The last time Glenn Kelman was involved in a company that went public, the executive team treated it as just another financing event. That was 15 years ago when Plumtree Software — a company that Kelman co-founded — started trading on the public markets.
With Redfin’s arrival on the Nasdaq exchange today with an IPO that raised $138.5 million, Kelman wanted to do things a little bit differently.
“I’ve done a day like this before where we didn’t celebrate it because we wanted to just stay focused on customers and products,” Kelman told GeekWire today after the Redfin IPO. “I actually think it was a mistake because we weren’t cognizant of how much it meant for everyone to have reached that milestone, and we just decided that this time around we really would recognize how hard folks around here have worked and what it means to everyone to go public. It has been just a really fun day.”
A fun day indeed. More than 100 Redfin supporters — largely made up of executives and the company’s first 40 employees — crammed onto the Nasdaq trading floor this morning to welcome the tech-powered real estate brokerage to Wall Street.
Redfin certainly impressed. The stock surged from an initial offering price of $15 per share to a final close of $21.70, a 45 percent jump.
Things will change for Redfin now that it’s a public company, and Kelman certainly is aware of those coming shifts as he looks to build a new type of real estate company. And, for him, the key will be retaining Redfin’s peculiarity, even as it navigates its new public domain.
“I do feel protective of (Redfin’s) weirdness,” Kelman told GeekWire after appearing on CNBC where he told the TV anchors that Redfin in ways resembles Apple, Lyft and Uber. “I am worried that we are going to get squashed into a little box that is the same size as every other box, that people are going to say now that we are public we can’t do X Y or Z, and I think that the only obligation of a public company is to tell the truth. And If you have a history of candor anyway, you should do just fine in the public markets.”
In the GeekWire interview, Kelman also addressed how Redfin balances growth versus profitability, the new Redfin Now home selling service and what public CEOs he plans to model himself on.
You can listen to the GeekWire interview with Kelman here:
And a lightly edited transcript of Kelman’s remarks:
GeekWire: What does this day mean to you?
Glenn Kelman: I’ve done a day like this before where we didn’t celebrate it because we wanted to just stay focused on customers and products. I actually think it was a mistake because we weren’t cognizant of how much it meant for everyone to have reached that milestone, and we just decided that this time around we really would recognize how hard folks around here have worked and what it means to everyone to go public. It has been just a really fun day.
GW: How many people did you bring to the opening bell?
GK: A little more than 100. We took the first 40 employees and some executives, and everybody was able to bring a friend or a spouse. We went to dinner the night before; people gave emotional speeches. This morning we got up, and Nasdaq feeds you breakfast and has a little confetti cannon, and they make you press a button that I don’t think is actually hooked up to anything at all. But you still smile for the camera and have fun, and we did.
GW: Do you see going public as a new stage for the company or just another step?
GK: A little bit of both. I mean we’ve raised capital equivalent to the amount that we raised today, so I don’t want to make too much of it. But I do think the world takes notice of you in a different way (once you go public), and I think you have to approach the job with a new level of seriousness if granny and grandpa are going to own your stock. That’s one way to think of it. But mostly, we’re still trying to make real estate better, we’re still trying to write better software, we’re still trying to show up for a tour on time. That’s not really going to change. I think we just have to stay focused on that. We just get a little more resources and a bigger stage to do it on.
GW: You’ve previously called real estate the most screwed up industry in America, do you still feel that why, and why haven’t you fixed it yet?
GK: I think I’m going to be answering questions about that quote until I die. I really believe that real estate can be much better. I wish I had been more diplomatic about saying that back then, but I’m not going to back off from the idea that I do think some consumers wonder if they are getting good value, wonder if the agent is on their side, wonder why the technology hasn’t made it better. I know we should have been able to do it faster, and I’m sure another man could have, or another woman.
I think that real estate consumers are stuffy; I think they’re scared. They don’t buy a house everyday. It’s a very infrequent purchase. It’s a little scary to have a weird sign in your yard, and you probably have a neighbor who is a real estate agent. So it takes longer for better to win, as opposed to if you are selling an ab cruncher over the web or doing some other kind of frequent purchase. But it does, in the end, win. So we have happier customers that come back at a higher rate. We have more loyal agents. I think we’ve built a better mousetrap.
The fact that it’s going to take another 10 or 15 years to realize our vision didn’t bother public company investors at all. They are used to seeing companies where most of their growth is played out. What we said is we’ve been playing a long game. We’ve worked really hard to make the whole transaction better, not just the initial search, and we still have so much to do. Come be our partner and help us build this.
GW: Marketshare in some of your more developed markets is still at roughly 2 percent, what is the marketshare you’d like to have?
GK: I think I’m really excited now. I think you saw that on CNBC, and it’s not just because they had a confetti cannon. We used to grow 30 to 40 percent year-over-year when we were at $10 million in revenue, and it just wasn’t that great. But now when you are at hundreds of millions in revenue there aren’t that many companies that can grow that fast. The fact that we have so much more room to grow is good.
