The firm's chief executive, Gabriel Braga: opportunities in the intersection of fintech and real ... [+]
Brazilian real estate startup QuintoAndar announced a $300 million Series E round led by Ribbit Capital today (28). The latest investment takes the company's previous market value of about $1.5 billion to $4 billion and will boost a strategy that includes the start of its international expansion.
QuintoAndar's fifth investment round was also joined by SoftBank Latin America Fund, LTS Asset Management, Maverick Capital, Alta Park Capital, Dragoneer Investment Group, Qualcomm Ventures and Kaszek Ventures. In addition, the startup says a US-based asset management firm with more than $2 trillion under its portfolio has joined the round, but the name of the investor has not been disclosed.
Founded by Gabriel Braga and André Penha in 2013, QuintoAndar's initial focus was to digitize rentals for tenants and property owners. Through a credit engine powered by advanced data analytics, the company can ascertain whether prospective tenants can pay the rent, removing the need for guarantees such as a deposit.
Over 100.000 rental contracts are currently managed digitally by QuintoAndar, the company says, which equals to 50 billion reais ($ 9.5 billion) under management. Towards the end of 2019, the company ventured into sales and claims to have concluded more than 1.000 property transactions so far.
The new resources will support the company's first expansion efforts outside Brazil, starting with Mexico. A country manager is yet to be appointed and the company is currently assembling the initial team to start the Mexican subsidiary, which will combine some Brazilian staff and local professionals. The operation should be up and running before year end.
Moreover, the fresh funding should support improvements to QuintoAndar's platform - the goal, according to the firm's founders, is to bring the same level of disruption that it has delivered to the rentals market to the home buying space and services to professional landlords.
In an interview with FORBES, QuintoAndar's co-founder and chief executive Gabriel Braga talked about the company's latest investment round and his views on the opportunities and challenges in the real estate market in Brazil, as well as the changes he has observed in investor attitudes towards the Brazilian startup ecosystem.
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FORBES: Your last round [led by SoftBank, which took QuintoAndar's valuation above $1 billion] was announced in September 2019. Why did it make sense to raise new capital now?
GABRIEL BRAGA: We have an ongoing relationship with investors, who approach us to learn more about what we're doing, and we know some of them from prior [rounds]. We've had a positive trajectory, the rental business is growing nicely and we have a very strong and clear leadership position in the segments we operate. We started to get more traction and mature after the challenge the pandemic presented in 2020, when we revisited all the plans and started to look at what's next, so it felt like a good moment to raise a new round.
We also have more clarity about the opportunity that is ahead of us in Latin America, and that was reflected in the valuation of the company, which recognizes that marriage between the substance of what we are doing and indicates the opportunity of what's ahead.
F: What was the round's overall process like? Could you accommodate the demand, and what was your criteria for choosing the lead investor?
GB: It was pretty quick, now we're better known in the market, the investors understand what we're doing. It was only a few weeks between starting the conversations and finalizing the round, and we had a lot of interest from the investment community. The round was about twice oversubscribed, and we didn't want to dilute it, so we capped it at $300 million.
We decided to go with Ribbit as a lead investor, with some other new investors and also the existing [backers]. Ribbit is a fund that we like a lot and they're well known for their work in fintech and that's an angle that we want to invest a lot: we think there iare many opportunities in this intersection between real estate and fintech, and the power to reinvent the [real estate] transactions and we are just in the beginning in that space. And I think [Ribbit] was also attracted to the opportunity that is ahead of us.
F: Are you considering an IPO anytime soon?
GB: It is something that's in the horizon. We like the idea of being a public company, I admire many companies and their trajectories after they went public, they were still like growing quickly and developing new products. We manage the company to be eligible for that, it is not something in our plans for this year, but it is something we eventually would like to do.
F: What is your view regarding the current state of the property market in Brazil in terms of its reaction to the ongoing Covid-19 crisis?
