Uncrunched

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.

About Redfin
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.

Last week I wrote about how Google Voice junkies can, finally, use the service properly with the iPhone 4S (or any other iPhone Sprint sells). No quirky apps to download that can’t take over the address book or call log anyway. Nope. If you’re willing to live with a Sprint iPhone, you can have it use your Google Voice number natively. It just works perfectly.

Background – Google Voice has never worked properly with the iPhone because Apple didn’t want Google to take over that much control over the phone. But a Sprint deal with Google this year gives every Sprint user the option of either (1) using their Sprint number as a Google Voice number, or (2) replace their Sprint number with their existing Google Voice number.

Then Sprint got the iPhone deal and, BINGO, Google Voice just backdoored their way into the iPhone natively. The only way for Apple to stop this now would be to put a policy in place banning it.

But Apple will not create a policy banning Google Voice on Sprint iPhones.

Here’s what you see when you go through the process on Google Voice. I chose #2 because I want to keep using that Google Voice number. Clicked a button, verified the phone with a code and…bam. I got myself the purest idea of a Google Voice phone to date – one that needs no app whatsoever to work, and work perfectly.

Calls, voicemails and text messages all go through the normal iPhone native apps. And I’ll be using all of those all the time because with Sprint’s horrible data speeds (confirmed by me today, just awful), I won’t be doing much Internet stuff on this very pretty phone.

My next purchase will be a 3 watt cell phone booster, DIY converted to backpack form for portability. It won’t be pretty, but I’ll get a signal everywhere I go, right up until the day I die from brain cancer.

You can’t accuse Andreessen Horowitz of spending money too slowly. Their first fund, $300 million, was raised in 2009 and was promptly invested in companies like Skype and Fusion.io. In late 2010 they raised Fund II, a $650 million monster (Groupon, Airbnb, Twitter, Facebook, Zynga, etc.), followed in mid 2011 with a $300 million annex fund (which makes follow on investments from the earlier fund it’s tied to).

That’s a whopping $1.25 billion under management. Andreessen Horowitz is not yet two and a half years old.

Now, double that. The firm is in the early stages of raising a third fund that, says a source who’s seen the documents, will have a target size of $900 million. That’ll mean the firm will have $2.15 billion under management shortly.

If they subsequently raise an annex fund, add another half billion or so to that.

That’s a lot of cheddar.

Recently Andreessen Horowitz has said that they’ve invested in 70 or so companies, about half of them are seed stage investments under $200,000 or so. The new fund will have flexibility to make investments ranging anywhere from $10,000 to $100 million.

See TechCrunch for details. The most important thing to know about this video is that I was holding the microphone (off camera) when they filmed the will.i.am parts. I’d also like to see an animated gif made of Marissa Mayer dancing at 1:47.

Here’s my interview with Mayor Lee at TechCrunch Disrupt in September.

San Francisco and Tech Celebrities Remake “2 Legit 2 Quit” for Mayor Ed Lee

Video Features Brian Wilson, Hammer, Ronnie Lott, will.i.am, Willie Brown

SAN FRANCISCO – A campaign committee supporting Ed Lee for Mayor of San Francisco today launched a remake of Hammer’s “2 Legit 2 Quit” video featuring cameos by San Francisco Giants pitcher Brian Wilson, NFL Hall-of-Famer Ronnie Lott, will.i.am of the Black Eyed Peas, 49ers owner Jed York, former San Francisco Mayor Willie Brown, Twitter co-founder Biz Stone, Marissa Mayer of Google, Hunter Walk of youtube, and Hammer himself.

The video was announced through tweets by Brian Wilson and Hammer with the hash tag #fearthestache.

The video was commissioned by Silicon Valley angel investor Ron Conway, head of the campaign committee “San Franciscans for Jobs and Good Government Supporting Ed Lee for Mayor 2011” and was created by Portal A and Ashkon – the production team and performer who teamed up for last year’s viral video hit for the San Francisco Giants, “Don’t Stop Believing.”

“This is a great way to show the support of prominent San Franciscans and tech leaders for Ed Lee,” said Conway. “Since so many San Franciscans are not reached through traditional methods such as phones, TV ads, and mailers this is an innovative tactic to reach voters through social media. We hope it creates a buzz that encourages people to learn about and vote for Ed Lee.”

In the first six months of 2011 Facebook had $1.6 billion in revenue and about $800 million in operating income, says a source I trust a lot. That revenue number has been reported before. And the 50% profit margin is in line with last year’s $2 billion in revenue and $1 billion in operating income.

With Facebook growing revenue and profit by more than 50% every six months, it won’t be surprising if they hit something close to $2 billion in operating income for the year.

