- Loft, a Brazilian home buying and selling startup, announced its $165 million Series C funding on Friday. The round was led by Andreessen Horowitz and Vulcan Capital.
- Although the United States is home to a wide selection of real estate startups like Opendoor or Zillow, only a handful of young startups have gotten the type of funding Loft has as it attempts to build comprehensive real estate software that knits together Brazil's highly fragmented, localized market.
- Andreessen Horowitz partner Alex Rampell told Business Insider that he felt confident backing Loft in its 2018 Series A, which was partially funded by Loft's founders, because the firm was able to partner with a local VC that knew the market better than the Silicon Valley set.
- The funds will help fund Loft's expansion to Mexico City, with a former Uber Eats executive leading its first Spanish-speaking office. Eventually, Loft founder and co-CEO Mate Pencz said Loft will expand to offer loans, insurance, and mortgages to home buyers and sellers.
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As competition for deals grows in Silicon Valley's backyard, investors are increasingly looking south for reasonable terms and market opportunities some California-based founders could only dream of.
Among those leading the charge by backing some of Latin America's hottest startups is none other than Andreessen Horowitz, the legendary venture capital firm widely credited with making Silicon Valley's venture industry into what it is today, for better or worse. On Friday, the firm teamed up with Vulcan Capital to lead a $165 million Series C funding round in Loft, a Brazilian real estate startup modeled after companies like Opendoor and Zillow in the United States.
Indeed, Andreessen Horowitz partner Alex Rampell serves as a board observer at Opendoor, the Silicon Valley-based $3.8 billion service for buying and selling homes. While he says that he was initially unfamiliar with the Latin American market, he became convinced that the Opendoor model could work elsewhere, if left to the hands of a local startup like Loft.
That's why Rampell led Andreessen Horowitz's investment in Loft's $20 million Series A round in 2018 - and why he feels confident enough in Loft's momentum to lead this round, too.
"When we invested in Loft, it was just a PowerPoint in a market we didn't understand," Rampell told Business Insider. "But I saw what Opendoor was doing in the United States and it felt obvious that this could work in a country like Brazil. If they can execute on that model there, it will be better than Opendoor for a number of reasons."
House-flipping to success
Among those reasons is the sheer size of the potential market opportunity, Loft founder and co-CEO Mate Pencz said. Currently, the young startup only operates in Sao Paulo, Brazil, but has generated over $150 million in annual revenue. In some cases, Loft has essentially cornered the house flipping market in the city by outright purchasing property from sellers quickly once they've been renovated.
A part of that popularity is because US-based real estate sites often require users to comply with American rules and regulations when buying and selling home. Loft, being based in Brazil, only has to follow the local rules. That's helped consolidate the domestic real estate market, especially for house-flippers, under its own banner.
"There are entire shows on the Home and Garden TV network about that kind of thing," Rampell said. "If you have an ugly house in a nice neighborhood, someone will buy it because they think they can sell it and fix it up. Lots of entrepreneurs in the United States do that, and Loft makes that available to Brazilians in Sao Paulo."
The appeal of emerging markets
And that's part of the appeal of investing in emerging markets, Rampell said. Investors are able to see what has worked, and more importantly what hasn't, in more mature markets like Silicon Valley, and adjust their investments abroad accordingly.
Like any early stage investor, he was banking primarily on the team but brought in a local VC to help address local product-market fit.
"We are not experts in the markets themselves, but if there's an entrepreneur pursuing a market opportunity we understand well, we will always lay into it," Rampell said. "That said, it's hard to discern who the best entrepreneurs are when they are 7,000 miles away, so we did this in partnership with a local investor to make it easier to vet."
But like its northern neighbors, Loft has bigger ambitions, Pencz said. What is now one of the more successful Brazilian-based startups could grow into a dominant force in all emerging markets, he said. The company is expanding to Rio de Janeiro, Brazil's second biggest city, and Mexico City in early 2020. Once the Spanish-speaking office in Mexico's capital is up and running, led by a former Uber Eats executive, all of Spanish-speaking Latin America is on the table, Pencz said. Eventually, Loft wants to offer loans, insurance, and mortgages.
"I think what's going to happen, and you are seeing this in the US already, but the notion of competition is getting very blurry," Pencz said. "We are competing less with real estate companies, and see ourselves more as a competitor and partner to traditional banks. Every company wants to be a super app, so ultimately the answer is competitor could come from anywhere."