After months of anticipation, the big day has nearly arrived: Real estate brokerage and tech company Compass will be launching its initial public offering (IPO) this week.
Compass has come a long way since it first popped up on Inman’s radar as a tech-focused startup in 2013. As the real estate world watches and waits to see how it will all unfold, let’s review the path that Compass took to get here.
Inman Staff Writer Teke Wiggin first wrote about Compass — then known as Urban Compass — two months after then-New York City Mayor Michael Bloomberg had announced the company’s launch in May 2013. Out of the handful of startups Wiggin highlighted in his coverage that day, Urban Compass already stood out for its robust seed funding from big names like Goldman Sachs, Founders Fund and Thrive Capital, not to mention a group of CEOs from companies including American Express and ZocDoc.
At the time, Urban Compass was solely focused on rentals, but Wiggin noted that if the company ever branched out beyond that, it could “spell trouble” for Suitey, the New York City-based startup that ultimately transformed into software-powered brokerage Triplemint.
Just five months after launching as a rentals-exclusive search company, Urban Compass made its foray into the for-sale market. At that time, the company had been rapidly expanding, with a total of $33 million in funding in tow. Co-founder Ori Allon said then that the brokerage planned to double its staff within the next year to 200.
“Although the Urban Compass website still proclaims that it’s in ‘beta,’ its founders aren’t exactly neophytes,” Wiggin wrote.
In 2015, Urban Compass branched out beyond the confines of New York City to expand into the greater Washington, D.C. metro area, including parts of Maryland and Virginia. As it looked beyond New York, the company also dropped “urban” from the brand’s name, simply becoming “Compass,” a “more universally memorable brand name that speaks directly to the connection between people and technology that is so central to what we are building,” Compass Chief Marketing Officer Matt Spangler said.
Compass made its intentions known then to expand into 10 new markets by 2017, eyeing Boston, Los Angeles, Miami and San Francisco in particular. Meanwhile tech-centric brokerage Redfin, which had paved the way for companies like Compass, was simultaneously creeping up on establishing operations in 30 states across the U.S.
At an annual company-wide meeting in October 2017, Compass CEO Robert Reffkin announced a bold expansion plan for the tech brokerage: 2020 By 2020. “In the top 20 cities, 20 percent market share by 2020,” said Reffkin during the meeting.
The expansion announcement came in conjunction with plans to build a custom, company-wide customer relationship management (CRM) platform, a targeted digital marketing tool, and new solar-powered signage for the company built by 3D printers.
Amid reports of some Compass agents using Excel sheets or post-it notes to track their clients’ activities, Reffkin’s announcement made a statement about the company’s agents moving into a more streamlined, tech-forward future, one of the brand’s hallmarks.
Compass ended 2017 with a bang when it received in December of that year a whopping $450 million investment from SoftBank Vision Fund, the largest private real estate tech investment in U.S. history. Just one month before, the company had also acquired $100 million in funding from investors.
At that time, Compass executives shed light on the company’s strategy of acquiring smaller brokerages to help carry out its expansion plans, as Reffkin started comparing the company to Amazon and Tesla while also asserting that it would work to create an end-to-end platform for the industry. At the same time, industry experts said Compass drew its success from its “Google-like” startup status with its catchy marketing and ability to quickly adapt and change in a largely slower-moving industry.
With the acquisition of Paragon Real Estate Group in July 2018, Compass nabbed the title of then-top brokerage by sales volume in San Francisco. The market grab allowed Compass to increase its share in the San Francisco market to 500 agents bringing in over $4.5 billion in sales volume.
The sweep up of agents came on the heels of Compass’ initial foray into San Francisco in 2016 when it snatched up some of the area’s top producers: Malin Giddings, an agent formerly with Coldwell Banker, and the team TeedHaze, led by Butch Haze and Rick Teed, a top team formerly with Sotheby’s International Realty.
In mid-2018, Compass made the bold move of acquiring Real Trends 500’s No. 5 brokerage by sales volume that year, Pacific Union International. The acquisition came as a surprise to many Pacific Union International insiders given the publicly displayed criticism doled out from former Pacific Union CEO Mark McLaughlin toward Compass.
Still, money speaks volumes, and at that point, the strength of Compass’ hundreds of million in venture capital couldn’t be denied. Today, McLaughin is president of Compass’ California region.