To put that in perspective, realize this – Facebook will likely be more profitable than Amazon this year. On a quarterly basis they’re already there. Amazon had $191 million operating income in Q2 and $322 million in Q1 (financials here). That’s $513 million v. Facebook’s $800 million for the first half of the year.

Amazon’s Q3 financials are coming out this week, and Citi analyst Mark Mahaney says to look for around $298 million in operating income from Amazon for the quarter. Q4 is obviously Amazon’s big sales period – operating income for Q4 is usually almost double what Q3 is.

Mahaney also notes that Amazon’s Q4 may not look as rosy as usual due to the launch of the Kindle Fire. Says Mahaney, “There is the distinct possibility that an aggressive/successful Fire launch could materially negatively impact AMZN’s margins and EPS near-term.”

The Kindle Fire is irrelevant though – Facebook will likely be more profitable than Amazon for the year even if the Kindle Fire doesn’t negatively impact Amazon’s Q4.

Does that mean Facebook is still undervalued at $70ish billion, despite the fact that recent secondary market sales are stalling? Amazon’s market cap is currently around $107 billion.

Of course Amazon has far more revenue than Facebook, nearly $10 billion per quarter, and Q4 will be much higher than $10 billion. Last year they had $34 billion in revenue.

They just have terrible margins compared to Facebook because they sell (and deliver) actual stuff. Facebook delivers ad impressions and Facebook credits to buy stuff on Zynga.

And about Zynga. The company is still completely dependent on Facebook – “We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future,” says the Zynga S-1 For the first six month of this year Zynga reports $522 million in revenue.

That doesn’t include Facebook’s cut, which is taken before Zynga recognizes the revenue – “Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games. We record bookings and recognize revenue net of amounts retained by Facebook.”

That means Zynga sent Facebook some $250 million in the first half of the year, or about 16% of the total Facebook revenue for that period. So Zynga is a very important source of revenue for Facebook, and probably will be for quite some time.

So is Facebook undervalued? Based on a comparison to Amazon today, and taking into account that the big growth years for Facebook are just getting started, that answer is yes.

Sounds like we should be buying Facebook stock and adding it to our list of portfolio companies, stat.

A week ago SecondMarket failed to clear any shares in its 43rd weekly Facebook secondary market auction. It was the first time that no shares at all were bought or sold.

This week, same thing. The weighted average offer and bid prices converged somewhat, but not nearly enough. Last week the weighted average offer price was $33.91 – this week it was $32.42. Last week’s weighted average bid price was $28.15 – this week it drifted up to $28.47. At $30, Facebook would be roughly valued at $75 billion. Trades were happening in that range back in January of this year.

Buyers clearly want a lower price. And sellers for now aren’t willing to give it.

As a point of reference, about 130,000 shares (about $3.9 million) cleared in the auction two weeks ago on October 7, 2011, and 50,000 shares clear the week before that.

It took me until today to realize, and then confirm, that I can finally have an iPhone and still use Google Voice natively. Via Sprint.

Background – in 2009 I bailed on the iPhone. Too many AT&T issues. And more importantly, I ported my mobile number to Google Voice. If I wanted to use that phone number with a mobile phone (and I did), I needed a phone that integrated with Google Voice natively. Apple didn’t allow that.

Google Voice is an awesome service because it allows me to set which phones ring whenever someone calls that number. If you call me on my mobile number it might ring one of many cell phones that I have, or Skype (via SkypeIn), or my home phone, or on Gmail. I can send and receive text messages via my browser, and voicemails are auto-transcribed (which can be hilarious).

I could still use Google Voice with an iPhone. Calls can easily be forwarded to any phone, including an iPhone, and the Google Voice iPhone app lets you place calls as well. But without native integration into the address book and, crucially, the call log, you always have to open the Google Voice app to make any calls. You can’t simply call someone back from your call log, which is a good percentage of my outgoing calls.

So I went all Android in 2009 and have been there ever since. My current phone is the original Nexus. I still think that’s the best Android phone on the market today, and it’s nearly two years old.

Anyhow, earlier this year Google announced deal with Sprint that allows any Sprint customer to make their phone number also a Google Voice number. Or, if you already use Google Voice, you can make the phone number associated with the phone the same number.

Bingo. No app needed. And it works with the new iPhone 4S, too, I’m told from someone at Google (I’ll check it myself tomorrow). Google doesn’t need Apple’s permission to take over the address book and call log. They’ve moved down the stack to control the device’s actual phone number.

What an amazing world we live in. Next week, fingers crossed, I’ll be using an iPhone with Google Voice natively. The cherry on top is that AT&T will be nowhere in sight. Sure, in a few months I’ll be ranting (again) about how awful Sprint is in general. But first, the honeymoon.

Best of all, the iPhone v. Google Voice religious war MG Siegler and I have been engaged in for years is over. Instead, the churches just merged. What a perfect video to capture the moment.

