By Todd Chaffee
Today we are honored to congratulate Chairman and CEO Robert Reffkin, his cofounder Ori Allon, and the entire team at Compass on a successful IPO. This marks the 117th IPO for IVP.
Compass provides an end-to-end platform that empowers real estate agents to deliver exceptional service to both buyers and sellers in the $180 billion U.S. residential real estate market. The Compass platform includes an integrated suite of cloud-based software for CRM, marketing, client service, and other critical business functions, all custom-built for the real estate industry.
A Tiny Company with BIG plans
Robert and Ori launched Compass in May of 2013. When we first met the Compass team in the summer of 2015, it was still a small company. They had generated less than $10 million in revenue the prior year, and they were operating in just two markets (New York and Washington DC). But they had a big vision and a smart, viable plan grounded in reality.
While many venture-backed start-ups had tried (and failed) to transform the painfully slow, antiquated residential real estate market by replacing real estate agents, Robert and Ori took a different path. They recognized, given the scale, complexity, and importance of real estate transactions to both buyer and seller, that agents were an absolutely essential and central component of the marketplace. However, these critical intermediaries didn't have the technology platform they needed to conduct their business efficiently, and consequently, their clients and the agents themselves were faced with a complex and stressful process.
Clearly, there was a massive market opportunity at hand. We liked the Compass team, we liked their plan, and after some thorough IVP style due diligence, we led the $50 million Compass Series C round at a $750 million pre-money valuation in September of 2015. Then it was time to roll up our sleeves and get to work with Robert, Ori, and our co-investors on the Compass Board.
The Dynamic Duo
One of the most rewarding aspects of being a venture capitalist is that you get to partner with brilliant, talented entrepreneurs that want to change the world for the better. And that's exactly what we got to do with Robert and Ori.
Ori is a highly respected technologist, engineer, and computer scientist. Prior to Compass, Ori had already founded two technology companies (one acquired by Google and one acquired by Twitter) and now he wanted to build something really big with Compass. But in order to build a disruptive technology platform that transforms a huge industry like the real estate industry, you're going to need some help. Happily, we found that Ori was a recruiting machine. He was able to attract and manage top engineering talent from many great technology companies like Amazon, Google, Twitter, and Microsoft. This has given Compass a huge competitive advantage.
Today the AI powered Compass platform is unmatched in its capabilities and more than 19,000 Compass agents use the state-of-the-art platform to manage their daily workflow and provide truly exceptional service to their clients. The Compass platform helps agents to win more listings, obtain better priced properties, transact more efficiently, and ultimately generate more commission income than agents at traditional brokerages. Through 2020, Compass agents assisted home buyers and sellers with more than 275,000 homes worth more than $300 billion.
However, the Compass platform created by Ori and his engineering team is only part of the story. You also need a visionary business leader to build a large enduring company. And we got more than we imagined with Robert as the Compass CEO. We knew he had a great resume and an impressive track record of accomplishments having worked as a White House Fellow and in various capacities at McKinsey, Lazard, and Goldman Sachs (including working as the Chief of Staff to the President and COO of Goldman). We also knew that he was extremely goal oriented and disciplined having run 50 marathons in all 50 United States to raise more than $1 million for charities.
What we didn't know was that Robert would scale into such a great leader of the company. Robert is kind, smart, thoughtful, efficient, and he is absolutely tireless in his work ethic. He flies all over the country recruiting and inspiring agents with his charismatic and visionary management style. He also listens to many different points of view and is extremely strategic in his thinking. It's been a great privilege to work with Robert the past six years and help him build a talented and experienced senior management team, refine the Compass business strategy, and support the company financially (beyond the Series C, IVP also invested in the Series D, E and F rounds of Compass).
Scaling the Global Platform
Over the last three years Compass has grown revenues at a 105% CAGR generating more than $3.7 billion in 2020. It has now grown into the largest independent real estate brokerage in the United States. Today Compass operates in 46 markets across 20 states, and with just 4% market share, they are just getting started. There are over 86,000 brokerage firms in the U.S. and the overwhelming majority have neither the technological expertise nor the capital to build the software and services their agents need.
And as Compass expands its product lines and expands globally by streamlining and organizing the complex multi-party workflow of the massive $570 billion global residential real estate industry, we expect Compass to have a bright future of remarkable growth for many years to come.
Todd Chaffee is a Managing Director at IVP, a later-stage venture capital firm based in Menlo Park, CA.
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By Todd Chaffee
