Former Zillow Group CEO and dot.LA cofounder Spencer Rascoff is jumping back into the real estate game in a big way.
Rascoff, who left the CEO post at Zillow in February 2019, is part of a group of SPAC investors that's buying Offerpad, a 6-year-old real estate company that competes directly with Seattle-based company in a quest to transform how people buy and sell homes.
It's a deal that pits Rascoff against his former colleagues at Zillow, including co-founders Rich Barton and Lloyd Frink.
Rascoff's SPAC — operating under the name Supernova Partners Acquisition Company — is acquiring Offerpad in a deal that will value the Chandler, Ariz.-based company at $3 billion and bring in an additional $650 million in gross proceeds to a real estate technology provider that powers the quick selling and buying of homes. Offerpad plans to trade on the New York Stock Exchange under the ticker symbol OPAD.
The SPAC deal is a volley fired by Rascoff across the bow of his former employer at Zillow, now valued at $35 billion.
Asked about the competition, Rascoff said in an email to GeekWire via a spokeswoman: "I'm still a Zillow shareholder, supporter and lifelong fan."
He added: "The real competition for Offerpad isn't Zillow or Opendoor, it's the fact that 99.5% of the time people sell their home the old analog way."
Rascoff doesn't have a non-compete agreement with Zillow, according to a spokesperson. Still, the competitive nature of the transaction could raise eyebrows on Wall Street and in the inner circles of the online real estate community.
Offerpad shareholders are expected to roll over 100% of their equity into the new entity, owning 75% of the combined company. Offerpad founder and CEO Brian Bair will own about 35% of the voting power of the combined company. He will remain CEO.
"Our team's combination of grit and real estate experience have helped us complete around 30,000 transactions and achieve nearly $7 billion in gross transaction volume since inception, and we are now poised for fast growth as a public company," Bair said in a statement. In a conference call Thursday morning, Bair said they operate more like a logistics company versus a real estate technology company.
The 500-person company, which operates in more than 900 cities, said it plans to do about $1.4 billion in revenue this year. It has raised $975 million to date in equity and debt capital.
As a comparison, Zillow Group in the fourth quarter of last year reported revenue of $789 million across its various platforms, with the company's "Homes" segment that includes online buying and selling of homes coming in at $304 million.
The online buying and selling of homes is becoming a more important part of Zillow's business, which first entered the market in 2018 in Phoenix and Las Vegas. In fact, at the time of the entry into the market — a diversion for Zillow, which until that time had positioned itself as an agnostic media company serving the real estate market — GeekWire's headline story noted: Zillow Group will start buying and selling homes, taking on Opendoor and expanding real estate footprint.
In a statement, Zillow said that the "increasing interest and investment in transforming real estate underscores the incredible demand for a more customer-centric, easier, tech-enabled transaction." It added that its 200 million monthly unique visitors puts the company in "a strong leadership position to usher home shoppers and sellers into the new era of real estate."
Rascoff last year launched a new real estate startup with his former Zillow Group colleagues called Pacaso, which aims to make it easier for more people to own a vacation home. At the time, Rascoff said he didn't view Pacaso as competitive with Zillow — Offerpad certainly is.
Rascoff is involved in three SPACs, special purpose acquisition companies that are all the rage on Wall Street these days as an alternative to the traditional IPO process. All three of the SPACs are organized under the Supernova umbrella, an organization formed by Rascoff, Alexander Klabin, founder and CEO of Ancient; Robert Reid, an investor who formerly worked in Blackstone's Private Equity Group; and Michael Clifton, an investor who was most recently a senior investment professional at The Carlyle Group.
Rascoff shared more of his interest in SPACs in an interview with GeekWire last fall, noting that the traditional IPO process is broken in part due to the fact that many companies "leave money on the table" when shares soar after an offering.
In recent weeks, a number of industry watchers have pointed to a SPAC bubble. New York Times financial columnist Andrew Ross Sorkin said the SPAC phenomenon is a "sign of craziness," during an interview on The Prof G podcast. Meanwhile, Aaron Pressman at Fortune this week wrote: "These kind of things never end well. I fear the SPACpocalypse is near."
Even still, Rascoff is bullish on the latest SPAC deal between Supernova and Offerpad.
"iBuying has barely scratched the surface of real estate, one of the biggest addressable markets in the world, " Rascoff said in a statement. "…As they bring more transactions online, we believe online real estate as a whole is poised to grow rapidly in the coming years and that Offerpad is incredibly well-positioned to grab a huge piece of this market."
Offerpad also faces competition in the so-called iBuying arena from Seattle-based Redfin, which launched its RedfinNow unit in 2017 and now operates in parts of Arizona, California. Colorado, Texas and Washington state. Redfin projected that its property buying and selling unit would drive between $77 million and $80 million in revenue during the first quarter of 2021.