Venture firms have been buying stock on secondary markets in quasi-public companies for some time. This means they’re buying stock from other stockholders, not investing money into the company. They’re doing it because they think the stock is cheap and there are still venture level returns to be made. And they’re also doing it for marketing purposes, to put the cherished company logo up on their website as a portfolio investment.

Elevation Partners bet the house on a massive Facebook secondary market transaction in 2010, for example (it was a good bet). Facebook is listed as a portfolio investment on the Elevation site.

Andreessen Horowitz also does this – their investments in both Facebook and Twitter were both secondary market transactions. Both companies are listed prominently on their portfolio page.

Kleiner Perkins also lists Facebook as an investment on it’s Digital Growth Fund page, although it takes a bunch of clicks to get there. Their main portfolio page does not list Facebook. The firm bought shares in the secondary market.

Competitor venture capitalists hate this – a portfolio page listing a Facebook investment could mean a late stage secondary deal made without the knowledge of Facebook, or it could mean a very early investment at a $100 million valuation (Accel, in that case) when everyone thought you were crazy for putting money behind a Harvard dropout.

Sarah Lacy wrote a post on TechCrunch earlier this year (with a really handy chart) showing which firms invested in which companies when and at what valuations. It really shows how much of a difference there is.

This is inside baseball, but most of the really interesting stuff is inside baseball, in my opinion. So when you see Roelof Botha at Sequoia Capital talking about the issue publicly on Twitter (see image above), that’s what’s really going on. Marketing, positioning, and future deal flow. As well as genuine frustration about what the ground rules are for VCs.

Disclosure – every venture firm mentioned in this post (or their individual partners), except Elevation Partners, is an investor in CrunchFund. I keep meaning to put up a website showing all of their logos.

Getaround couldn’t have timed their debut at TechCrunch Disrupt New York in May any better. Rumors around Airbnb’s huge growth and new funding round were already swirling. And whether Getaround liked it or not, they were being dubbed the “Airbnb of car rentals.”

Like hotels, the car rental market is huge. And ripe for P2P disruption. Some people, like me at first, thought no one would hand their car over to strangers. But just like Airbnb, that’s wrong. Lots of people want to rent their car out. On average car owners get $325 per month renting the car out (and gas is paid by renters). The top 25% of owners get $910/month on average.

Many owners who don’t use their cars that often rent it through Getaround to make their monthly payments.

The average rental cost is $9/hour. There are higher end cars, too, like this Audi A4 for $11/hour, and this 2010 BMW 328i fro $15/hour or $60/day. The picture above is the owner of that BMW holding up his monthly check from Getaround.

Getaround is now handling over 15,000 hours of rentals per month, and they’re only available in San Francisco (more cities next year). Soon they’ll end field testing of the keyless carkit that will greatly ease the renting process, and it will become available on lots more cars.

And the growth. It’s still relatively small, but the company is growing by up to 50% per month right now. The model is proving out, and they’re preparing to raise a much larger round of financing to fuel growth (look for news on that soon).

I invested in Getaround shortly after they won TechCrunch Disrupt, and it’s looking to be one of the stars of the portfolio. More like this one, please.

I first wrote about Inspirato (affiliate link, see below) earlier this year – it’s a way for people to rent high end vacation homes at extremely reasonable prices. Instead of paying $4,000 a night for a four bedroom penthouse condo on the beach in Puerto Vallarta (with a private pool, no less), for example, you can pay just $400/night with Inspirato.

The picture above is a 2 bedroom, 3,200 square foot home in Tuscany that rents for $450/night in the summer, and as low as $320 per night in the off season.

For families, or a bunch of friends, it’s an extremely inexpensive way to feel like you are a super high roller while you’re on vacation.

The company operates on a “Costco” model. They have long term leases on the properties and let members get them for a price that just covers the cost of those leases (and the cost of a concierge, housekeeping, etc.). The profits all come from a one time initiation fee of $15,000, and a $2,500 maintenance cost.

It’s not for everyone, but there are a lot of people out there that see this as an almost magical deal. In just the few months since launching they have 900 members, and are adding about 100 per month.

I’ve been thinking about joining since I first wrote about them. Now, I’m not only joining but I’m investing, too. CrunchFund is joining the $17.5 million venture round being led by Kleiner Perkins.

If you’d like to join, use this affiliate link – http://www.inspirato.com/Invite/marrington. I get a $1,000 credit for each signup, and I’ll assign that to you for you to use for your first trip.

