How Brazil’s Loft startup changed its business to become the 3rd largest unicorn in the country

RIO DE JANEIRO, BRAZIL – The recent US$425 million investment has placed Loft at the top of the list of the most valuable real estate startups in Latin America. To be more precise, its market value of US$2.2 billion is not higher than only those of competitors in Asia and the United States, and when it comes to Brazilian unicorns, it is second only to Nubank and Wildlife.

Those who look at these numbers may not imagine that a year ago the company went through a crisis and needed to reformulate its business to get off the ground.

The episode occurred in early 2020. At the time, Loft had just completed a Series C round with the raising of US$175 million in investments that came from venture capital funds Vulcan Capital and Andreessen Horowitz. The injection of capital elevated the company to unicorn status, giving it a market value in excess of US$1 billion. Everything seemed to be going well.

But appearances are deceiving. Founders Florian Hagenbuch and Mate Pencz, along with the third founder, entrepreneur João Vianna, knew that the business was still problematic. To make money, the company basically still only profited from the difference between what it paid to buy and renovate a property and what it received when that apartment was sold. The problem was how to scale this model.

At the beginning of 2020, Loft had only 300 apartments on its platform. All of them in São Paulo. It was not much. Data from the São Paulo Section of the Brazilian College of Notaries, obtained exclusively by EXAME, show that the number of properties transacted through public deeds in the state of São Paulo increased 26% in the last decade. In 2020 alone there were 336,968 transactions.

There was no other way to increase this number without raising more money to buy more real estate. Even with money in cash from the last contribution received, the company went to B3 to get more money. But unlike the flood of technology companies that went public last year, Loft had no intention of going public with a stock offering.

Instead, the company launched a US$360 million real estate fund with the goal of buying more properties. “This type of operation, which is part of the growing securitization movement, allows a company to issue equity without having to resort to an IPO (initial public offering),” says Arthur Vieira de Moraes, professor and specialist in real estate funds at Exame Research.

But this would not solve the problem – only alleviate it momentarily. The definitive solution was suggested even before the foray into the stock market. In internal meetings between the founders, investors and employees of the startup, there was a consensus that it was time for the company to open its platform to third-party ads, betting on a model that was growing fast in Brazil: the marketplace.

A study conducted by Ebit Nielsen points out that the Brazilian e-commerce is increasingly dependent on marketplaces. Made with data from the first half of last year, the survey reveals that 78% of Internet sales occurred through marketplaces. In figures, this means that retailers operating through this model moved 30 billion reais – 56% more than in the same period of 2019.

The strategy worked out well. In January of this year, the company already had 10,000 properties registered on its platform – an increase of more than 3,000% over last year. In March, the number of registered properties reached 13,000 and already corresponds to more than 90% of the company’s business. To meet a growing demand, but without losing density, Loft arrived in Rio de Janeiro.

What the entrepreneurs who run the constructech could be summed up in a single word: density. “If a person is going to buy an apartment in a certain neighborhood, the tendency is that they will visit at least 15 properties before closing the deal,” says Hagenbuch. “The plan is to get them all listed.”

Loft’s transformation into a marketplace gives Loft more leverage to fight head-on with its real estate rivals. Another billion-dollar startup, QuintoAndar grew up precisely by intermediating third-party transactions. The giant OLX, which recently bought the Zap Group for 2.9 billion reais, is another one that is also betting on marketplaces.

Source: Exame