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Opendoor Looking To Disrupt the $20 Trillion Real Estate Market
© Source: Shutterstock A hand touches a digital chart with the text “IPO.”
Chamath Palihapitiya is one of the top operators in Silicon Valley. He served as an early executive at Facebook (NASDAQ:FB) and then went on to become a venture capitalist. One of his latest deals is the Opendoor IPO (Initial Public Offering).© Provided by InvestorPlace A hand touches a digital chart with the text “IPO.”
Yet this is not a typical IPO. The company is coming public via a SPAC (Special Purpose Acquisition Company). This is where a shell company first raises money and then merges with an operating company. In the case of Opendoor, it is merging into Social Capital Hedosophia II (NYSE:IPOB).
Keep in mind that Palihapitiya is also one of the leaders of the SPAC industry. His deal for Virgin Galactic (NYSE:SPCE) has sparked huge interest in this segment of finance.
The Opendoor IPO will include $414 million from the SPAC entity as well as $600 million from a private investment in public equity (PIPE). In fact, Palihapitiya will chip in $100 million of his own money in the deal. Based on all this, the current estimate of the value of Opendoor stock is about $4.8 billion.
Background on Opendoor
Eric Wu, Keith Rabois and Ian Wong founded Opendoor in early 2014 and they had little problems raising capital. After all, Rabois was a high-profile venture capitalist at Khosla Ventures and a former executive at companies like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ). As for Wu, he founded Movity (a real estate startup that was sold to Trulia) and Wong had been a machine learning expert at Square and Prismatic.
Note that the first round of capital – which raised nearly $10 million – had the participation of a myriad of Silicon Valley angels. Just some included Paypal co-founder Max Levchin, Box (NYSE:BOX) co-founder and CEO Aaron Levie, Facebook CFO Gideon Yu, and Eventbrite (NYSE:EB) co-founder Kevin Hartz.
Gallery: The 7 Best Startups You Can Buy On SeedInvest Right Now (InvestorPlace)Full screen
1/8 SLIDES © InvestorPlaceLast year,SeedInvest, a large fintech operator that leverages blockchain technology and crypto assets, was acquired by Circle. Founded in 2012, the company has facilitated the funding of funded more than$200 million there are more than 300,000 investors. The minimum investments are usually over $1,000. “One of the pros of the platform is that Seedinvest only offers highly-vetted deals, especially focusing on more later-stage companies that are raising Series A rounds or later,” said Brian Belley, Founder ofCrowdwise.organdVentureWallet. Belley went on to say: “This can benefit investors who are looking for companies that tend to have relatively lower risk than early-stage deals or those investors who might not have enough time to perform deep due diligence on their own. It’s a fundamentally different model than the deals that are offered on platforms such as Wefunder or StartEngine, which do have the minimum compliance requirements, but allow the crowd to decide whether an offering is a good investment opportunity.”Here are the 7 best startups you can buy on SeedInvest:Miso Robotics20/20 GeneSystemsGROUNDFLOORCaliberFrameSeeMeEllySeedInvest is one of the leading online platforms to invest in startups. And Circle has raised more than $246 million from investors likeGoldman Sachs(NYSE:GS), Accell, General Catalyst and IDG Capital. For investors looking to get into private equity markets, the stocks ahead make sensible plays.
2/8 SLIDES © Source: Miso Robotics
Startups to Buy on SeedInvest: Miso Robotics
Miso Robotics is the developer of Flippy, an AI-powered robot that cooks in restaurant kitchens. It can work on a grill or fryer, has self-cleaning technology and is OSHA-compliant. In terms of the underlying technology, Flippy’s “brain” is a cloud platform that processes huge amounts of data with sophisticated deep learning algorithms and computer vision. Keep in mind that the AI keeps getting smarter, which means that there is a high level of consistency with the cooking. The market opportunity for Miso Robotics is massive. The Quick Service Restaurant (QSR) sector has over 280,000 locations. As for Flippy, the robot has been shown to reduce labor costs by up to 67% and boost profit margins by 300%. Yet the company has lagged when it comes to signing up customers. That should change under new CEO, Mike Bell, who has a long record as an executive at companies like Ordermark, Bridg and Infrascale. Fundraising on SeedInvest has been quite successful, as the company has pooled nearly $8 million from over 3,600 investors (it’s one of the most successful SeedInvest offerings). The valuation is set at $80 million. Consider that there aren’t many publicly-traded robotics companies — and even fewer implementing sophisticated AI. Thus, Miso Robotics looks like a good option for those investors looking to participate in this market.
