Porch makes its public debut raising $ 322 million to fuel its ambitions in home services technology
Porch is making its stock market debut, as seen on the live stream in New York’s Times Square.
Serial entrepreneur Matt Ehrlichman was inspired to start Porch after encountering challenges while building his family’s home. Eight years later he took the company from the same house on the stock exchange.
“We have now earned the opportunity to build what we set out to do,” said the CEO of Porch on Thursday morning via video from Seattle and thanked the company’s employees, investors and partners before the opening bell rang.
The Seattle-based home services technology company made its public debut, raising more than $ 322 million through a merger with PropTech Acquisition Corp., a publicly traded special-purpose acquisition company, and a private investment by Wellington Management Company.
Porch’s market cap on its public debut was over $ 1 billion, based on its initial share price of $ 15 per share and cash on hand. The company, now officially known as the Porch Group, trades under the ticker symbol “PRCH”.
The PTAC ticker symbol will now officially change to PRCH on December 24th. Merry Christmas to everyone who has built @PorchGroup, @PorchDotCom, @hireahelper and ISN with me over the years!
– Matt Ehrlichman (@mattehrlichman) December 22, 2020
Porch is the fifth Washington state company to go public in 2020 and join marketing company ZoomInfo. Biotech companies Silverback Therapeutics and Athira Pharma; and healthcare technology company Accolade.
It is one of around 220 companies that made the jump this year by merging with a special purpose vehicle (SPAC). They are also known as blank check companies. They raise money through their own IPOs and then use the proceeds for acquisitions.
A recent example was San Francisco-based home buying company Opendoor Technologies, which went public on SPAC on Monday, as the potential foundation for Porch’s debut as another real estate company. Opendoor’s shares rose 6% on the first day of trading before falling in the past few days.
Porch’s shares were trading just above $ 15 per share, slightly above PropTech’s closing price of $ 14.81 the previous day, Thursday morning at 7:35 a.m. Pacific time, about an hour after it started trading.
Overcoming a money crisis
For Porch, the debut marks a new era and offers a much-needed injection of capital.
Porch was founded eight years ago and has not yet made a profit. According to public filings filed in connection with the PropTech merger, the company recorded a net loss of $ 103 million on sales of $ 77.6 million last year. Cash on hand in June was $ 3.9 million. Late last year, the recurring losses and lack of working capital caused the accountants to raise “significant doubts” about the company’s continuation, according to their S-4 registration statement.
With near-unanimous approval of PropTech shareholders, the merger will give Porch $ 173 million plus $ 150 million from Wellington, representing gross proceeds of more than $ 322 million before transaction fees and debt payments.
Porch CEO and Founder Matt Ehrlichman talks about Zoom in his home office earlier this week. Behind him are the logos of the four companies he has worked with as founder or managing director: CampRegister, Thriva, ActiveNetwork and Porch.
The transaction “will give us a very strong balance sheet going forward with which we can grow our business organically and inorganically with the right acquisitions,” Ehrlichman said in an interview with GeekWire this week.
The company announced to investors earlier this month that it expects to acquire at least four more software-as-a-service providers over the next year.
Porch was founded in 2012 and has raised more than $ 120 million in venture capital over the course of its life as a private company from investors such as SVAngel, Valor Equity Partners, the Gründerfonds, Battery Ventures, Moderne Ventures and others. Another investor was Lowes Home Improvement, one of Porch’s key early partners, who began offering home improvement services to customers through the Porch marketplace at the beginning of the company’s history.
PropTech Acquisition Corp. is led by Co-CEOs Thomas Hennessy and Joseph Beck, two Los Angeles-based investors who previously worked as senior investment managers at the Abu Dhabi Investment Authority. The company went public in a US $ 172.5 million IPO in 2019 to complete one such deal.