Compass’ shiny image began to tarnish a bit in late August of 2018 when Inman Staff Writer Patrick Kearns uncovered reports from Benoit Mizner Simon, Zephyr and Modern Spaces about Compass’ aggressive recruiting practices that left these brokerages feeling powerless.
Kearns’ discussions with the brokerages — based in Boston, San Francisco and Long Island City, respectively — painted a picture of seemingly larger-than-life Compass entering into somewhat misleading talks about acquisition with the companies, only to recruit some of their top talent to Compass while gaining valuable market data and then leaving these brokerages “at the altar,” so to speak.
Compass’ conduct resulted in judges issuing restraining orders on the company on behalf of both Zephyr Real Estate and Modern Spaces.
In tandem with its announcement of an additional $400 million in venture capital in late September 2018, Compass also announced the news of its impending expansion into Austin, Nashville and Houston, as well as plans to go international.
By that time, the company had more than tripled its agent count over the course of less than a year to roughly 7,000 agents, and expected to hit $34 billion in sales volume, more than double what the company brought in during 2017. Compass also stated its intention to create a platform for the entire real estate industry to use, recommitting itself to empowering agents with technology.
Compass expanded its hold on the industry with the acquisition of cloud-based real estate software company Contactually in early 2019. Compass had actually already been working with Contactually for the company’s own internal CRM, but the new relationship opened up more possibilities for integrations.
Although Contactually already integrated with dozens of different platforms like dotloop, Eventbrite, Imprev and others, the new partnership enabled Compass’ CRM to integrate with Compass’ current tech stack, including its Collections and Marketing Center programs.
The move was a bit controversial, with M. Ryan Gorman, former CEO of NRT and current CEO of Coldwell Banker, accusing Compass of “taking advantage” of agents with the acquisition.
Just a few months after the Contactually news, Realogy sued Compass, arguing the brokerage conducted “unfair business practices and illegal schemes to gain market share at all costs.”
Realogy even divulged that Compass allegedly had tried to get the real estate holding company to collude with them on “an illegal price-fixing agreement,” just before filing a suit against Compass.
Although we know this wasn’t the first lawsuit Compass had to deal with, a huge industry name like Realogy entering into legal battle with the quickly-expanding brokerage really elevated the stakes for Compass in terms of building trust within the industry.
As the coronavirus pandemic rolled into the U.S. about one year ago, Compass responded by launching a virtual agent services toolkit inclusive of a full suite of digital marketing and showing tools to help agents continue to do business while obeying stay-at-home orders.
The platform gave agents access to marketing tools like 3D staging, live postcards, Facebook Live buyer events and location-specific mobile ads. Meanwhile, showing tools included digital listing brochures, virtual open houses, interactive digital home tours and virtual neighborhood walks, all of which involved interaction with the real estate agent.
Compass’ swift transition to providing agents with new digital tools in a new selling landscape was imperative, as agents who continued to stay connected to clients during shutdowns ultimately reaped the benefits as the market saw a surge of buyers in subsequent months.
As the real estate market slowed to a halt last spring amid the height of uncertainty spurred by the coronavirus pandemic, Compass laid off 15 percent of its staff and cut staff salaries by 10 to 50 percent, based on pay grade. Compass certainly wasn’t the only real estate company to take such measures, but the move showed that the brokerage, with its robust funding and rapid expansion, wasn’t impervious to economic crisis.
Even as it laid off staff, Compass continued to add new agents to its ranks, and offered its existing agents restricted stock options for their lost compensation as a result of the pandemic. CEO Reffkin also announced he would give up his salary for the rest of 2020.
On top of a pandemic, the summer of 2020 was a rocky one for the nation as many Americans took to the streets to peacefully protest the country’s history of, and recent string of, police killings of unarmed Black people. Amid the racial unrest, many leaders in real estate expressed their support for the Black community, some pledging change within their companies.
For Compass CEO Reffkin, this meant urging the company’s 15,000 agents to guide 15 percent of their spend to Black-owned companies or vendors, and encouraging agents industry-wide to do the same.
Reffkin also suggested that banks in the country require companies have at least one Black board member before taking that company public, an idea inspired by Goldman Sach’s recent policy update that requires a company’s board to include at least one woman on it before taking that company public.
In July 2020 Compass got a break when a New Jersey judge dismissed a lawsuit Realogy had filed against the brokerage and one of Realogy’s former finance executives about one year earlier. Realogy originally alleged that Compass had “created a ‘dummy’ position and worked with [former finance executive Urvin] Pandya to find a location for the job to help Pandya to skirt around the restrictions of his restrictive covenant agreement, which barred him from taking a similar position at a competitor and within a certain radius,” Inman Staff Writer Patrick Kearns wrote.