GB: I think the market has reacted pretty nicely, compared to the prognostics from the start of the pandemic, and this is partly due to interest rates and other external factors. On the other hand, I still think the market is somewhat constrained by all the complications stemming from the pandemic, but structurally, the real estate market is moving towards a positive direction in the long term and the rentals space has a lot of potential to expand.
On the demand side, people want more flexibility in their living arrangements and on the supply side, I see a professionalization of landlords and better yields, which will boost the availability of properties in the market, On the sale side, the yearly housing turnover is about 2% in Brazil, but that's because it is so painful to buy and sell: it is hard to get a mortgage, secondary transactions are fraught with complexity, there is no escrow or title insurance and that means a lot of friction for the consumer. We think we can unlock a lot of activity in the market overall.
F: Why did you choose to start your international expansion from Mexico?
GB: We had this ambition to [expand] abroad for some time, and we need to start somewhere. Mexico is the second largest real estate market in Latin America, with a lot of similarities with Brazil in terms of the pain points and the market structure. Those were the key reasons for us to select that market, but now there's a lot to be learned and developed there.
F: What future possibilites do you envisage to improve the real estate market in Brazil, particularly in the intersection between fintech and real estate?
GB: We already are a fintech of sorts. A core piece of what we do is rental guarantee [to homeowners, whereby they receive payments regardless of whether the tenant has paid, or delayed their monthly payments], which is essentially a fintech solution and we don't see anything comparable in what the world is doing in the rental business, and we play with that in many different ways. We also have insurance and rent anticipation products, whereby owners can get months of rent in advance. And that is all tied to the nature of the rental transaction.
On the sale side, we do offer traditional mortgages, in partnership with institutions like banks, but there are other specific fragments or niches where we can have more creative, alternative solutions. We are more focused on building the marketplace and the transaction [aspects of rental and sale], but home equity products are definitely in the horizon here, because we know many things about the property and the owner. And you can use home equity in many different ways to to provide liquidity for those landlords.
So fintech is a core component of our plans, either embedded in the transaction and reinventing sales it like we did in rentals, or through other products that can be offered in that space. And eventually, [this can become] even a stand alone offering, that is not necessarily tied to QuintoAndar. There are many possibilities.
F: How do you view the competition? There are quite a few companies playing in the same space as QuintoAndar, so what are the main factors that make your company stand out, apart from resources and first-mover advantage?
GB: When we started, there wasn't really a lot of activity in this market, and it took a while for us to get things moving. Once we started to really take off and everybody saw the impact we were having in the market, other players started to emerge to try and capture other pieces of the market as well and that's natural. If there is a big opportunity and big problems to be solved, there will be multiple companies trying to work on them.
But I believe in a trend towards convergence: whether you think form a demand or supply perspective, you want to go to the biggest inventory, the most relevant platform. So there is a tendency of concentration in the number one player.
F: What are the changes that you have been noticing in terms of foreign investors' perceptions in relation to Brazilian startups, considering the current instability Brazil is experiencing?
GB: That has changed a lot in the last few years. When we started out, it was tricky to explain some of the nuances of the Brazilian market, and it was hard to convince them to even look at the opportunities here. Now we're seeing some companies achieving very significant scale here and that will stimulate investments in later stage companies, as well as investments in early stage startups. I think they are seeing the potential for the region, and you will see local funds raising money, rounds getting bigger and a lot more companies getting investments.
In relation to the socioeconomic instability, we could we could make it simpler, there there are so many complications. There are so many pain points, so many things to be fixed. And that's why, despite all the complexities at the macro level and politics, the markets are just [driving growth] at companies, because their customers need solutions.
Of course, we could see more [growth] if there was less noise, we could see a lot of potential side effects complicating things, like interest rates. But we're seeing that good companies have a chance of gaining access to capital and are executing like us. We see a lot more confidence from [international] funds when it comes to operating in the Brazilian market and helping create and boost sizeable companies here.