Porch will continue to be headquartered in Seattle but has become more geographically dispersed overall, Ehrlichman said. The company had 370 full-time employees as of June 2020, most of them in the United States. Another 539 full-time independent contractors were involved in support, operations, and sales, primarily in Mexico and India, according to SEC records.
How the porch turned
In this file photo provided by Porch in 2013, Matt Ehrlichman, CEO of Porch, is standing in front of his house, which is currently under construction.
Ehrlichman started the company after his own experience building a home and convinced him of the need for a better online marketplace for home services.
After Porch initially focused on making home improvement data available to consumers, Porch reinvented itself as a provider of ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management) software for home service providers. It makes money from software licenses and transaction fees it receives when connecting buyers with moving companies, insurance agents, home automation and security companies, TV / internet companies, and other service providers.
The flaw in Porch’s original business model was one of the key lessons learned in the company’s early days, Ehrlichman said.
“We’ve helped people with home projects, but the reality is that this consumer has been relatively low in value,” he said.
Under the new business model, companies can pay recurring fees for the use of the software or use the software for free if they agree to give Porch access to information about home buyers. In the first investor presentation for the PropTech merger, this latter scenario was described as the company’s preferred option. Customers who exchange data are six times more valuable to Porch than if they had paid for the software according to the presentation.
Porch receives this information before many others and uses it as a strategic asset to serve as a concierge for these homebuyers on important purchasing decisions.
“All of these services are so incredibly important and of such incredibly high value to a consumer that they have really made our business easier, more scalable, and unlocked much of this growth and potential that we have seen,” said Ehrlichman.
The company estimates its total addressable market at $ 220 billion.
Porch has built up market share in software and home services through a series of acquisitions in recent years. It is said that around 11,000 companies use their software, which is offered by Porch brands such as HireAHelper and Inspection Support Network.
The investor presentation for the deal in July revealed Porch’s financial data for the first time, showing revenue growth of more than 55% from $ 36 million in 2018 to $ 57 million in 2019, with pre-tax losses of $ 29 million and 30 million, respectively Million USD.
Porch announced at the time that it expects sales of $ 73 million in 2020, reducing its pre-tax loss to $ 10 million. Revenue of $ 120 million is projected for 2021 with pre-tax profit of $ 7 million.
The company didn’t update its guidance at its December investor conference, but Ehrlichman said it will provide new estimates in its earnings guidance for the first quarter.
Roller coaster year
Porch joins Seattle-based tech companies Redfin and Zillow as public companies whose assets are closely tied to the real estate market.
Porch’s business “took a major blow” when the pandemic nearly paralyzed home buying earlier this year before recovering with the property market in the second half, Ehrlichman said. According to records, Porch received a $ 8.14 million loan in April through the Treasury Department’s Paycheck Protection Program.
In an SEC filing, the company says: “From March 2020 to June 2020, we cut wages for certain employees and took certain employees off partially or completely. After this time, we did not bring back certain employees who were on leave. After June 2020, we allowed certain employees to earn a portion of their compensation in equity instead of salary. “
Porch’s business should benefit from the continued strength of the property market over the next year, Ehrlichman said. “We are in a very strong position on macroeconomics because more people are buying houses, more people are moving out of the city centers and more people are wanting more space,” he said.
Ehrlichman, who grew up in the Seattle area, attended Stanford University. He co-founded the summer camp software company CampRegister, which became the Thriva event management software company. Thriva was sold to Active Network Inc. in 2007 for more than $ 60 million, where Ehrlichman served as chief strategy officer before and after the company’s IPO in 2011.
Ehrlichman spoke to GeekWire at a Seattle coffee shop in 2013 and said one of his goals was to “build the next big business in Seattle”. Recalling that goal this week, he said the company’s new capital position and access to public markets put it in a much better position to seize this opportunity.
This time, however, he was speaking from home about Zoom, where he went through the entire process of the company’s IPO due to the pandemic.
“This is the home that inspired this whole thing,” he said. “It comes full circle.”