‘If I had figured it out there would have been great rewards’
Former CEO of failed start-up says real estate business still ripe for disruption
Using software and artificial intelligence to transform the real estate transaction is still a viable idea, says the former CEO of a failed Toronto start-up brokerage.
Keith McSpurren says TheRedPin, which went into receivership last Thursday, was founded on some sound principles even if its big ambitions of disrupting the real estate industry with technology weren’t realized.
“It was a high-risk, high-reward situation,” he said. “If I figured it out there would have been great rewards.”
TheRedPin was the first real estate venture for McSpurren, who started his career in marketing but spent the past 20 years as a start-up and business reboot specialist. He was attempting to move the company away from its traditional listings-based business to a more software-oriented business model, developing the technology that would make online property searching more predictive for consumers and agents, similar to the way Netflix recommends entertainment tailored to its users.
But investors — new and old — wanted to finance new ideas, not old debt, he said. Court documents on the receiver’s website show that TheRedPin owes $3.7 million to Firepower Asset Manage- ment and a further $2.7 million to Trilogy Growth Fund. McSpurren said 10 people lost their jobs when the receiver took over the company’s Church St. head office on Thursday.
“I think TheRedPin failed more because it wasn’t careful enough with its execution from 2012 to 2016 … It didn’t keep enough powder dry.
“The investors maybe needed to make more dramatic changes earlier in its life,” said McSpurren, who maintains that many real estate practices “are archaic.”
“It’s a bunch of proprietary information. Consumers are at a disadvantage,” he said. But because something fails in Toronto, doesn’t mean it won’t work.
“The amount of capital going into the industry in the U.S. is just huge,” noted McSpurren.
Companies such as Opendoor and Zillow are trying a new, capital-intensive business model whereby they buy properties themselves and resell them in some markets. A British online flat-fee competitor called Purplebricks has also expanded into the U.S.
Zillow recently announced that it will be receiving a direct feed of Century 21’s Canadian listings for its U.S.-based website that garners revenue from advertising. There were 26,300 listings with Century 21’s 400 Canadian offices earlier this month. Zillow Group’s sites and apps, which include Zillow.com and Trulia.com, draw about 175 million searches a month.
But some traditional Canadian realtors are skeptical of how much those enterprises will ripple this side of the border.
“Technology has been threatening to disrupt the residential real estate brokerage business forever. What has been very surprising to many is how resilient the industry is to the onslaught of technological changes,” said Brad Henderson, CEO of Sotheby’s International Realty Canada. Despite the expanding amount of available online information, consumers still worry about messing up the sale or purchase of a home and continue to seek agents to help them navigate the process, he said.
“Ideally, what a lot of these (new online) companies are hoping to do is be bought out by somebody bigger,” Henderson said. But many burn through their investment capital quickly while they try to raise revenue and subscribers.
Meantime, giants such as Zillow are not only listing homes but using sophisticated algorithms to assign property values and then mining the data and employing artificial intelligence to anticipate sales opportunities, he said.
For a relative newcomer like TheRedPin, there is the challenge of competing with bigname companies that have vast reach on the ground.
There are about 120,000 real estate agents in Canada, 70,000 of them in Ontario.
“It is an incredibly competitive marketplace. When you are trying to start up an alternative model, which has technology at its heart, and trying to attract people to come to that platform … there’s going to be a hesitancy, not only in terms of not knowing who that company is, but also pretty much everyone you will ever meet knows a realtor or three,” said Henderson.
While the Toronto area’s recently slumped real estate market wasn’t responsible for TheRedPin’s demise, it didn’t help, McSpurren said.
“Did it accelerate it by six months? I think that’s a fair comment to make,” he said.