- A home remodeling platform, Houzz is a unique company among the tech unicorns.
- The company was valued at $2.3B in its last funding round, 7x higher than the previous round.
- I believe Houzz will go public in 2016, after helping its investors and employees to cash in on their investments.
Palo Alto-based unicorn Houzz is a unique member of the one billion dollar start-up club; it is the only member on the list with its two Co-CEOs a married couple and probably one of the few in the entire industry. Also, Houzz is the only unicorn in the billion dollars start-up club that offers an online home decoration service. While most unicorns focus on mega trends, like big data, biotech, smart devices, FinTech, AdTech, etc., Houzz is focused on optimizing the home deco process, which can be very frustrating for many.
Houzz Business Model
Houzz was founded by Adi Tatarko and Alon Cohen as an outcome of their struggle to renovate their home in Silicon Valley under a reasonable budget with reliable home professionals. Houzz tries to address these issues in becoming a portal for everything related to home remodeling.
Houzz offers a comprehensive home remodeling platform that provides everything homeowners need to improve their homes, from designing ideas, products, and accessories to professionals available for design projects. Houzz is a very successful platform with more than 35 million unique monthly users that enables both homeowners and home professionals to achieve their goals through the platform. Home professionals can showcase their work, share ideas, and interact with potential clients while homeowners can browse millions of home photos, shop for products, and find the right professional to fit their needs.
Houzz monetizes each of these services and charges fees for every transaction made on the platform as well as listing fees and premium account fees for home professionals. On top of these streams, Houzz generates additional revenues from ads that leading merchants and retailers place on the platform.
According to different sources, the home improvement market in the US is a $350B to $500B business that grows at a 6% rate year-over-year. If Houzz succeeds in positioning itself as the gateway to the home designing and remodeling world, the company's potential might be enormous.
Houzz keeps its financial information confidential, and very little is known about its business success, profitability, and revenue generation. However, a great indicator of the company’s success is the incredible leap in stock price and valuation that Houzz experienced between Series C and Series D, as shown in the chart below.
Houzz raised more than $200M in four funding rounds between November 2010 and October 2014. Its latest, Series D, round valued the company at $2.3B, which is seven times more than its valuation in Series C, which took place only a year earlier. The unbelievable increase in the preferred stock price, from $13.3 in Series C to $74.9 in Series D, reflects a 463% return for investors in Series C and 4280% for investors in Series B.
Houzz's Next Move
Assuming Sequoia Capital, KPCB, and T. Rowe Price, which participated in Series D, knew what they were doing and did not overpay for the shares, Houzz must have grown its revenue significantly year over year while presenting a very promising future revenue growth. While Sequoia Capital and KPCB were existing investors that increased their stake, T. Rowe Price and GGV Capital expect a substantial return on their investment that could lead to an IPO, a secondary market transaction, or an additional round. As it is hard to believe that another private funding round will take place, I think that the next stage for Houzz is either an IPO or a large secondary market offering.
In an IPO, the company will offer its stocks to the public, who could compensate Series D investors for their investment. Due to the high unit price, Houzz will probably choose to take some form of stock split to reduce the unit price and be more appealing to the newly traded company. However, going public might not be the right step for Houzz. The company can stay private, enjoy all the perks of a private corporation, raise more private funding, and even engage in a secondary private equity market offering through one of the private equity marketplaces.
I believe that institutional investors will put an incredible amount of pressure on Houzz to go public, which will probably happen after a secondary offering and a pre-IPO funding round that might already reflect the stock split mentioned above.
Home decoration and remodeling platform Houzz is a unique company within the list of tech unicorns. The unbelievable valuation growth is expected to drive the company in taking another step towards an IPO soon. Adding top notch investors who participated in the last funding round will increase the pressure to help investors realize good returns on their investments in one way or another while the tech market is bullish. I believe Houzz will engage in a private offering, allowing employees and early investors to cash in on their shares and set another funding round in 2016. I believe that this round of financing will be the pre-IPO round that will be followed by a Houzz IPO next year.
Disclosure: The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.