Tech darlings are different

Following the $3.4 billion IPO of Snap, the company behind Snapchat, on March 1, tech companies felt a gush of wind at their backs — real estate tech firms included.

“Say what you will about Trump, but in the business world I think Wall Street is reacting well, and that may drive more IPOs,” said Nick Romito, co-founder of the Manhattan-based leasing and management platform VTS, which merged with rival Hightower in a $300 million deal in November.

That’s even as traditional real estate firms — whether they’re property owners, asset managers or brokerages — have shown some signs of hesitancy about going public so far in 2017. While many are talking about IPOs or planning for them, fewer than expected have pulled the trigger, and some are even going private. In the tech world, by contrast, the preparation is also taking place, but it’s further along and more likely to end with a company ticker symbol on the stock exchange, sources say.

Outside of New York, the darling of IPO chatter in “prop tech” circles is Airbnb, which hired former Blackstone CFO Laurence Tosi in late 2015 and recently closed another $1 billion financing round. Airbnb CEO Brian Chesky hinted in March that the company could stage a public offering in 2018.

“We are working on making sure the company is ready to go public, and I’ve said it was a two-year project,” he said at a lunch at the Economic Club of New York, where he stressed that the company is in no rush to raise more capital just yet.

New York-based residential brokerage Compass is also fodder for the IPO rumor mill; it, too, appears to be getting its ducks in a row.

The firm raised $75 million in a Series D round last summer, for a $1 billion valuation. At the time, CEO Robert Reffkin told The Real Deal that although going public was “more likely than not, it’s not the goal.”

But in recent months, the company has shaken up its management team, likely at the behest of investor Wellington Management Company, a mutual fund that led the most recent funding round and is known for helping late-stage startups go public. In January, Compass tapped Maelle Gavet, an alum of Priceline and the former CEO of Russian e-commerce site Ozon, as COO. Julie Binder, who joined as Compass’ first head of communications the same month, came from software startup Percolate but was previously at security firm ADT during the company’s spinoff from Tyco International into an independent public company in 2012.

Unlike other tech companies grappling with a potential IPO, however, real estate firms must pitch their investment-worthiness to bankers and investors who are still getting to know the nascent industry.

“A big problem with the IPO market for this stuff is there are a limited number of Wall Street analysts who cover this space,” said Zach Aarons, co-founder of tech incubator MetaProp.

But at a certain point, venture-backed companies looking to grow have little choice but to go public.

Aarons cited VTS, noting that the company could get too big to get bought.

“Once they get to a valuation that’s in the $600- to-$700-million range, the universe of potential buyers gets much, much smaller,” he said. “When you get big, your options are kind of limited if you’re a commercial prop tech company. You’re either going to do an IPO or you’re going to sell to CoStar.”

For his part, Romito said he’s been courted by buyers several times — and he’s always turned them down.

Last month, VTS made a couple of profile-raising hires, naming Tim Harvey, a tech entrepreneur, as executive chairman and tapping Michelle McComb — an alum of data-backup company Datto and Bloomberg — as CFO. The additions to VTS’ C-suite were made “at a pivotal moment as the company looks to rapidly scale,” the company said in a news release.

“We think there is a path to an IPO, and we’re willing to do what it takes to get there,” Romito told TRD earlier this year. “The nature of our product and size of the market is big, so we’ll cross that bridge when we get to it.”