Nested, an online real estate agent that offers buyers a ‘cash advance’ to cut out the problem of the buyer and seller ‘chain’ that causes a headache for so many property transactions in the UK, has just raised £120 million to push ahead with its expansion. £20 million of the total was exchanged for equity in Nested, at an unpublished valuation. The other £100 million was raised as debt financing.
Founded in 2015 by three partners, the highest profile of whom is Matt Robinson, a now serial entrepreneur who also found GoCardless, a payments provider, Nested has now raised a total of £165 million over the 3 years since coming into existence. The latest £20 equity investment comes from Northzone, a venture capital concern that has previously taken stakes in technology start-ups including music streaming service Spotify, online-only bank Revolut and Betfair, the online gambling star.
The core ‘problem’ Nested’s ‘data-driven’ and technology-centred approach to the UK real estate market aims to solve is the sometimes complex ‘chain’ that often evolves during real estate transactions. Those selling one property to buy another can find themselves between a rock and a hard place when they find their perfect move. It is often necessary to move fast but if buyers haven’t yet sold their current property, in most cases they will not be able to secure a mortgage to complete on the new one. Should the seller accept their offer they will also be delayed in their own attempts to buy a new home, with this ‘chain effect’ clogging up the pace at which properties can be bought and sold and often meaning buyers lose out on their dream home.
Nested gets around this by providing buyers with a ‘cash advance’ of up to 94% of the property they are selling to fund the purchase of the new one. The company hopes this can be increased to 97%. This bridges the period until they sell the property they are moving from, meaning a mortgage can be secured on their new home and breaking down the chain of delays between buyers and sellers. Becoming ‘cash buyers’ also allows Nested clients to negotiate better prices, with discounts of between 2% and 4% typical on the UK market, with sellers so keen to avoid the chain hold-up that will inhibit them buying their own next property. That 2% to 4% covers Nested’s fees, which fall within the same range.
To date, Nested has helped break down the problematic chain for 400 property transactions. However, providing the cash advance, which is key to the company’s model, is capital intensive and the company has also grown to a staff of 100 to man its rapid expansion ambitions, creating a significant overhead. It will be hoped that the latest capital raise will mean Nested’s pace of growth can be significantly picked up and propel it into the ‘unicorn’ club of privately held UK start-ups valued at over $1 billion (£0.78 billion).
The biggest risk to Nested’s business model is that the company itself takes a loss on the cash advance it has provided if its algorithm’s valuation model proves inaccurate and the buyer’s property sells for less than forecast. However, to date its average accuracy has fallen within 1.5% of the data-based algorithm’s forecast, rising to 100% accuracy over the course of 2018.