Home61 is shutting down.
We recommended this promising startup in early 2018… with high expectations.
And with good reason.
It was upending real estate, a massive and inefficiently run industry.
Home61 founder Olivier Grinda was fresh off a series of entrepreneurial wins in his native Brazil. And he employed the latest digital marketing technologies and best practices to reinvent the homebuying experience.
Everyone would win in Olivier’s bold vision. The customer would get a more customized and responsive service. The broker would get more high-quality leads and close more deals by offering a higher level of service. Home61’s value proposition would drive more customers and dealers to its platforms, supercharging growth.
And early investors would win, as valuation increases alongside revenue growth.
That was the plan.
But reality didn’t cooperate, Olivier says. There were a few big problems.
- The company didn’t have enough agents. “We would have needed about 100 agents active, ideally 150, and we would have been doing well… It was really meant for scale,” he says. Last year, Home61 had about 50 active agents out of a total of 106.
- The convenient online interface didn’t make a difference. “I realized that entrepreneurs (like me) are much more willing to try new things than customers. Despite all the documents and confusing paperwork, nobody cared!”
- Olivier made underwhelming hires. Looking back, Olivier says he hired people he liked rather than people with the skill set needed to get the job done. As a result, he had to fire a Harvard guy and then a Stanford guy from his sales team.
- Olivier underutilized traditional business practices. Olivier too readily dropped proven offline practices in favor of unproven online tools. And he admits he overdid it. “I needed to do a better job at identifying what traditional business practices to keep and what to leave behind,” he says.
All of these were contributing factors. But there was one overriding problem…
Using all the latest digital marketing technologies to remedy inefficiencies did not make the deep impact that Olivier had counted on.
This was critical because, more than anything else, Home61 was an efficiency play.
And it worked… up to a certain point. Agents made more money than those at traditional real estate companies. Home61 was one of the top-rated real estate companies in Miami. Last year, Olivier tripled contributing margin (gross margin minus agent commissions minus cost of agency marketing). The company generated more than $200 million in sales.
Still, it wasn’t enough.
Olivier adopted the Silicon Valley standard of having to make things 10X better. But he says Home61 improved efficiencies by just 10% to 20%.
“10X is very hard,” he says. “With every idea, I had to make the company faster and more nimble. I wanted to accomplish two goals: better serve our customers and put the company over the hump in terms of improvement.”
Almost
Despite some missteps, Olivier feels the company wasn’t that far away from accelerating the type of revenue growth that would have made it profitable. Home61 reached $62 million in sales last year, a significant improvement from the $43 million it made the year before.
What’s more, that was achieved in the first nine months of the year.
The company had shown renewed vigor. It seemed to be turning the corner. Against steep odds, Olivier was closing in on a remarkable turnaround.
Just one thing remained. But it proved to be the company’s undoing.
By September, Olivier realized the company needed more money. He was operating on a skeleton crew of agents. He needed to beef up the staff. But to become self-sustaining, he needed to buy out another firm. And even a modest-sized one would cost around $500,000.
The problem? Home61 didn’t quite have the metrics to guarantee a successful raise to get the cash it needed to buy a firm. But Olivier didn’t have much choice.
He went back to his original investors, asking for more money. He needed around $750,000. And, ideally, another $500,000 to make an acquisition.
He almost made it.
Olivier raised nearly $600,000. It wasn’t enough.
So he decided to shut Home61 down.
Olivier will reopen the company as a traditional 100% brokerage agency. That makes it easier for his agents to either find a new home or stay on and earn a living.
In the meantime, he’s given a small exit package to his employees. He’s currently trying to sell the company’s lead-generation platform, website and domain name. If some of these assets do get sold off, he plans on redirecting the proceeds to investors.
For now, investors should expect to get nothing back for their investment.
This is obviously not the outcome the First Stage Investor team was aiming for. But this comes with the territory of early-stage investing. As Olivier puts it, “We’re a startup. Sometimes we win, sometimes we don’t.”
Out of 47 holdings, we have eight (including Home61) that have dropped out. It’s a portfolio we can be proud of.
The First Stage Investor portfolio can actually stand up against any other early-stage portfolio from Silicon Valley. If our current dropout rate continues, the portfolio will be extremely profitable.
As for Olivier? Beyond his new brokerage, he knows he has a new startup in his future. His Amazon, he says.
Olivier is a talented entrepreneur. We’ll be staying in touch.