Redfin has a classic disruption model. Find a huge inefficient industry (in this case real estate broker fees) and then rip it apart to make consumers happy. The overall size of the market shrinks. But there are huge profits to be made. Investor Josh Kopelman calls it “Shrink a Market!”
Back in 2006 when I first wrote about Redfin this was all just a dream. The company had sold a few homes in the Seattle market, representing buyers instead of traditional brokers and dealers. They then reimbursed 2/3 of the fee back to the buyer, averaging $11,402.
They’ve grown substantially since then. Redfin is now available in twenty or so areas. Since launching in 2006 they’ve represented buyers and sellers in more than $6 billion in home sales, returning a whopping $85 million to consumers. The average reimbursement is now $7,000.
The company is announcing a new round of funding today – around $15 million from Globespan Capital Partners and previous investors Venture Group, Vulcan Capital, Draper Fisher Jurvetson and Greylock Partners. To date, the company has raised nearly $46 million. See TechCrunch for more details.
A good day for the Seattle tech scene, and a great day for Redfin. A bad day for the rest of the real estate industry. Adapt or die, because the real estate broker/dealer scam has gone on long enough.
Here’s the press release:
Redfin Raises $14.85 Million Round Led by Globespan Capital Partners
Oct. 27, 2011 – SEATTLE – Redfin Corporation, the technology-powered real estate brokerage, today announced that Globespan Capital Partners has led a $14.85 million investment in the company. Previous investors, including Madrona Venture Group, Vulcan Capital, Draper Fisher Jurvetson and Greylock Partners, also participated in the financing. Prior to this investment, Redfin had raised nearly $31 million, so the new total is almost $46 million.
Redfin, a company of local real estate agents and software engineers working together to give people a smarter way to buy or sell a home, will use the money to launch its service in new cities and to deepen its investment in research and development.
The funding caps another successful year for Redfin. Even as fewer homes have sold nationwide, the company has grown fast. Since launching its service in 2006, Redfin has represented customers in the purchase or sale of more than $6 billion in homes, saving consumers more than $85 million in commissions, an average of more than $7,000 per transaction.
Ninety-seven percent of customers would recommend their Redfin agent to a friend; though Redfin is still most popular among first-time buyers and sellers, the company’s fastest-growth customer segment is now among customers over 45. According to Hitwise, Redfin.com is the U.S.’s fastest-growing brokerage website. Since Redfin tours homes with its own agents, it can publish to its website more than 80,000 notes per year about active listings, which in turn has accelerated traffic growth.
“In Globespan, Redfin has found the perfect partner: an investor committed to customer service as well as technology, who understands from its partners’ Zipcar experience how to grow neighborhood by neighborhood,” said Redfin CEO Glenn Kelman. “Not many venture investors appreciate the different ways in which online and retail businesses grow, and even fewer think about the long-term competitive advantage you can create when the two work together.”
“Globespan invested in Redfin for one big reason: service,” said Globespan Managing Director Venky Ganesan. “We had used the site extensively, and talked to customers, so we knew that this was one of the few companies that could deliver consistently higher-quality service than any of its competitors. The more we learned about Redfin’s single-minded service focus, the more we became convinced that Redfin was building the foundation to lead a market that generates $40 – $60 billion in brokerage fees every year.”
As part of the financing, Globespan Managing Director Venky Ganesan is joining Redfin’s Board of Directors. Before Globespan, Mr. Ganesan founded Trigo, a successful product-information company sold to IBM; he also worked as a consultant at McKinsey in Los Angeles and Johannesburg, South Africa.
Alan Smith of Fenwick & West represented Redfin in the financing.
Redfin is a company of local real estate agents and software engineers working together to give people a smarter way to buy or sell a home. Redfin’s agents handle every facet of a transaction, including tours, pricing analyses, negotiations, inspections and closings. The company pays its agents customer-satisfaction bonuses, not commissions, and surveys every client, publishing each survey alongside the agent’s complete deal history.
Redfin’s service is available in the metropolitan areas of Atlanta, Austin, Baltimore, Boston, Chicago, Dallas, Denver, Las Vegas, Phoenix, Portland (Oregon), Seattle, Washington DC, New York’s Long Island and Westchester County as well as most of California, including the San Francisco Bay Area, Sacramento, Los Angeles, Orange County, San Diego and Palm Springs. To keep track of our daring exploits, subscribe to blog.redfin.com or our Twitter feed @redfin.