Additionally, San Francisco-based Opendoor went public last fall in a SPAC deal led by investor and SPAC king Chamath Palihapitiya, a deal that pumped $970 million into the business. Opendoor — which sold 18,799 homes in 2019 and 9,913 last year — is now valued at $16 billion.
According to an investor presentation this morning, Offerpad said it plans to sell 5,612 homes this year and 9,593 homes next year. It plans to operate in 19 markets this year, and move into about 50 markets in the next three years. It is also looking to boost its market share from less than 1% currently to about 4% — a significant jump that the company said would drive substantial revenue and profits. It estimates revenue of $3.9 billion by 2023, and gross profit of $353 million.
This story first appeared on GeekWire.
Missions and core values are ubiquitous at companies today. They're expected — by employees, new recruits, even investors — because they take a stand on the company's purpose and path to get there.
You need both because one without the other isn't enough. A mission is the purpose of the company, its north star, its reason for existing, whereas core values are how you fulfill that purpose, the set of navigational tools in service to your mission that are more useful for immediate, near-term decisions. They're a code of conduct, a common language, guiding principles, shorthand for new employees, partners and outsiders to understand how your company operates.
But you can't establish both your mission and core values simultaneously. While a mission is often the inspiration for the company itself and can be simply declared as the destination, core values are trickier. To last, and to be effective, core values need to be an authentic reflection of your company, your people and your culture; core values take more self awareness on behalf of the company than a mission.
A question I often get from founders is how and when to introduce core values, specifically: How do you identify what matters to your company in a unique way, and when do you really know? How do you get employees to understand, embrace and act according to these values? And, do you have to keep the same values forever? Here are five pieces of advice for establishing core values at a startup, or even revisiting values at a young and growing company:
1. Wait, Watch and Learn.
Companies are living entities full of forces, personalities, pressures and motivators. Just like people and relationships, the combination of these things produces something unique that drives it forward — and that something takes time to emerge. Even if you have a pretty good idea of who you are already, I always advise founders to wait to formally establish your values until you reach five to 10 employees and the company has been formed for a few months, but is still a couple months ahead of your first product launch. Observe how you make decisions together amid your different forces and personalities at play; this is probably the strongest signal of what your culture authentically is at its core (hence, "core values"). You can always make your values partly aspirational, but to make them stick you must also root them in reality.
2. Tie Your Values to Your Product.
Since core values are a guide to your every day, it's incredibly helpful if they tie to what you're building every day. The best example I have for this is from Zillow, where a core value is Turn on the Lights. Zillow was the company that brought real estate information out of the dark and into the light for consumers. While this innovation has now become an expectation among consumers, the core value of Turn on the Lights continues to keep empowerment front and center as the company matures and evolves. So at Zillow, the core value "Turn On The Lights" means that people are meant to be transparent with each other internally, but also that the product is supposed to provide real estate transparency to its users.
A more recent example is from my latest startup, Pacaso, where we have the value of "Empty the dishwasher: When you encounter an unmet need, step up and own it." Pacaso's service creates fractional vacation home ownership — in other words, owning a quarter of a second home rather than the whole thing, making it more affordable, accessible and practical for many more people. The core value of "Empty the Dishwasher" means that no job is beneath any individual employee. But it is also a nod to the product itself, since "emptying the dishwasher" is the ultimate act of teamwork inside one's household.
3. Be Prescriptive and Memorable.
Try to avoid corporate jargon and overarching words that are meaningless without context. In gathering my thoughts for this piece, I came across an article in Harvard Business Review and learned that the values "communication", "respect", "integrity" and "excellence" were all values of Enron — a company that committed one of the biggest accounting frauds in history. Clearly these words weren't prescriptive or memorable enough to keep the company on the right path.
If integrity is a core value, define what you mean by integrity, and make it something you'd say every day. My favorite example is from Box: "Make Mom Proud." This value is all about creating an environment of safety and trust where people's voices are heard and employees do right by one another. It's not corporate speak; it's pithy, playful and a clear reflection of their culture while also saying something specific about the way employees collaborate at Box.
4. Tie Core Values into Your Operations.
To truly live your core values, they need to be part of your existence at the company; you can't just print them on a poster and expect them to be followed. Your values should be part of how people join, operate within and sometimes exit your company.
Interview and evaluate candidates based on your company's core values, and even better, create standard questions for your interviewers to ask based on your values. This not only reinforces what the company is looking for, it also helps fight unconscious bias. Structure employee recognition around your core values for awards and announcements. Evaluate employee performance — including annual reviews, feedback loops and compensation — around your core values. At Zillow, core values were equally rated to outcomes in our annual reviews, which means you couldn't be an all-star and a jerk and be rewarded for it.