To me it’s crazy that Seattle, after 11 or 12 years, is still growing so fast. A business like that should be settling down, but this one is picking up. And it’s because a brokerage is hard to cold start. It’s hard to cover the territory; it’s hard to get people into houses fast; it’s hard to be a local expert when you have two agents covering the whole town. But now we have closer to 200. As we get bigger, we’ve gotten better, and that’s why our share keeps going up. If we can keep growing the way we have been, I’ll be thrilled.
GW: Can you tell us more about Redfin Now, what are your plans for that and where do you see that going?
GK: I don’t know, it really is an experiment. We just feel like there might be a new way to sell a house. The kind of customer we are used to meeting is someone who wants the maximum net proceeds. But there are some folks who, whether because of an estate sale or a relocation, are willing to pay quite a bit to have the convenience of Redfin acting as the principal, buying the house and letting them move on, and it will be our job to sell it. If that’s 2 or 3 percent of the market we will build a partnership with another company, but if it’s 15 or 20 percent of the market, that’s something we’ll go after. And right now I just feel like we need to understand that customer better. I want to meet those people.
Even though we’ve only had four or five sales over the past few months, we had to account for it, and we wanted everyone to know about it because you recognize gross merchandise value as revenue. When we sell a $400,000 home, we take in $400,000 in revenue, so there’s going to be a couple million bucks in our second quarter earnings, that look like a lot of sales but are really just four or five sales. We just wanted everyone on the street to know that so we didn’t get too much credit while we are just figuring something out.
GW: Are you testing it in any specific markets?
GK: We are trying it in a couple of counties in Southern California: the Inland Empire and Orange County.
GW: Do you think that type of model could be the future of real estate?
GK: I don’t think it’s going to be the only future of real estate. There are just too many people who only have 20 percent equity in their house, and to give up half of that for the convenience of immediate liquidity is going to be hard. It might be a part of the mix; I don’t know yet. We are trying to avoid making a commitment to it because we really are just learning. This is one of those side effects of going public that now even when you’re just learning, you’re doing it in front of the whole world.
GW: How did you tell investors your story, how has it resonated?
GK: We didn’t try to tell people we are a pure tech company and that we should be valued like other pure tech companies. We actually didn’t come in with a point of view. The road show presentation and every other investor communication was just about this being a better way to buy or sell a house, so I think we are going to probably land somewhere between the valuations of traditional brokerages and tech companies in terms of multiples on revenue or earnings.
Our thesis is that consumers don’t want to make that choice. They don’t want to choose either a great agent or good technology, they want both. When you talk to public company investors, a lot of them run growth funds that are free to invest in all sorts of businesses, where the only thing those businesses have in common is their growth rate, not its technology or its this or its that. I thought the public company investors were more ecumenical than the VCs. VCs definitely have a box to check that it has to be a pure tech company.
GW: Are we going to see more of that personality you showed today going forward? Is that going to be more of your role being out there as that champion of the business, where you kind of have to be that first and foremost spokesperson, how do you view that?
GK: I feel like Joe DiMaggio, there was that song Where Have You Gone Joe DiMaggio? What do you mean, I’m right here. I’ve always been right here, of course he wasn’t playing baseball anymore. That’s how I feel. maybe I got in a funk w GeekWire or one or two outlets, but I swear to you I have always been so passionate about Redfin. I mean, seriously, I love it. I don’t love it today just because it’s going public. I love it just as much as I did two years ago and three years ago and five years ago.
I do feel protective of its weirdness, and I’m worried that we are going to get squashed into a little box that’s the same size as every other box, that people are going to say now that we are public we can’t do X, Y, or Z. I think that the only obligation of a public company is to tell the truth. And If you have a history of candor anyway, you should do just fine in the public markets. The hard thing is that you can’t talk about the future as much, especially now because we are still in this quiet period. That part is driving me crazy.
GW: Is there a public CEO you would like to model yourself on?
GK: I like Jim Sinegal because he owns so little of Costco, and he still was so completely invested in it. I thought he had a real service mentality. I wish I was as smart as Jeff Bezos. He’s just a large-brained space alien. I wish I was as annotative as Elon Musk. But I think everybody’s got to be their own person. Redfin I think is going to try to be a little more humble and a little more goofy because that’s just what we’ve always been.
GW: What is your path to profitability?
GK: That’s one of those questions where the lawyers have told me I can’t give you an answer because it is forward-looking material guidance, and nobody should read GeekWire to get that, they should come to our Q2 earnings call.
I think we’ve been growing revenue much faster than we’ve been increasing costs, and mostly the investors on the road asked us about the tradeoff between growth and profitability. The challenge is if you’ve really got a better product and a big market, why not pay it forward and invest more in growth? It hasn’t been a major concern so far because we’ve run it pretty close to the bone.