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Everybody Wants to Own a Pacaso
Why Crosscut Invested and Why The Future is Bright
This was originally posted on Medium. All of my writing is now here at addtheegg.com.
In March 2021, TechCrunch reported that Pacaso was the fastest US-based company to reach a unicorn valuation when it raised a Series B just five months after launching. Today, the company announced it closed another $125 million in a Series C led by SoftBank Vision Fund, Fifth Wall, and insiders like Crosscut, Greycroft, Global Founders Capital and 75 & Sunny Ventures. To congratulate the company, we’re answering common questions about Pacaso homes, explaining why we invested in the Seed round, and sharing why we’re more excited than ever about the company’s future.
Pacaso exists to enrich lives by making second home ownership possible and enjoyable for more people.
Everybody wants to own a Pacaso
Pacaso is pioneering a new category by modernizing co-ownership of second homes. Buyers of Pacaso homes can own as little as one eighth and as much as one half of a luxury home in 25 of the world’s top vacation markets. Homeowners get professional property management and all of the benefits of owning a second home without the hassle.
So, it’s like a timeshare, right?
Pacaso is not a timeshare. It is a real estate brokerage and property management platform for families who wish to co-own a home together. Once a sale closes, Pacaso retains no equity in the property and the LLC owners retain 100% ownership of their home. Pacaso then supports the owners as a property manager.
Owning a Pacaso is better than ‘owning’ a timeshare for multiple reasons. First, Pacaso homeowners own their equity (between ⅛ and ½) in the property versus timeshare owners who simply have the right to use the property for a period of time. Pacaso owners own the asset; timeshare owners do not.
Second, timeshares have typically been products sold by resorts and condominiums that one could visit whether they are timeshare owners or not. Pacaso sells shares of luxury single-family homes in the world’s most desirable markets, making a new level of luxury available to more people.
Finally, timeshares are notoriously hard to get out of. The secondary market for timeshares does not exist and in most cases the properties lose value over time. Pacaso owners have a marketplace to sell their ownership if they no longer want to own their property.
How difficult is it to get the dates you want?
Pacaso’s proprietary booking system makes scheduling easy, equitable and flexible. It’s equitable because everyone can hold only one of the highest-demand dates at a time and it’s flexible because you can book general stays well in advance or short-notice stays a week before you arrive. You can learn more about how the booking system works on their website.
Can I use it to generate income?
Pacaso homes are never available for rent and homeowners cannot list the properties for rent themselves. The company’s mission statement says it all: Pacaso exists to enrich lives by making second home ownership possible and enjoyable for more people. This is not a platform for sourcing and transacting on investment properties in second home markets. It’s a consumer brand unlocking a new category of homeownership for more people.
Why we invested in Pacaso’s Seed round
This is a summary of what we liked about Pacaso, the questions we knew would only be answered after investing, and why we ultimately seeded a company with an idea and several whiteboarding sessions.
Team, team, team
When Crosscut invests this early, we look for experienced management teams in industries where we have a thesis. Given Austin’s and Spencer’s experiences founding Dotloop and Zillow, respectively, it was clear the unfair advantages this team had in this category were second to none. We’re fortunate they were looking for an established LA-based firm with operating experience, and we’re grateful for the opportunity to work with the Pacaso team.
A huge market and a unique advantage
The residential real estate market is big. Check. What caught our attention about this model is that unlike most other real estate companies, Pacaso doesn’t need to get a good deal on a purchase to be successful. Of course, it’s important not to overpay. Still, as long as they pay the market price, they can make their margin on the individual shares of the co-ownership model. This is a unique advantage versus Opendoor and the other iBuyers.
Clear inefficient utilization in their market
Spend time visiting your favorite vacation spot and it becomes painfully obvious how many beautiful homes sit empty at any given moment. Pacaso’s co-ownership model makes these homes more affordable with fractional ownership. This expands the pool of potential buyers, increases utilization, and brings more money into the local economies along the way.
A better experience wins
One thing both of us will always agree on is that if you create an experience that is better for the consumer, you’ll create value more often than not. Nick saw this first hand working at customer-obsessed Warby Parker and Brett saw it countless times building Internet businesses throughout his career. Pacaso’s vision was to make it easier to buy, own and sell a vacation home. Making co-ownership possible would be hard, but achieving it would create a better experience for consumers, and that was worth betting on.
The risks were still high
At Seed, Pacaso was led by a world-class team in a huge market with a clear product vision. Still, there were many unknowns that we had to accept when making the investment.
It wasn’t obvious at the time that consumers would want to co-own a second home or that they would be willing to pay to have their co-ownership managed by a third party. On the other side of the equation, we had to believe that there would be enough supply in the second home markets we were targeting and that local brokers would collaborate with us. There were financing risks for a startup company to secure large debt facilities to buy homes. Finally, it wasn’t clear that there would be enough demand for individual homes to sell through each of the fractional shares.
Fortunately for us, we were willing to accept these risks and they were addressed over the last 18 months. There are new challenges ahead, but we’re more excited than ever about the company’s prospects.
Building a category-defining company
Pacaso is pioneering a new category of second-home ownership by making co-ownership easy and accessible to more people. The company has doubled its domestic market reach and now operates in 25 top second home destinations, including Napa, Lake Tahoe, Aspen, Malibu, Miami, and Vail. They are beginning European expansion in Spain before the end of the year. The company is the category leader with a current annualized revenue run rate of $330 million and over $200 million in property managed on its platform. It is mission- and values-driven. Despite all of this, the company is just getting started. Here’s why the next phase of growth is more exciting than the last.
Not as capital intensive as you might think
Pacaso rarely holds the full value of a home on its balance sheet at any time. Before closing on a home, it can secure buyers from its extensive waiting list to reduce inventory risk. If Pacaso does own a home, it’s usually a fraction of the home that they have yet to sell, and those shares don’t sit unsold for very long. This means capital goes further to create home inventory at Pacaso than it does for traditional iBuyers.
Properties have high lifetime value
Homes managed on the Pacaso platform generate revenue at initial sale, throughout the ownership period, and at exit. This is a valuable product with high LTV, but it’s better when you consider that “exit” may not come for many years. Unless all of the co-owners decide to sell the home together to a single buyer — which they could and should if it makes sense — all other sales would be of specific shares being sold by specific owners. Pacaso would manage those transactions and continue to earn commissions on future share sales.
The team is only getting stronger
We’ve had the pleasure of working with Spencer, Austin and Whitney from the earliest days and have nothing but praise for the way they’ve executed. Whether it’s leading with the mission and extreme focus at every key moment, securing and deploying capital, using an integrated marketing calendar from Day 1, testing and iterating at warp speed, or continuing to surround themselves with world-class people, this team seems to get it right every time. Now, with the new investors we’ve brought on to take the company to the next level, this team has shown us again what exceptional execution looks like.
Congratulations to the entire Pacaso crew for hitting this milestone. We’re proud investors and look forward to taking the next step with you. Let’s go.