5. Revisit Your Values, and Amend Them Accordingly.
Like the Constitution, you need to be able to amend your core values — infrequently, but regularly. Why? Because things change. You grow. You acquire companies that have their own values. You evolve your business model. At Zillow, changes like these prompted changes in our values. When we acquired Trulia, we added the value "Act with Integrity," which was a core value of theirs but not part of Zillow's, yet critically important as once-fierce competitors became colleagues with shared objectives. When we expanded into buying and selling homes with Zillow Offers, we added a value around operational rigor and excellence, since new factors like time on market and closing deals quickly became critically important to the success of the business. Yes, you are creating core values, but sometimes your core changes as you mature, and you must consciously account for that every few years.
Core Values are a critically important part of a well-run company. But, like so many aspects of a company's culture, to make core values truly come alive takes effort. When well executed, they can contribute immeasurably to your company's success.
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I have long been a proponent of going public because I believe it creates stronger, more disciplined companies that deliver greater shareholder value. It's great to see the pendulum in the founder and venture capital community swinging away from the "stay private longer" attitude that dominated tech over the last decade.
That said, the traditional IPO listing path has many shortcomings. I experienced this firsthand in 2011 when we took Zillow public. The cover price on the original S-1 was $12-$14 a share, but we upped it to $14-$16 due to strong demand on the IPO roadshow. We priced it at $20 a share, only to watch the first trade open at $60 that day. (Note: Zillow has since done a 3-for-1 stock split, so divide these numbers by three if you're trying to compare it with today's ~ $100 stock price.)
So on what should have been a day of high-fives and champagne, I couldn't help but feel disappointment that we left a huge amount of money on the table by underpricing our IPO. 🤦 Facepalm.
Our employees and our venture capital owners were penalized by this broken system. And it's not just the Zillow IPO — this problem is systemic; the typical tech IPO trades up by 43% one day later. That's a massive amount of money to leave on the table for an issuer.
Direct listings provide a second path to a public listing, and they typically avoid the underpricing issue of a traditional listing. But they have their own set of shortcomings, including the inability of the company to raise primary capital in the offering.
SPACs — Special Purpose Acquisition Companies — offer a third way, and remedy many of the problems with IPOs, while offering some new benefits, including the ability for a company to provide financial projections at the time of the SPAC IPO, when the private company merges with the public SPAC. In addition, the SPAC model offers a quicker, more certain path to going public. With the launch of Supernova Partners Acquisition Company (yes, our acronym is "SPAC"), my partners and I are creating that path for a company in the broader tech sector.
But going public by merging with a SPAC is just an express route to basecamp. Being a fast-scaling, successful public company is the summit. I know this because I've been up that mountain.
From the point we went public at Zillow, we navigated 16 acquisitions — including that of another public company who was our biggest competitor. We grew our employee base 10-fold in six years. We pulled off a complex business pivot. And most critically, we protected our culture from the volatility of the stock market and kept our people focused on our mission. The internal name for the Zillow IPO in 2011 was "Project Step," because it was just a step along the way. I've seen firsthand that going public is the beginning, not the end.
The transition from being privately held to being publicly traded is like graduating from college and entering the real world and the job market. Welcome to the big time. And for a newly public company, it's a scary world out there, full of potential facepalm moments. The right mentors, directors, and advisors can make a huge difference during those first few years as a public company. And that is yet another benefit of going public through a SPAC: you get the benefit of the experience which the sponsor group provides. In Supernova's case, we have assembled a world-class team with diverse skills available to help whichever company we take public. We are player-coaches who have all excelled on the field before, and are now excited to help shepherd a company and help them avoid facepalm moments of their own.
There are many SPACs (and more every day), but not all are created equal. Some teams are Wall Street-heavy and exist only to take a company public, exploiting a private-to-public valuation arbitrage opportunity; some are led by Silicon Valley founders who will act as advisors for a longer period of time. Very few combine both. With Supernova, my partners and I, along with our board, together create a Swiss Army knife of experience in company building, culture building, marketing, finance, deal-making, product design, tech, capital markets and operations.
We know the journey to IPO and beyond is filled with facepalm crevasses that can be avoided with an expert guide at your side. Our operations and managerial experience, combined with our mentoring and coaching of founders and executives over two decades, will help chart a path toward long-term value. Personally, this is the beginning of a very exciting journey in my career as it combines all of my passions — investing, mentoring and coaching — with my experience as a seasoned CEO, all together with an unparalleled team I'm proud to call partners.
Spencer Rascoff is the co-Chair of Supernova Partners Acquisition Company and the co-founder of dot.LA.
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