At TRIBUS, we’ve long held that outside or dumb capital invested in real estate is a bad thing. For example, even though we have venture investors knocking on the door to give us money, TRIBUS has $0 debt and never accepted any funding outside of investments as a founder.
The truth is that outside investors do not understand the landscape of real estate. They see nearly 1.5 million Realtors and over 2 million real estate agents and think there are riches in the niche. They see companies like Zillow, Compass, and Redfin out there, and feel like it’s easy to make money when there is plenty of it in commissions and the money spent by Realtors to market.
What they don’t understand is the incredibly hard work that goes into getting a young real estate company off the ground. More importantly, they don’t understand that the likelihood of another investment in real estate achieving the hundreds of millions of dollars in valuation they need to make an investment worthwhile, is miniscule. And, make no mistake, most venture capital firms don’t invest in companies that they think will be worth only a few million. When they invest, they want 10- to 20-times that investment in returns, minimum — and they are hoping for some 100-times returns.
What happens when investors aren’t seeing the growth in MRR or monthly recurring revenue they are looking for? They kick out the founders who generally do understand the real estate world, and install their own general partners to take over things. This has happened multiple times in the past few years.
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The thing is, most real estate tech companies can’t achieve those kinds of MRR growth numbers they want to see — 100s of percent month over month revenue growth? Not going to happen in real estate. Long-term investment returns for five-year investment cycles that VC firms are looking for? Unicorns in our space. Even companies like dotLoop, with the highest market adoption (they were adopted by entire franchises like KW) sell for only $100 million. (They raised $10 million before selling to Zillow.) Consider my friend Joel MacIntosh, who just sold his company, Wolfnet, after running it for more than 20 years! A $50 million dollar company in real estate technology is the unicorn of our industry.
However, that doesn’t mean there isn’t opportunity in this space. It just means that investing in it is better suited to experts in real estate. We all know that the average profitability of a brokerage in good years is three percent — but do the investors in Compass know that? We know that only about 250,000 agents do the vast majority of the business — do those investors know that churn for products is incredibly high because of that? We do…
At TRIBUS, for more than five years now, instead of taking distributions of profits, we’ve moved them into investments, and while we never had a formal approach to this, we’re starting it now — TRIBUS Capital. We’ve already had portfolio companies exit and have companies that throw off enough free cash flow that their founders are more than thrilled to keep running the company every day.
We are focused exclusively on the real estate industry — and specifically products and services that can better help TRIBUS brokerage customers. We offer a structured approach to our investments that puts real estate technology companies on the best footing for success. Leveraging the network effects of TRIBUS, and our ability to help technology companies avoid the mistakes that are inherent to the the industry, we do our best to help companies succeed. (I can’t tell you how many real estate technology companies have called looking for investments, and when I question them about their MLS data strategies, they are clueless to the effort, relationships, and money that go into starting up.)
So, if you are or know of a company looking to help Realtors and brokers sell more real estate, contact us!
