The Real Deal National

Compass valued at $6.4B after Series G

Investors include Dragoneer, which backed Uber and Slack prior to IPO
By E.B. Solomont | July 30, 2019 06:20AM

From left: Robert Reffkin and Ori Allon (Credit: Compass)

From left: Robert Reffkin and Ori Allon (Credit: Compass and iStock)

Compass just added $370 million to its coffers.

The New York-based brokerage announced the Series G on Tuesday, which sources said values the company at $6.4 billion, up from $4.4 billion after the prior funding round.

Founded in 2012, Compass has now raised more than $1.5 billion from investors to date. The latest round — which the company said would further its tech investments — includes a mix of new and prior investors including SoftBank’s Vision Fund and the Qatar Investment Authority, which led the previous round last September. The Canada Pension Plan Investment Board also participated in the Series G with Dragoneer Investment Group.

The participation of Dragoneer — a late-stage investor that backed Slack and Uber before they went public — will likely fuel speculation around Compass’ plans for an IPO.

Like its last round, Compass plans to use the latest infusion of capital to “accelerate our growth and further our technology advancements,” company founder and executive chairman Ori Allon said in a statement.

Specifically, Compass will invest in software development as well as cloud, mobile and artificial intelligence tools to simplify homebuying and selling. It will expand its product and engineering team further on the East and West coasts, and in August, there are plans to launch a consumer search tool.


READ MORE: 

Compass is buying brokerages from coast to coast and targeting $1B in revenue. Can it deliver?


Sources said the valuation is based on a multiple of Compass’ revenue, which has been fueled by several key acquisitions in recent months. (Compass declined to provide specifics, but said it logged three consecutive months of record revenue during the second quarter, representing a 250 percent increase from 2018, when its revenue target was $1 billion.)

In April, the SoftBank-backed firm acquired Manhattan-based Stribling & Associates, a boutique firm with nearly 300 agents and $1.6 billion in sales last year. It also snapped up the Bay Area’s Alain Pinel Realtors, a 1,300-agent firm with $12 billion in annual sales in 2017.

Nationwide, Compass was the third-biggest brokerage on a ranking published by research firm Real Trends, which said the firm logged $45.5 billion in 2018 sales volume.

IPO watch

Compass’ latest round puts off (at least for now) what some speculators are waiting for: An IPO.

After closing its $400 million Series F led by SoftBank and QIA, some speculated that round would be Compass’ last before a public offering. That round valued the brokerage at $4.4 billion.

But the public market hasn’t been kind to residential brokerages. Compass rival Realogy has seen its market cap plummet to below $1 billion, down from $3.3 billion roughly a year ago. Earlier this month, Realogy filed an explosive lawsuit accusing Compass of illegal business practices, including data theft and attempts at price fixing. Realogy stock dipped below $5 on Monday, closing at $4.96 per share, down 8.15 percent from Friday.

Meanwhile, VC firms continue to pump money into proptech. Just last week, venture capital firm Fifth Wall closed on a $503 million fund focused on the sector — the largest of its kind to date.  This past May, real estate tech firm VTS closed a $90 million round valuing the company at more than $1 billion.

Addressing “missteps”
Over the past eight months, Compass has been doubling down on its technology. At the end of 2018, CEO Robert Reffkin acknowledged certain “missteps” in Compass’ rollout of new tools.

In the new year, however, Compass acquired Contactually, a customer relationship management system popular among rival firms. It expanded a new tech campus in Seattle and tripled the size of its product and engineering team to more than 300.

That growth has had casualties, however.

Last month, The Real Deal reported that three top executives in marketing and product resigned or were let go. Eytan Seidman, head of product, resigned in May. Former chief marketing officer and Max Henderson, Compass’ vice president of product, were reportedly let go. In April, chief people officer Madan Nagaldinne and general counsel David Carp also left.

Though some sources cited tension between Reffkin and COO Maelle Gavet over how to run the company, the CEO denied the assertion. Nonetheless, Compass announced a reorganization of its top executives designed to streamline certain departments and help identify opportunities to grow. Reffkin is now overseeing a streamlined tech team, including product and engineering. The application design team was consolidated under CTO Joseph Sirosh.