At the time of Redfin’s last venture capital round, CEO Glenn Kelman indicated that it would be the company’s last. But, as we all know in the world of startups, things change. And today, the Seattle online real estate company announced an additional $14.8 million from Globespan Capital Partners, Paul Allen’s Vulcan, Madrona and others.
Now, here’s the interesting part: Redfin really didn’t need the cash.
Kelman tells GeekWire that the company — which may or may not turn a profit this year — still hasn’t touched the $10 million it raised in late 2009 from Greylock and others.
So, why the new cash?
“It is just so favorable for entrepreneurs — especially if you have a company at our stage — to raise capital,” said Kelman. “So, I felt like we could strengthen our balance sheet and bring on a good partner without significant dilution. And, so that’s what we did.”
He added: “It’s always good to have cash.”
Redfin’s business is extremely seasonal due to the fact that many home buyers and sellers go into a bunker during the winter months. That creates a gyrating business, with Kelman saying that the company will lose $3 million to $5 million over the next few months. Like most real estate companies, Redfin then makes that money back during the booming summer months.
However, those gaps in the winter and spring are “harrowing,” admits Kelman.
“Come April, your cash balance is half of what it was, and you just hope that the business will do what it’s done every summer, which is start making money hand over fist,” said Kelman. “If we were ever in a situation where that didn’t happen, it just puts the company in a little bit of a jam.”
In the past, Kelman said that they’ve run the business down to less than $1 million of reserves prior to the summer months. “It was only after we raised the ($10 million) round that I realized how much more aggressive we were about taking risks,” said Kelman, adding that a strong balance sheet feeds into the “psyche of the company.”
“This gives us the latitude to take more chances, and I love doing that,” Kelman tells GeekWire. In that regard, Kelman wants to follow in the path of Amazon.com, which has taken an aggressive stance toward new product offerings and innovation.
“Amazon is a daily presence in my life because Jeff Bezos was willing to lose hundreds of millions of dollars,” said Kelman, adding that some of the best businesses in Seattle are often both operationally and capital intensive. “Except for Microsoft, they are pretty good.”
Redfin turned a profit in the third quarter, but Kelman said it’s unclear whether the company will make money for the full year. “It is such a crapshoot going into Q4 because that’s when you lose all of your money,” he said. “The business is very much growth optimized, and what that means is that we haven’t been focused too much on profits…. Redfin is very, very much growth focused.”
With the current financing round, Kelman said that Redfin will have about $25 million in cash on the books. That’s a healthy war chest for a privately-held company. Nonetheless, it’s not like Kelman is just going to sit on the pool of money and let it collect interest.
Redfin has some big things in store, including additional geographic expansion. Now operating in 18 markets, Redfin’s agents (both full-time and partner agents) cover roughly 30 percent of the U.S. population. The goal is to get that up to about 50 percent, Kelman tells GeekWire.
The company will rely on both its own agents and affiliate agents to expand into new markets, with Kelman saying that referral agents still make up a “tiny sliver” of its revenue. “Our play long-term is to have a hybrid of direct service and referrals. If I thought any market was going to be referrals forever, we probably wouldn’t do it,” he said.
Redfin also is kicking around new businesses, and while Kelman didn’t offer many specifics he did note that mortgages are on the product roadmap. (However, he said mortgages are not first on the list).
“We are going to go into related businesses at some point, and it is always going to be consistent with this idea that we want to make the real estate transaction better for the consumer. We look at other parts of the transaction and say: ‘What are the other things that people wish were better when they move.’ I don’t know what’s going to come first, but there are a whole bunch of things that people have to buy when they move, and in almost every case it is a fairly closed process that hasn’t been opened to much competitive dynamics. And it hasn’t been very efficient, either.”
Even though Redfin has never acquired a company before, Kelman said that they wouldn’t rule it out.
“It is nice to have better currency. And it was almost inconceivable at our last valuation to do it, just because we felt the company was worth so much more since Greylock invested. Since Greylock invested, the company has done well, and many times when you are acquiring another company, the investors in that company are just going to look at the last round’s price,” he said.
Kelman said that the financing round closed very quickly, and that he’s thrilled to have Globespan involved in part because of its history with Zipcar.
Asked whether the valuation topped the $230 million that Business Insider recently placed on Redfin, Kelman noted: “John, how did you finally get me to say after five years, no comment. No comment.”
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