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20/20 GeneSystems20/20 GeneSystems develops diagnostic testing tools for cancer and other diseases. What is unique about this company is its use of sophisticated AI. In fact, 20/20 GeneSystems claims it is the only company with a multi-cancer test that leverages this technology. AI does provide some key benefits. First of all, it can detect certain complex patterns that may not be noticeable using traditional approaches. And the AI tends to improve over time. As a testament to the technology, 20/20 GeneSystems has been able to receive $2 million from Ping An, which is large insurance company in China (with roughly 300 million subscribers). This investment will likely result in a nice boost on the top line because of the distribution footprint. But when it comes to GeneSystems stock, the biggest opportunity may be its Covid-19 test. Called CoronaCheck, it can detect two variations of the virus. Note that the company has logged more than $1.2 million in sales of the test. Even though the market is intensely competitive, the AI component could be a differentiator.20/20 GeneSystems has raised about$2.4 million from 931 investors and the minimum investment is $502. The valuation is $38.5 million.
4/8 SLIDES © Source: Shutterstock
GROUNDFLOOR allows you to obtain high-yields on short-term real estate investments. Traditionally, these opportunities have been unavailable to individual investors because of the costs. So consider that GROUNDFLOOR is the only platform that has received qualification from the SEC (Securities and Exchange Commission) for this type of investment (this has been done by using a Regulation A offering). The real estate portfolio consists of residential loans that are converted into a specialized security. This allows for investments as low as $10. What has been the performance? The company says that the average annualized returns for the past seven years have been a lucrative 10%. The loans are also diversified across 31 states. So far, GROUNDFLOOR has facilitated over $250 million in investments to more than 75,000 registered users. Last year, the company logged revenues of $6.4 million, up from $2.89 million on a year-over-year basis. Given the low interest rate environment — which the Federal Reserve has indicated will last for several years — there should be continued interest for GROUNDFLOOR securities. The company has raised $2.4 million from 1,335 investors for its crowdfunding campaign. The minimum investment is $984, with the valuation set at $73.9 million.
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5/8 SLIDES © Source: Shutterstock
CaliberCaliber allows individual investors to participate in long-term real estate investments. Chris Loeffler and Jennifer Schrader founded the company in 2008 when they saw that the Internet could be a disruptive force in the industry. The company invests in a myriad of categories, like commercial properties, multi-family units, hospitality, warehouses and tax-advantaged opportunity zones. Moreover, Caliber has multiple revenue streams, such as for management fees, brokerage commissions and carried interest (which is the profit generated from the portfolio). An essential part of Caliber is its extensive due diligence that helps to mitigate the risks. But the firm also is hands-on when it comes to managing the properties. It’s true that the Covid-19 pandemic has weighed on the business. But Caliber does have the benefit of a diversified platform. There is also the secular trend for the democratization of alternative assets.Regarding the crowdfunding campaign, Caliber hascommitments of $2.9 million and the valuation is at $130 million. The minimum investment is $2,000.
6/8 SLIDES © Source: Sfio Cracho / Shutterstock.com
Frame is a mobile app that publishes engaging magazine-style content, such as documentaries. Each story lasts about ten to fifteen minutes and takes on a major issue like immigration or the opioid crisis. The idea is to make the content highly engaging and even plot-driven. But unlike a traditional magazine, the stories aren’t static. They instead leverage the mobile format. To this end, there are vertical videos that take users through interactive timelines and maps. In fact, these are delivered via SMS. Frame has gotten traction. The average watch time is more than 5 minutes, 18 times higher than the same metric for video on Facebook’s (NASDAQ:FB) newsfeed. The subscriber count is also growing at 15% on a month-over-month basis. In a beta test with users, about 10% converted to the premium version, which is certainly encouraging. The company forecasts that revenues will hit $300,000 by the end of 2022. True, this seems low. But when it comes to a content play, the key is building a large user base. Revenues are really secondary during the early years. Note that Snap (NYSE:SNAP) invested in the startup (through its accelerator program), as has Twitter (NYSE:TWTR) co-founder Biz Stone. All in all, this backing should help with the distribution. As for the crowdfunding campaign, the company has raised $131,500 and the valuation is at $5 million. The minimum investment is $1,000.
