This Is The Lesson Startup Founders Should Learn From Emoov's Demise

At the start of December, online estate agent Emoov made headlines for all the wrong reasons when it filed for voluntary administration. Only a few months before, it was being hailed as the darling of the London proptech scene, with a three-way tie-up with Tepilo and Urban, valued at over £100 million, which was supposed to pave the way for an IPO in 2019. In July, it raised a ‘last chance’ crowdfunding round for investors wanting to come onboard pre-IPO, raising £2 million on top of the funds it claimed to have acquired as part of the merger. 

How did the company, that until recently was hailed as the strongest leading indicator that the London PropTech scene had reached maturity, fail so quickly? CEO Russell Quirk told the media that cash flow issues and critical funding that had been promised but not received contributed to its demise. In the meantime, investors who participated in its last round with Crowdcube are reported by The Times to be considering legal action.

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As article after article was written on Emoov’s spectacular fall from grace and the potential impact this would have on both its clients and the online agency market, I started thinking about the lessons that startup founders (and their investors) could learn from it. I sat down with Emoov’s earliest investor, Faisal Butt (of Spire Ventures and Pi Labs fame), and asked him to share his thoughts, from his knowledge of the company, of what this should teach us.

Angelica Donati: Faisal, as a serial investor and founder of PropTech accelerator Pi Labs, you have seen the rise (and now the fall, with Emoov) of many PropTech firms and their founders. What are your thoughts regarding the recent demise of Emoov, which was once hailed as one of the early proptech success stories?

Faisal Butt: The first thing I’d say is that people in the UK and Europe, in general, tend to have an aversion of that feared ‘F’ word – ‘failure’.  The high-profile fall of Emoov, I think, presents a moment for all PropTech entrepreneurs to overcome that fear and try to unravel this story to get to the core of why the business failed. It is an opportunity for us all to pause and reflect, try to interpret the Emoov case study, and to apply the lessons to our own businesses.  Start-ups rising and falling are part of the natural cycle of creation and destruction in any innovation ecosystem. When companies fail, what should happen is that the ecosystem matures.  The fall of Emoov should lead to the strengthening of the UK PropTech industry, as the talent and investors from Emoov move on to other companies, taking their lessons and wisdom with them.

Donati: Which mistakes, in your experience, are fixable, and which instead tend to be fatal?

Butt: There were a number of things Emoov got right, such as receiving excellent customer reviews, but there was also a myriad of areas that, with the benefit of hindsight, the business could have handled better.  While there is a cocktail of issues that ultimately led to Emoov’s downfall, I would say in particular one ultimately led to the lights going out, and that is fundraising – or the inability to fundraise enough to sustain the cash burn. While its rivals were raising capital in the tens of millions, relieving pressure so that management could focus on operations and execution, Emoov was raising small sums intermittently.  Small fundraises meant that the ‘cash out’ date was always just a few months away.  This ‘edge of runway’ existence was a huge distraction for management and ultimately affected their ability to execute.

Donati: You were the first investor into Emoov, and so had a front row seat to their spectacular growth and subsequent fall from grace. What happened?

Butt: Emoov was amongst the first movers in the online estate agency sector, and one that showed others early on what could be achieved in a new market. Ultimately, though, Purple Bricks had the ‘last mover advantage’, launching the business after early pioneers like Emoov paved the way, but Purple Bricks quickly raced past all the first movers. Why did this happen?

The downfall of Emoov is just as much about decisions it made as a business as it is about the rather different (and ultimately successful) decisions made at Purple Bricks.  Purple Bricks broke a number of fundamental rules early on, and it was this irreverence that led to their rapid success. Once they had raced far enough ahead, it was nearly impossible for anyone to catch up.  One of the early rules Purple Bricks broke was that they raised capital not from conventional VCs – who just did not seem to get online estate agency – but from the City, where large pots of risk capital helped create a ‘moat’ around the company.  They defied conventions again when that they decided, boldly, to IPO when they were nowhere near IPO-ready. Conventional wisdom at the time was that the company should have waited 2-3 years until it had more predictable income streams. They didn’t listen and stampeded their way into the public markets, tapping into huge pots of capital, deepening the moat around them.

Emoov and other players wasted a lot of time trying to raise capital from conventional sources such as VCs and raised many orders of magnitude less than Purple Bricks.  Purple Bricks, by having access to far more capital for expansion, had an unfair advantage, which made competition by under-invested rivals like Emoov very challenging. This unfair advantage had a compound effect – as more and more investors came to the conclusion that Purple Bricks could not be unseated, Emoov’s ability to raise large sums of capital was choked.

Donati: What are the main mistakes that the management team and Emoov made that, in hindsight could have been avoided? Do you think the company would still be viable if it weren’t for these mistakes?

Butt: While it’s hard to point fingers at any one person or decision, with the benefit of hindsight, I believe the company could have been viable today if certain things had been done differently. There isn’t one issue I can put my finger to, other than Emoov’s failure to raise significant amounts of capital, which I’ve already alluded to.  The reality is that there was a melange of issues that, if addressed early on, could have saved the company. For example, the board lacked a chairman for the last 5 years, who could have provided strategic stewardship to the company, someone who provided one strong and independent voice to challenge the strategies and plans that were being considered.  This issue was particularly acute in a business that had a rather large and fragmented board representing many shareholder groups. You needed one strong voice to pull together the many disparate opinions and this would have probably led to better governance overall.

There are many other operational improvements that, if focused diligently on, would have led to gradual upticks in performance. This is not a case where there was a ‘silver bullet’, but a collection of business execution related matters, that if tackled properly, could have had a compounding impact, leading to a successful outcome overall. For this, the company needed time, which small fundraises couldn’t buy.

Donati: What lessons can other startup founders (or wannabe founders) learn from Emoov’s demise?

Butt: The senior management team of a company sets the tone for what is important, and sets the culture of the organization, which then flows through to the bottom.  If there is a religious obsession with operational efficiency and cash flow management from the top, then you are more likely to run an efficient business.  At Emoov, there was a big emphasis on marketing, brand, and PR, but there was a lot of operational low-hanging-fruit, which some would argue didn’t get the attention it deserved. The key lesson for entrepreneurs is to set the tone with regards the start-up’s values and key principles, because this will create the culture for the type of business you want to build, and everything ultimately flows from here.

Donati: Given the relatively low success rate for startups across the board, what is your top advice to startup founders who want to make it?

Butt: My last piece of advice for Founders centers around a rather understated ‘H’ word…..’humility’.  As a founder, you will hire smart team members who are experts in their respective fields, from the CFO to the COO and CTO.  There are so many critical decisions you must make along the way as you grow your business, and if you don’t have the humility to listen to those experts you’ve hired, you’re more likely to get those decisions wrong. In my view, ultimate success is a derivative of the decisions you get right, and for that, you need to have the humility to listen.

Faisal Butt is an entrepreneur and investor based in Mayfair, UK.  His investment focus has a recurring theme in property, property services, and property related technology.  Faisal is the Founder and CEO of Spire Ventures, a property focused private equity boutique, and Founder and Chairman of Pi Labs, Europe’s first PropTech focused venture capital fund.

Faisal completed his Bachelor’s degree at UCLA in 1999 in Business Economics and Computer Science and earned an MBA with Distinction from the University of Oxford in 2009.