Kleiner Perkins Caufield & Byers Leads $17.5M Financing for Inspirato

Investment to fuel property expansion for world’s fastest growing destination club

DENVER, October 18, 2011 – Today, Inspirato announced $17.5 million in equity funding
led by Kleiner Perkins Caufield & Byers (KPCB), the preeminent venture capital firm for
category building consumer companies. Founded by Brent and Brad Handler, the co-
founders of Exclusive Resorts, Inspirato eliminates what is wrong with luxury vacation
rentals, adds what is right about destination clubs, and creates the perfect solution for
families wanting to vacation better. Other investors in the round include Access Venture
Partners and New York Yankees All-Star First Baseman Mark Teixeira.

Launched in January of 2011, Inspirato’s quickly expanding property portfolio has over
85 residences in 25 destinations. With more than 900 memberships sold to date, Inspirato
is already cash flow positive and plans to use the new capital to add even more vacation
choices for its members.

“KPCB’s investment in Inspirato offers further proof that ‘smart luxury’ is alive and well,
and that savvy consumers are looking for a better way to vacation with family and friends,”
said Inspirato founder and CEO Brent Handler. “Our members recognize that overpaying
for a luxury vacation is no longer a status symbol. They have been burned too many times
playing vacation roulette with online rental sites and have no interest in first-generation
destination clubs whose initiation fees are typically hundreds of thousands of dollars.”

The Inspirato membership is simple and affordable. Members pay a one-time Initiation
Fee of only $15,000 and an Annual Membership Renewal fee of $2,500. Unlike other
luxury vacation clubs and fractional ownership options, Inspirato has no complex or
confusing reservation rules. Members travel as often or as little as they like, and have no
restrictions on usage, even during peak travel periods such as school holidays. So far this
year, members have traveled thousands of days to club-managed properties and reported
satisfaction of 9.4 out of a possible ten point scale.

At the center of the company’s success is a unique business model whereby the club enters
into long-term leases on properties directly with owners. This structure eliminates
brokers’ fees and enables the club to control the end-to-end vacation experience for
members. Inspirato’s model allows for deeply discounted nightly rates, personalized
service, and maximum availability, even during peak travel seasons.

Ted Schlein, partner at KPCB who will join Inspirato’s board of directors, said, “We believe
that Inspirato is rapidly becoming the standard for luxury vacations in homes. Offering an

affordable, fully curated member experience from one vacation to the next distinguishes
Inspirato from other luxury vacation rental options. I am excited to work with the Handlers
who co-founded Exclusive Resorts and have deep expertise in this business.”
Schlein added, “In the luxury market, even affluent consumers are prioritizing value and
exercising discretion when making purchase decisions. We believe there is a significant
advantage for businesses that not only offer quality, but also value to the affluent
consumer.”

New York Yankees All-Star First Baseman Mark Teixeira, who along with several high-
profile CEOs and athletes joined Inspirato earlier this year, recently became an investor
in the company as well. “After taking my family on an Inspirato vacation, I knew this was
a concept that would appeal to so many other families, especially ones with children like
mine,” Mark said. “The properties are spacious and in the ideal location, the service is
proactive, and everything we need to make the trip perfect is at our fingertips. I am thrilled
to be a part of it.”

About Inspirato
Inspirato is the luxury vacation solution ideal for travel with family and friends that
combines the best of destination clubs’ consistency and service with the value and
flexibility of villa rentals. Inspirato founder/CEO Brent Handler is the co-founder and
former president of Exclusive Resorts. By leasing its vacation properties (rather than
owning,) Inspirato is able to keep membership fees low, offer up to 80 percent off market
rates, and easily add homes and destinations as demand increases. The company’s
innovative business model has led to rapid growth since its January 2011 launch, placing
Inspirato at the forefront of the “luxury for less” movement.

Access to Inspirato’s personalized travel services and advisors, club-managed portfolio
of more than $150 million in vacation homes, and exclusive discounted everyday rates,
is available for an Initiation Fee of only $15,000 and a small Annual Membership Fee of
$2,500. There are no complicated restrictions; members travel as much or as little as they
like. Inspirato residences are outfitted with the highest quality amenities and located
in popular destinations including Italy, Mexico, Hawaii, California, South Carolina, the
Caribbean and Colorado. Beyond luxury residences there is Inspirato Metropolitan, a
collection of select fine hotel and resorts in the hottest destinations around the globe, and
Inspirato Experiences, offering expertly curated vacation adventures.

For more information about Inspirato, visit http://www.inspirato.com.

About Kleiner Perkins Caufield & Byers
Since its founding in 1972, Kleiner Perkins Caufield & Byers has backed entrepreneurs in
over 500 ventures, including AOL, Google, Amazon, Compaq, Electronic Arts, Genentech,
Intuit, Juniper Networks, Netscape, Sun, Symantec, Twitter, and Zynga. KPCB portfolio
companies employ more than 250,000 people. More than 150 of the firm’s portfolio

companies have gone public. Many other ventures have achieved success through mergers
and acquisitions.