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SeeMeSeeMe is a digital marketplace that connects artists with collectors (the focus is on the contemporary art market, which is worth $35 billion on a global basis). While there are various competitors, this company relies heavily on algorithms for valuation and matching, which should allow for better experiences and outcomes. The founder and CEO, Brendan Burns, has an interesting background. He is an adjunct professor at Columbia Business School as well as the Consulting Program Director at the Sotheby’s Institute. But he has experience as a startup and turnaround executive, having negotiated various financing and M&A transactions. SeeMe has a user base of over 3,000 artists and there are thousands of digital art images on the site. Last year, the company generated $140,000 in revenues, up 100% on a year-over-year basis. There are also agreements with the Sotheby’s Institute and Meural.The crowdfunding campaign is still in the early stages, withover $13,000 raised. The minimum investment is $500 and the valuation is $5 million.
8/8 SLIDES © Source: Agenturfotografin/ShutterStock.com
EllyThe advances in cancer treatment have been remarkable. But there is much left to do. For example, finding ways to deal with the emotional toll of cancer. But startup Elly believes it has a solution. It is a mobile app — which is forApple’s(NASDAQ:AAPL) iPhone — that provides daily voice content. Elly is personalized for the patient, in terms of the condition, preferences and limitations. The content creation process is extensive, which includes a medical advisory board. The Elly app has actually been used in a Phase 1 clinical trial and the results were positive. There was a 15% improvement in the quality of life for patients during a 30 day period. Elly is now in the process of going through a Phase 2 trial. The company has already raised $500,000 in a pre-seed deal that was led byAlphabet(NASDAQ:GOOGL, NASDAQ:GOOG). As for the crowdfunding round, there has only been $1,000 committed (but this was recently started). Theminimum investment is $1,000 and the valuation is $5 million.On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
Then again, Opendoor was looking to completely upend the $20 trillion U.S. residential real estate market. The company’s mobile app allows people to buy and sell homes with a few clicks, such as by handling the valuation, inspections, the closing, title and escrow processes, financing and home services. Because of the convenience and speed of this system, the conversion rate for Opendoor leads is an off-the-chart 34%. The company also has a Net Promoter Score (NPS) of 70, which is the same level as Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX).
In terms of the business model, Opendoor uses two approaches. One involves buying homes and flipping them. Then there is a business unit that provides traditional brokerage services to customers.
Growth for Opendoor has certainly been robust. From 2017 to 2019, the revenues have jumped from $700 million to $4.7 billion.
There are risk factors. The U.S. economy has been stalling, which could weigh on home sales. The break-neck growth for Opendoor could also be difficult to manage. And yes, there is stiff competition, such as from Zillow (NASDAQ:ZG). “Zillow is years ahead of vertically integrating a real estate ecosystems,” said Aaron Norris, who is the VP Market Insights at PropertyRadar.com.
“Opendoor is having to play serious catchup. In their investor documentation, they mentioned expanding into other markets like insurance. It’s hard to be the best at everything in record time.”
Bottom Line on the Opendoor IPO
Consider that the market is still in the early stages and is massive. Note that a 4% penetration rate of the U.S. would translate into revenues of $50 billion for Opendoor!
“Opendoor has reached an impressive scale,” said Nima Wedlake, who is a Principal Thomvest Ventures. “They’ve clearly demonstrated that some home sellers prefer the convenience and speed of transacting with an iBuyer as opposed to the more traditional listing process.”
In other words, even with the competition, there is lots of room for multiple players – and Opendoor should have a good chance of remaining of the the leaders in the space.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
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Opendoor Looking To Disrupt the $20 Trillion Real Estate Market
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