest stockholders are: Greylock (12.4 percent), Madrona Venture Group (11.4 percent), Draper Fisher Jurvetson (10.2 percent), Tiger Global (10.5 percent), Vulcan Capital (10 percent), and T. Rowe Price (7.1 percent).
—Redfin has 2,193 employees, almost triple its size at the end of 2013.
—The company would trade on the NASDAQ Global Select Market under the symbol “RDFN”.
