Polypetia in $ 4.8 billion SPAAC deal for real estate start-up Opendur

Chamat Palihapatiya

Olivia Michael | Cnbc

Chamath Palipitiya has pioneered publicizing by turning private unicorns into special-purpose acquisition companies – an idea he calls “IPO 2.0”.

After his first iteration of doing so last year with space-tourism company Virgin Galactic, he found his next goal: an online marketplace to buy and sell houses.

“These people are my next 10x views,” Palihapatia said in an interview with CNBC, looking at the possibility of generating 10 times the return of the original investment.

The investment, announced Tuesday, amounted to more than $ 1 billion. Opendoor will receive $ 414 million from the capital it received from its initial public offering in April of its SPAC, the social capital Hedosopia II. Additionally, a group of investors, including Palipatia and Funds, agreed to invest $ 600 million through a PIPE, or a private investment in public equity, managed by BlackRock.

The deal values ​​Opendoor at $ 4.8 billion – roughly equivalent to 2019 revenue. Earlier investors of the company include General Atlantic, SoftBank’s Vision Fund and Lennar Corp.

“This is one of the many milestones for our mission and will help accelerate the creation of a digital one-stop-shop,” Eric Wu, who founded Opendoor six years ago, said in a statement. Wu will continue to lead the company, while Adam Bain, former chief operating officer on Twitter and director in social capital Hedosophia II, will join the board after the transaction is completed.

How does Opendoor work

Here’s how Opendoor often works: homeowners get a quote through an algorithm, and can sell their homes directly to the company. Opendoor can make some improvements and then put the house on the market to sell. The spread between what is bought and sold for a home is a part of how Opendoor generates revenue. Opendoor, which operates in 21 markets, says it sold more than 18,000 homes last year.

It also provides services such as a mortgage product, home repairs and home warranties that users can purchase. (Opendoor was at number 35 on last year’s CNBC Disruptor 50 list.)

“The company is transforming the $ 1.6 trillion residential real estate market by combining superior user experience, streamlined operations, and machine learning to create a better digital experience,” said Palihaptia, CEO of Social Capital Hisosophia II.

The move is a bet on two secular tails in the US – greater home penetration and digitization of commerce in the US.

According to the latest National Association of Realtors report, sales of existing homes increased by about 25 percent in July to June. This is the strongest monthly gain in the survey’s history, coming back for more than half a century.

But earlier this year, the epidemic and the concurrent closure of the economy made its impact on the housing market. A number of Americans halted housing-related transactions due to the uncertainty the company placed in April as 600 employees or roughly a third of its workforce.

Around the same time, Palpipita was fielding his SPAC. Virgin Galactic, which he made public through a different vehicle, has given a return of about 70 percent over the previous year.

The social capital Hedosopia II used that momentum in the pursuit of a new target.

The deal for Opendoor came together quite quickly, a person close to the process said. Two months ago, the two sides began negotiations.

And just like Opendur’s digitized tenor, it also had its own sales, with the bulk of the conversation happening on the Internet.