In a reversal one year later, Realogy requested the suit be dismissed with prejudice since a previously granted temporary injunction served to satisfy the terms of the non-compete agreement. However, Realogy’s other lawsuit filed against Compass around the same time (as mentioned earlier) remained active, with New York State Supreme Court Judge Barry Ostrager hoping to compel the two parties to undergo arbitration.
In an effort to move further toward its goal of creating an end-to-end platform for the industry, Compass acquired title and escrow software startup Modus in October 2020. As the pandemic wore on, the pressure to create completely virtual buying and selling options for consumers mounted as social distancing became routine. Therefore, Compass’ timing couldn’t be better, both in terms of the company’s own tech goals and global circumstances at large.
Seattle-based Modus had been around since 2018 and gained some traction in the industry with $12.5 million in Series A funding in November 2019 co-led by venture capital firm, NFX, whose partners include Trulia founder Pete Flint.
Whispers of Compass’ plans to go public had been floating around for years, but the company finally decided to make it official at the start of 2021 by confidentially filing a S-1 document with the U.S. Securities and Exchange Commission (SEC). In preparation, the brokerage had buffered its board of directors with people like LinkedIn CFO Steve Sordello, and was reportedly in talks with banks about underwriting the company’s IPO process.
The company’s last valuation was $6.4 billion in July 2019 after it had raised $370 million in a funding round led by SoftBank. Amid Compass’ aggressive expansion strategies over the years, speculation mounted with the IPO announcement about whether or not the company would be profitable.
After Compass’ official announcement, Inman News Founder Brad Inman weighed in on the company’s IPO, speculating it would do well because it’s good at the basics like “a solid business model and strong leadership.”
Reflecting on Compass’ growth over the years, Inman noted how the company learned its lesson from WeWork’s unraveled IPO, and should be prepared for what lies ahead.
Having a leader like Robert Reffkin at the helm also puts the company in a strong position. “[Reffkin] is charismatic, but he pulls no punches,” Inman wrote. “He is direct and ruthless enough to get things done. You don’t grab that level of market share unless you are crazy like a fox.”
Shortly after news broke about the Compass IPO, Inman Staff Writer Patrick Kearns rounded up some key need-to-know information about the company going public. Firstly, Compass agents gain equity in the company through either equity option grants, or restricted stock units (RSUs), which impacts how each agent stands to gain from Compass’ debut. (Kearns explains all the details here.)
Secondly, Kearns elaborates the company’s potential motive for filing confidentially, mostly to test out the waters with how it may be received by the SEC and in order to gauge investor demand with the aid of its hired-on banks.
Other important factors about the IPO that Kearns explains are how being a publicly traded company might change Compass’ operations, and when individuals with shares could cash them out.
Regarding the first question, going public will likely help Compass raise more debt capital or equity financing, but it could also make the company more vulnerable to scrutiny. Regarding those individuals who currently have shares (investors, employees or agents), they will need to wait out a 180-day lockup period before selling those shares.
Even after making plans for its IPO, Compass continued making moves. At the end of February 2021, the company announced its acquisition of title insurance and settlement services company KVS Title, expanding its title offerings and moving it closer to enabling an end-to-end real estate transaction.
“That the company continues to not shy away from building through acquisition at a time when it’s getting ready to lay its financials bare through the initial public offering process is also significant,” Kearns wrote. “It could signal that Compass will continue to fearlessly pursue growth even as the spotlight on its finances gets bigger.”
Through an amended S-1 filing submitted to the SEC on March 23, Compass revealed it’s seeking a $10 billion valuation with initial share prices between $23 and $26 for its initial public offering. When the IPO goes live, Compass plans to offer 36 million class A shares underwritten by Goldman Sachs, Morgan Stanley and Barclays. Those banks will have the option to purchase an additional 5.4 million shares if they so choose.
Something to note from the March 23 filing is that Reffkin currently represents approximately 46 percent of the voting power of outstanding capital stock. And, if all outstanding equity awards held by Reffkin are vested and settled for additional Class C common stock (of which he owns 100 percent of, and has 20 times the voting power of Class A common stock), he would then hold approximately 69 percent of the voting power of the company’s capital stock.