Two years into the creation of Porch, it was clear to Matt Ehrlichman that the real estate technology firm he founded in 2013 was not going to make it big. Built as a marketplace for homeowners to find contractors and other professionals, the startup had already gone through a succession of layoffs before he dropped the hammer again in 2015, cutting the company to 250 employees, half of its original size.
“We decided to pull back,” says Ehrlichman. “It would’ve been easy at that point in time to just continue forward with that original strategy. We had plenty of money in the bank. We just knew that it was going to be hard to build a great company.”
The new strategy: Partially retreat from the consumer space, a fragmented market dominated by firms like Angie’s List, HomeAdvisor and even Craigslist, and pivot to a business-to-business model targeting one of the least digitized industries, the estimated $200 billion home-services market.
Though Porch still helps customers find home-service professionals, the vast majority of its revenue comes from commercial clients, like inspectors and movers. Ehrlichman says that a quarter of all home inspections already run through his software. Now he is asking public market investors to come along for the ride.
Porch announced plans on Friday to go public on the Nasdaq NDAQ at a valuation of $523 million, through an increasingly utilized structure known as a special purpose acquisition company, or SPAC. The process bypasses the initial offering process that would call for a lengthy road show aimed at enticing investors. Friday’s announcement marks a dramatic turnaround for Porch, which had revenue of $57 million in 2019.
The announcement comes at a turbulent time for both the proptech industry and the broader economy, with real estate markets plummeting in major cities like New York, (sales down 44% year-over-year, according to Douglas Elliman) and Los Angeles (down 27%), and with investors increasingly skeptical of money-losing startups.
Proptech firms like PocketList, a rental platform, and Openpath, which specializes in keyless door access, completed funding rounds this summer. Porch, though, is taking a more discreet route, by merging with a listed shell company created by veteran real estate investors that began trading as a SPAC last fall.
“For us, it’s a really good match because it accelerates our path to take this company public by a good year,” Ehrlichman says of the approach used by the likes of Nikola Motor and Virgin Galactic SPCE in the past 18 months.
“[SPACs] came out in the ’90s but they didn’t really start to become popular until the 2000s,” says Brad Shiffman, a lawyer at Blank Rome Government Relations. Historically, companies listed through SPACs have been viewed as less credible, since they may not have had the financial strength to go public in the conventional manner. Bypassing the traditional roadshow process also reduces time for scrutiny, though Shiffman and others say the negative stigma around SPACs has lessened as more companies turn to them.
“It used to be that way,” says Mitchell Nussbaum, the vice chair of Loeb & Loeb. “I think it’s completely outgrown that.”
Ehrlichman now has to prove that Porch can land on a sustainable business model, too. The Real Deal reports that the business lost $56 million last year, though Ehrlichman disagrees with the outlet’s methodology, saying it accounts for below-the-line losses like stock-based compensation. He acknowledges that by his own metrics the company will post a projected $10 million loss on $73 million in revenue in 2020.
The plan is to use a chunk of the money raised in the offering to acquire software companies in the home-services space and to further invest in its homeowner’s insurance offerings, which Ehrlichman says will help the company reach its revenue projection of $120 million in 2021. That will build on its earlier acquisitions, like HireAHelper, a database of local movers, and Kandela, a moving concierge outfit.
For now, without fully knowing what the company will look like once the deals are done, investors will have to rely on Ehrlichman’s history, which includes a summer camp he founded as a freshman in high school called All Star Camps, and Thriva, an event software firm he founded while studying at Stanford and sold to Active Network in 2007 for $60 million.
In the end, Ehrlichman is grateful for the company’s painful pivot. “That certainly has paid off in spades,” he says.