This Time, It Was Different: Redfin's $50-Million Financing

Redfin just announced a $50-million financing led by T. Rowe Price and Tiger Global Management. We are of course proud to have the support of two of Wall Street’s best investors, and glad to have the money to invest in making our service to home-buyers and sellers even better.

But that doesn't capture what was so strange to us about raising this round of financing, which began with the slideshow we carefully prepared but never presented to either investor. Both just asked question after question about the customer experience.

Stranger still was that even though we’d been told it would be harder to raise money from public-company investors than venture capitalists, it was actually much easier. After years of being fitfully appealing to venture investors, Redfin turned out to be the moonshot real estate stock that public-company investors have been waiting to buy.

Whereas Redfin's bizarre combination of its own technology and its own real estate agents had earlier made venture capitalists fret about our business model -- it takes forever to hire enough real estate agents to cover the country and you have to pay them a big chunk of your profits -- Tiger and T. Rowe Price just thought this combination made it harder for others to deliver as much customer value as we do.

These investors realized that if you want to change the whole game in consumers’ favor you have to play the whole game, not just with a website or an Android app, but with the agent, the home tour, the open house, the yard sign, the offer negotiation, the closing and the key exchange.

We argue and argue in real estate over what really matters to customers, technology or service. But people want both. They want listing recommendations based on your browsing history and your agent’s insights about what you really like. They want an open house staffed by someone who can sell your home but also a digital marketing campaign to get the right buyers to your door.

In fact the only place where there has been a division in the customer experience between the virtual and the real has been in the minds of the people who create and fund early-stage companies.

Rather than asking whether Redfin was a technology company or a service company, Tiger and T. Rowe Price looked at Redfin holistically as a customer would, asking the only question that matters in a $50-billion market: does combining a real estate agent and technology result in a profoundly better customer experience than either could deliver by itself? A world of a million me-too iPhone apps is after all still starved for a customer experience that is profoundly better from end to end.

But software entrepreneurs have mostly only gone halfway. We have sometimes been like the medieval monks who were once so committed to the celestial sphere that they had to confess to any acts of manual labor.

The result of this cloistering has been breathtaking virtual worlds. But from the perspective of a new generation of entrepreneurs who are using our software expertise to build, say, electric sports-cars, these worlds can sometimes seem like a high-school science-fair project, with a limited impact on the real world. Just look at what is happening now that the people who make 1s and 0s are also trying their hand at physical goods and services:

• Uber is an iPhone app for ordering a ride, but it’s worth 100 times more than Taxi Magic because it has built its own transportation system.
• Zulily is a daily-deals software company but the reason it took off is that it’s also a gigantic photo and design studio for children’s clothes.
• Airbnb is a virtual booking service, but what makes it better than HomeAway is its Ritz-Carlton commitment to the real-world experience of staying in its rooms.
• Amazon is a shopping website, but it’s worth three times more than eBay because its vast network of fulfillment centers and delivery trucks make the whole customer experience reliable and perfect.

Everywhere the walls between the real world and the Internet are tumbling down. Who wants to order a ride via an iPhone 5s, then sit in a cab with a chain-smoking psychopath who only takes cash? Who wants to see a home for sale on a mobile device, only to work with a real estate agent who has no idea where you are, what you've been looking at online, or how to work with you in the digital age? What does it matter that your car-stereo plays Pandora when the car itself still gets worse gas mileage than a Model T?

From Uber to Tesla to Nest to Square to Airbnb, a new generation of technology-driven companies are taking on the real world. And these are the companies that can be worth not just a few billion dollars, but tens of billions of dollars. An opportunity of this scale is why Tiger and T. Rowe Price had the patience to invest in Redfin, and their patience is why Redfin wanted them to invest in us. Good things come to those who work, and to those who wait.

Glenn Kelman (@glennkelman) is the CEO of Redfin, a technology-powered real estate brokerage.