Loft's founders, Mate Pencz and Florian Hagenbuch: IPO and international expansion in the horizon
São Paulo-based real estate marketplace Loft has reached a $2.2 billion valuation after raising $425 million in a Series D round aimed at widening its footprint across Brazil, fueling acquisitions and moving faster towards international expansion and an IPO.
The round was led by D1 Capital Partners, a hedge fund investing in the likes of SpaceX, Squarespace and Instacart. Other new investors joining the company's fourth investment round include Advent International, Altimeter Capital, CPPIB, DST Global, GIC, Silver Lake Waterman, Tarsadia Capital, and Tiger Global. The pool of new backers also includes Emerging Variant, the hedge fund led by former money manager at George Soros's family office, Santiago Jariton.
Moreover, existing investors Andreessen Horowitz, Caffeinated Capital, Fifth Wall Ventures, Monashees, QED Investors, Vulcan Capital and Zigg Capital have also joined the round. According to cofounder and co-CEO of the company, Mate Pencz, the company had a fair amount of its previous $175 million Series C round announced in January 2020, still in the bank. However, the Covid-19 pandemic accelerated the firm's strategy of bringing the e-commerce experience to real estate - and the attention of investors:
"We'd been building our online capabilities and consumers were already using these tools and products. But they had less applicability in the pre pandemic world than in the post Covid world," the entrepreneur said. "The acceleration seen in the general e-commerce spaceover the last few months was the realization of our thesis, to bring a a new solution for the real estate market that would end the pain [of the home buying and selling process]."
"We were very well positioned at the end of 2020, and started drawing the attention of several funds and investors, who until then had not paid so much attention to our thesis", he added. The founder is referring to the company's belief that the process of buying or selling property online would become just as straightforward as buying groceries on the Internet - according to Pencz, Brazilians currently have to go through over 190 steps from the start of the journey with visits to the property, until its conclusion, with the deed registration.
By offering an end-to-end digital experience, the firm has seen a 28-fold increase in business in 2020 in relation to the prior year and the client base went from 85 in 2019 to 2,500 last year. The growth is part due to the introduction of the marketplace, as well as the iBuyer model, whereby the company buys and renovates properties before selling them.
"People already bought things via e-commerce, but mostly smaller, recurring items. Now, the digitalization trend will mean that e-commerce will serve all types of physical goods, and this is extending to the real estate market as well", Pencz noted.
According to the entrepreneur, Loft's latest valuation could have been "a lot higher" and its Series D round was the most sought-after round in the startup's history. "We managed to create a syndicate of funds that complement each other. We have two of the largest pension and sovereign funds, as well as some of the biggest publicly traded and private equity funds in the world", said the cofounder, adding that investors felt safer this time around.
"In the last three investment rounds, in a way, [Loft] still had a lot more risk around execution and market-fit. [Investors could ask], 'will this company be successful?'. Those uncertainties no longer existed in the latest round", he added.
According to Pencz, a Hungarian entrepreneur who founded the real estate company along with his German friend Florian Hagenbuch in 2018, the vision of e-commerce principles applied to real estate is what attracted the slew of new investors. "In just a few years, we have managed to become leaders in our segment in Latin America: we are also the largest [real estate marketplace] in the world outside China and the United States", Pencz argued.
"Most of these [new investors] don't tend to back private companies; they usually go for publicly listed businesses", the founder pointed out, adding that the new backers expect Loft will also go public in a medium to long-term horizon.
With the new cash, the company will be focusing on improving the customer experience in its digital marketplace and focus on density, so having as many properties available to show customers in the cities where its operates as possible. The startup also plans on expanding beyond São Paulo and Rio de Janeiro, where it already operates with 15,000 properties listed.
"If the [property buying and selling process] had less friction, people would move around more. We know from our own research that everyone who lives in Brazil has horrific anecdotal experiences of how complex the experience of moving was", Pencz argued. "With this experience becoming more efficient, as we see in more developed markets the market become more dynamic, people move more, and end up living less time in suboptimal conditions."
In addition, the idea is to use the new cash for acquisitions. In its short history, the company acquired property renovations startup Decorati, as well as credit platform Investmais, and Nomah, a company focusing on short-term rentals, which has received a BRL 50 million ($9 million) funding from its parent company earlier this month.
"We now have resources to make larger acquisitions and are constantly assessing the market", said Pencz, who alongside his cofounder also runs Canary, a fund which has raised $120 million for early-stage investments since its inception in 2018.
Loft also has international ambitions. Pencz and Hagenbuch are second-time entrepreneurs in Brazil - the duo founded online printing services firm Printi in 2012; according to Pencz, the idea the friends started doing business in Latin America was that it was "time for someone to set up a company in Brazil with global ambitions."
"Nobody thought about it much back then, but now with [Brazil-born] companies like Nubank, Gympass and others, we are seeing that this is possible - and it is happening", the entrepreneur said. "We have a lot of homework to do and need to consolidate our presence in Brazil, but it will be a logical step to grow in some capitals outside Brazil, in Latin America, and eventually even outside the continent."
