Redfin CEO Glenn Kelman
Redfin CEO Glenn Kelman. Photo by Eugene Hsu.

Redfin is on pace to hit between $50 million and $100 million in revenue this year, and its annual run rate now stands at over $100 million. The Seattle online real estate company also is tossing off cash, with expectations to be profitable in 2013.

With numbers like those, Redfin certainly could be considered a candidate to go public. But as GeekWire first reported Wednesday, Redfin instead chose to raise $50 million from investment firms such as Tiger Global and T. Rowe Price, who joined with existing investors such as Vulcan and Greylock in the round. (Correction: The original story indicated that Madrona participated in the round, but it did not. More here: Madrona skips participating in Redfin’s $50M round, but remains biggest investor)

It’s a big wad of cash for a profitable company which now employs more than 500 people. So, why did Redfin want the money?

Was it to cash out early investors?

Kelman says no, and that all of the funds are flowing directly to Redfin.

For one, it’s an advantageous time to raise money. But CEO Glenn Kelman said that the capital also would allow Redfin to get a better grasp of how big investors (those who sink money in public companies) evaluate Redfin, which has a very different story from online real estate portals such as Zillow and Trulia.

Here’s more from our Q&A earlier today with Kelman.

Why did you raise this big of a venture round right now? “We decided to raise the round in part to understand how public company investors would evaluate Redfin, and in part because we felt it was a good time to raise capital. This is a business that has many different opportunities to grow, so the people we work with always want to buy more services from Redfin, and each one of those is fairly capital-intensive to launch and, at some point, we will use the capital to develop new services and also to invest more in technology.”

What type of services and where do you think you could expand the Redfin business model in real estate? “I know you want me to be forthcoming about this, but I’d really rather not because those services aren’t ready to launch yet. I don’t really know how we will talk about them when we launch them, and they are still just being developed.”

redfin-appsWhat are the plans for market expansion in 2014? “Again, I think I’ll give you an answer that is frustrating … and I am not doing that to be difficult. I’d rather launch the markets when we launch the markets. The answer that I think might be useful for you to print is that the capital really doesn’t help us expand. Most of the expansion has been self-financing, so when we open these markets, they used to lose tons of money. But more recently we have figured out how to bring them to profits fairly quickly, and what is interesting is that each market that we’ve opened has been optimized for profit. Obviously, we think first about the customer, but we don’t try to grow too fast. We just want to make sure that it doesn’t consume that much capital.

What we have noticed is that markets that have been open a little while, they reach this inflection point where they grow faster, and it usually happens around three years into that market’s development. And we just wonder if we can bring that forward. We might spend more money to open a market, just because we are intrigued with what happens, as we get more local and as we have more customer relationships. But right now, opening a market just doesn’t cost us that much money.”

How long does it take to get each new market to profitability? “It depends on when we launch them. If we launch in the dead of winter, they lose money all winter. If they launch at the first bloom of spring, they almost immediately make money. If you’d want a simple answer … you could say one to six months. But really it is a seasonal effect, and when we were really capital constrained we used to try to time the launch, seasonally, and now we just don’t worry about it. We say, sooner or later the rains are going to come and we may as well launch it when we are ready to go.”

redfin_logo_tag_webIs each market profitable? “I don’t know. If you had 22 or 23 children, there would always be one with the runny nose. Someone is always going to be sick. So, there is probably one market that is losing money right now, but if you asked me which one it was I wouldn’t be able to tell you. In general, the markets aren’t just break-even or slightly profitable, they are extremely profitable because the overall business is profitable… There was a time when … every time we sold a house, we lost money. We were paying the real estate agent more than the customer was paying us, but we are well past those times. We’ve gotten more efficient. We’ve charged more. We have found the balance.”

What was the valuation on this round? It was reported that it came in at $500 million? “I just have a deal with the investors. I am not trying to be difficult. But I told the investors, no matter how often I was asked I wasn’t going to say it.”

You’ve talked about a possibility for an IPO. Why take this money vs. going the IPO route? “Part of it is that you want to take big bets. So, some of the money that we will invest is going to pay us back in spades, but other investments may not work out at all. It would still be worthwhile to do something really good for our customers without having the pressure from Wall Street to improve earnings per share every month or every single quarter. That is the lattitude you get — you get a valuation that is similar to what you might get in a public market and you get public market investors who are trying to build a position in the company over the long haul, but you get some space to take some chances and make some mistakes and get some hits, and still be a little unpredictable.”

Redfin CEO Glenn Kelman speaks at a Startup Weekend event.
Redfin CEO Glenn Kelman speaks at a Startup Weekend event.

Would 2014 be the year you try to go public? “I don’t know … if there is a press release that says Glenn Kelman resigned from Redfin, then you will know that I was fired. I really like working here. If I were trying to take the company public, get through the lockup, sell my stock, then I would be really concerned about the timing. But the truth is, I am going to be the CEO of Redfin, I hope, in good times in the stock market and in bad times. The stock is going to go up and down. But what we are doing is really a good thing — it is a good thing for consumers. There is all this talk in real estate about revolutionizing the industry for consumers, but I think we are one of the only ones that is really serving the consumer with such a single-minded focus, and so that is going to continue to be our focus.”

Why do you think you are better positioned to serve customers than a Trulia or Zillow? Let me be clear, I think they are well positioned to serve their customers too. Their customer is a real estate agent, and our customer is a consumer. And, by the way, I honestly believe that Trulia is a great business, that Realtor.com is a great business and that Zillow is a great business. I think they are very well-run businesses, and if you asked them or if you asked us, I think we would all agree that we serve a different customer. We mostly compete with traditional real estate agents, because we think we have a better way to help a consumer buy or sell a home.”

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