IPO fever is spreading once again through the tech ranks. And while Zillow.com recently filed, Redfin CEO Glenn Kelman says don’t look for a public offering from his Seattle online real estate upstart anytime soon. “Barring some unforeseen screw-up, we don’t need the capital to fund operations, we probably don’t need the currency to buy companies, and the management team is not impatient to cash out,” Kelman tells GeekWire.
The comments come after Kelman told The Wall Street Journal that Redfin board members have introduced him to investment bankers recently. They also follow LinkedIn’s blockbuster IPO and a flurry of IPO filings (both Zillow and Impinj filed to go public in the same week).
But while an IPO certainly has allure and Redfin is growing rapidly, Kelman tells GeekWire that the company just isn’t ready to make the plunge.
“An IPO has always been the most likely way Redfin’s investors will make money – what technology company wants to acquire a real estate broker? — but we are not going public any time soon, certainly not this year, probably not next,” said Kelman, who has been sharing that message with employees recently.
He added: “You hear of LinkedIn’s IPO like the sound of someone having a fabulous time on the other side of your dorm-room wall and it can change your thinking about spending another Friday night in the library. But that’s exactly what we need to do.”
It appears that Redfin has the ability to at least consider an IPO given where it stands today. And Kelman admits that the company’s “financial results have been comparable to or in some ways better than … some companies going public now.” (It is unclear whether that’s a reference to Zillow, which posted annual revenue last year of $30.5 million).
Nonetheless, the timing just isn’t right for the company, with Kelman saying that “we “just wouldn’t be a top notch IPO right now.” One of the challenges facing Redfin is the unpredictable nature of the real estate business.
Investors don’t like that. And Kelman would rather stay on the private side of the fence while those issues are sorted out. The 9-year-old company also continues to invest in key areas, expenses that may not be tolerated on Wall Street.
We’re still making big bets that cost us money in one quarter, and make us money in another, if at all. Redfin wants to keep doubling down on those bets. Once you go public, Wall Street expects you to spend most of your resources milking the cow, not feeding the cow, or bringing a new cow into the herd. With the investing public’s wealth depending on you, you mostly have to stop screwing around with other cows. We’re still figuring some big things out.
Redfin has raised about $30 million to date, including a $10 million round in 2009 from Greylock, Madrona Venture Group, Draper Fisher Jurvetson, Vulcan Capital and The Hillman Company. Investors in the company have publicly said that they are trying to create a “market-leading business in the $1 trillion-dollar residential real estate industry.”
Redfin has work to do still in order to make a dent in the market. And Kelman has written before that IPOs make more sense when companies approach $100 million in revenue, rather than $50 million.
“This number is a crude rule of thumb and so it changes with market conditions, but since we were the ones who said that regulatory costs are peanuts for companies with true scale, we want to make sure to reach true scale before bearing those costs,” he said. “When and if we can offer the markets a high-quality IPO, we almost certainly will, but we’re not ready yet.”