Investments

Digital Realtor Opendoor Grabs $325M, Eyes Expansion

With the completion of a $325 million “mega-round,” online real estate firm Opendoor is now valued at over $2 billion, a source close to the deal told Reuters.

The latest round was led by General Atlantic and Access Technology Ventures, as well as home construction company Lennar Corporation. Investors Andreessen Horowitz, NEA and Norwest Venture Partners are all joining the round.

The firm’s twist on online real estate is that it sells houses that it owns. Opendoor bids on homes, purchases them and then sells them again, with a fee attached of 6 to 13 percent. The firm says it offers sellers the ability to skip steps like finding a real estate agent or waiting on their own home to sell while looking to buy another one. Buyers, on the other hand, also can cruise agent-free, forgoing the tedious process of showing and open houses.

The firm was founded in 2014, well after the Great Recession and subsequent housing market crash. Opendoor has a very active slate of purchases and sales on deck for the next year or so, and is looking to spend $2.5 billion to purchase a string of homes, each of which is worth around $250,000 on average. The company has not yet disclosed to the public the amount of revenue they are making when selling the homes.

Opendoor‘s recent nine-digit mega round is becoming an increasingly common occurrence in Silicon Valley. With the goal of keeping up with global investors like SoftBank Group Corp., venture capital firms are opening up their metaphorical checkbooks in greater numbers.

According to recent reports from The Wall Street Journal, SoftBank has been pouring billions of dollars into technology-focused startups, which is prompting other global investors — including U.S.-based venture capital firms — to follow suit. That has resulted in a record level of late-stage capital coming to these companies.

There are also concerns that the Silicon Valley startup sector is getting overvalued. According to the WSJ, bidding wars among investors are starting to reemerge, while even foreign investors who had been more conservative are opening or expanding offices in the U.S. to court entrepreneurs.

“The top companies have as much heat around them as ever and continue to get bid up,” said John Locke, who runs late-stage investing for venture capital firm Accel Partners.

And the results of those bidding wars is visible on balance sheets. In the first quarter this year, U.S.-based startups raised 34 mega-rounds, almost double the number raised in the same time period a year ago, according to data firm CB Insights. As of the middle of March 2018, 102 U.S. startups raised around $50 million each for a total of $16 billion.

That is both a record amount and a big shift from where the investment world was a mere two years ago. At that time, VC investing had begun to ramp down, bringing investors to the conclusion that private valuations have tended to be higher than what the companies were able to pull in from public markets, resulting in less than stellar IPOs.

Venture capital firms wanted companies to focus on revenue and profit instead of user growth, and investments declined. The WSJ noted the effect was most profound with mutual funds.

But that story changed dramatically in early 2018, when SoftBank rolled out its Vision Fund, a $92 billion investment fund focused on technology companies. Backed by both Saudi Arabia and Abu Dhabi, the fund has already invested more than $36 billion over the past year.

Further turning up the pressure? Some sovereign wealth and retirement funds have taken to investing directly in start-ups themselves, instead of in venture funds. That has turned the heat up on VCs, which are responding with the mega-rounds of the sort that Opendoor has just closed.

All in, the new round of funding brings the digital real estate firm’s total fundraising to $645 million. Additionally, the company has raised $1.5 billion in debt. It plans to expand to 50 markets from the 10 markets it operates in today.

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