Serial entrepreneur Matt Ehrlichman was inspired to start Porch after encountering challenges during the construction of his family’s home. Eight years later, he just took the company public from the same house.
“We’ve now earned the opportunity to build what we set out to,” the Porch CEO said via video from Seattle on Thursday morning, thanking the company’s employees, investors and partners before the ceremonial ringing of the Nasdaq opening bell.
And with that, the Seattle-based home services technology company made its stock market debut — raising more than $322 million through a merger with PropTech Acquisition Corp., a publicly traded special purpose acquisition corporation, and a private investment from Wellington Management Company.
Porch’s market capitalization in its public debut topped $1 billion, based on the initial share price of $15 per share, and cash on hand. Now known officially as Porch Group, the company will trade under the ticker symbol “PRCH.”
— Matt Ehrlichman (@mattehrlichman) December 22, 2020
Porch is the fifth company from Washington state to go public in 2020, joining marketing company ZoomInfo; biotech companies Silverback Therapeutics and Athira Pharma; and health technology company Accolade.
It’s one of about 220 companies to make the leap this year by merging with a special purpose acquisition corporation, or SPAC. Also known as blank-check companies, they raise funds through their own IPOs, then use the proceeds for acquisitions.
A recent example was San Francisco-based homebuying company Opendoor Technologies, which went public via SPAC on Monday as a potential bellwether for Porch’s debut as another company in the real estate sector. Opendoor’s shares jumped 6% on its first day of trading before falling in recent days.
Porch stock was hovering just above $15 per share, slightly above PropTech’s $14.81 closing price the day before, as of 7:35 a.m. Pacific time Thursday morning, about an hour into trading.
Overcoming a cash crunch
For Porch, the debut marks a new era, and provides a much-needed capital infusion.
Founded eight years ago, Porch has yet to turn a profit. It posted a net loss of $103 million last year on revenue of $77.6 million, according to public filings made in conjunction with the PropTech merger. Its cash balance was $3.9 million as of June, filings show. At the end of last year, its recurring losses and working capital deficiency prompted its accountants to raise “substantial doubt” about its ability to continue as a going concern, according to its S-4 registration statement.
With near-unanimous approval by PropTech’s shareholders, Porch will receive $173 million through the merger, plus $150 million from Wellington, giving it more than $322 million in gross proceeds before transaction fees and debt payments.
The transaction “gives us a very strong balance sheet as we move forward that we can use to grow our business organically and inorganically, with the right acquisitions,” Ehrlichman said in an interview with GeekWire this week.
The company told investors earlier this month that it expects to acquire at least four additional software-as-a-service providers in the next year.
Founded in 2012, Porch raised more than $120 million in venture capital over its lifetime as a privately held company from investors including SVAngel, Valor Equity Partners, Founders Fund, Battery Ventures, Moderne Ventures, and others. Another investor was Lowe’s Home Improvement, which was one of Porch’s key early partners, offering home improvement services to its customers via the Porch marketplace early in the company’s history.
PropTech Acquisition Corp. is led by co-CEOs Thomas Hennessy and Joseph Beck, two Los Angeles-based investors who worked previously as senior investment managers at the Abu Dhabi Investment Authority. The company went public in 2019 in a $172.5 million initial public offering with the intent of making such a deal.
Porch will remain headquartered in Seattle, but it has become more geographically distributed overall, Ehrlichman said. The company had 370 full-time employees as of June 2020, most of them in the U.S., with an additional 539 full-time independent contractors working in support, operations and sales, primarily in Mexico and India, according to its SEC filings.
How Porch pivoted
Ehrlichman founded the company after his own experience building a home convinced him of the need for a better online marketplace for home services.
After initially focusing on providing consumers with home improvement data, Porch reinvented itself as a provider of enterprise resource planning (ERP) and customer-relationship management (CRM) software to home services companies. It makes money from software licenses and transaction fees that it receives when connecting homebuyers to movers, insurance agents, home automation and security firms, TV/internet companies and other service providers.
The flaw in Porch’s original business model was one of the key lessons learned in the early days of the company, Ehrlichman said.
“We were helping people with home projects, but the reality is the value of that consumer was relatively low,” he said.
Under its new business model, companies can pay recurring fees to use the software, or they can use the software for free if they agree to provide Porch with access to information about home buyers. The initial investor presentation for the PropTech merger described this latter scenario as the company’s preferred option. Customers that share data are six times more valuable to Porch than if they paid for the software, according to the presentation.
Porch gets that information ahead of many others and uses it as a strategic advantage, offering to serve as a concierge to those homebuyers as they make major purchase decisions.
“All of these services are so incredibly critical for a consumer and so incredibly high value that it really has made our business easier and more scalable, and has really unlocked a huge amount of this growth and potential we’ve been seeing,” Ehrlichman said.
The company estimates its total addressable market at $220 billion.
Porch has been building market share in software and home services through a series of acquisitions in recent years. It says about 11,000 companies use its software, offered through Porch brands such as HireAHelper and Inspection Support Network.
The investor presentation for the deal in July disclosed Porch’s financials for the first time, showing revenue growing more than 55% from $36 million in 2018 to $57 million in 2019, with pre-tax losses of $29 million and $30 million, respectively.
Porch said at the time that it expected $73 million in revenue for 2020, narrowing its pre-tax loss to $10 million. It projected $120 million in revenue in 2021, with a pre-tax profit of $7 million.
The company didn’t update its guidance in its December investor call, but Ehrlichman said it will be providing new estimates in its first quarter earnings call.
Porch joins fellow Seattle tech companies Redfin and Zillow as publicly traded companies whose fortunes are closely tied to the real estate market.
Porch’s business “took a significant hit” when the pandemic nearly froze homebuying in the early part of the year, before rebounding with the housing market in the second half of the year, Ehrlichman said. Porch received an $8.14 million forgivable loan in April through the U.S. Treasury Department’s Paycheck Protection Program, records show.
The company says in an SEC filing, “From March 2020 through June 2020, we reduced pay for certain employees and partially or fully furloughed certain employees. After this period, we did not bring back certain employees that were furloughed. After June 2020, we have allowed certain employees to earn a portion of their compensation in equity in place of salary.”
Porch’s business should benefit from continued strength in the housing market going into next year, Ehrlichman said. “We’re in a very strong position as it relates to the macro economy, because more people are buying homes, more people are moving out of city centers, more people want more space,” he said.
Ehrlichman, who grew up in the Seattle region, attended Stanford University. He co-founded the summer camp software company CampRegister, which became the Thriva events management software company. Thriva was sold in 2007 for more than $60 million to Active Network Inc., where Ehrlichman was chief strategy officer leading up to and beyond the company’s 2011 IPO.
Speaking with GeekWire at a Seattle coffee shop in 2013, Ehrlichman said one of his goals was to build “the next great Seattle company.” Recalling that goal this week, he said the company’s new capital position and access to the public markets puts it in a much better position to pursue that opportunity.
This time, however, he was speaking over Zoom from his home, where he has been throughout the process of taking the company public, due to the pandemic.
“This is the home that inspired this whole thing,” he said. “It’s full circle.”