Posted on Tuesday, Jul 14th 2015
When it comes to online real estate companies, there are very few big names in the industry. The industry continues to be consolidated under the leadership of Zillow. But none of these really cater to the commercial real estate segment, which is estimated to be a $1.6 trillion market opportunity. The big name within online commercial real estate is that of a bootstrapped venture and a potential Billion Dollar Unicorn club member Auction.com.
Irvine-based Auction.com was founded in 2007 by serial entrepreneur Jeffrey Frieden and his partner Robert Freedman. The founders’ interest in the auction business came about when they hired an auctioneer to auction televisions lying unsold in containers in their parking lot. That day they sold more merchandise in one day than they did in two weeks. They sold off their electronics store in 1983, but they were still fascinated by auctions and were lured by the land auctions taking place in Riverside. The two invested all their savings and returns from the sale of their earlier business and bought 200 pieces of land to conduct their own land auction.
Driven by the success of the land auction, they soon set up a company called Real Estate Disposition Corporation (REDC) which conducted developer auctions by helping developers sell their houses through an auction for a fee. In a few years, they had capitalized on the benefits of the Internet. They used a technology bought from eBay to conduct live auctions and allow people to follow the auctions over the Internet, thus enabling both online and offline buyers to bid for homes and land. By 2008, they had expanded into commercial real estate and begun selling those properties exclusively through their online platform. This segment of the business was carved out of the REDC under the brand name Auction.com.
Today, Auction.com is the country’s leading online real estate marketplace, having expanded into residential real estate as well. Since inception, they have sold over $30 billion in residential and commercial assets by selling to buyers in more than 100 countries. Their customers include financial institutions, institutional investors, and even individual consumers and real estate professionals. Their simple and transparent platform leverages the competitive bidding process and helps make a faster sale without compromising on the market value of the property.
Earlier this year, Auction.com acquired real estate technology solutions provider Channel, LLC, which offers a real estate transaction platform with a proven ability to engage residential brokers and consumers. The acquisition will help Auction.com expand its residential business. The online real estate sector has seen significant consolidation in the recent past. Earlier this year, Zillow acquired Trulia. Last year, News Corp also entered into the market with the acquisition of Move. Auction.com has also expressed interest in making acquisitions within the industry.
The company earns revenues by charging a fee from the buyers. Within two years of being set up, they were operating at revenues of $180 million and have been profitable since inception. Auction.com does not disclose financial details, but they did reveal that they sold real estate worth $7 billion in 2014. Analysts estimate that they charge nearly 5% per transaction. That translates into nearly $350 million in revenues in 2014.
After being bootstrapped till 2013, Auction.com raised private equity funding from Google Capital, Starwood Capital Group, and Stone Point Capital. They have received $141.8 million in funding so far from these investors. Their last round of funding was held in March 2014, when they raised $50 million from Google Capital at a valuation of $1.2 billion.
Last year, Zillow reported revenues of $325.9 million with a loss of $43.6 million. They are currently trading at a market capitalization of $4.6 billion. Given that Auction.com has higher revenues and a profitable business model, they should clearly be able to command a higher valuation.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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