Sundae plans rapid hiring and expansion into new markets as the San Francisco company with an unusual name for a real estate startup expands its marketplace for sellers and buyers of homes in serious need of rehabbing.
The company, founded by CEO Josh Stech and Chairman Andrew Swain in 2018, generated a six-fold increase in revenue between June 2020 and June 2021. Last July, the company raised $80 million in a Series C round.
“The company is doing phenomenally well,” said Nima Wedlake, a principal at San Francisco-based Thomvest Ventures, which has invested in fintechs and proptechs but is not an investor in Sundae. “They’re building a better marketplace that allows homesellers to match-make with folks that are capable of giving those houses a new life and rehabbing them.
“I think that business is going to do quite well because they’re innovating in a segment that has been forgotten for a long time,” Wedlake said.
Stech had a background in working with homes that need some love, as he puts it.
After graduating from Stanford University, where his honors thesis was on the subprime lending crisis, Stech bought houses from troubled homeowners in Las Vegas in the wake of the 2008 financial crisis. In 2013, he moved to the financing side of the fix-and-flip business, becoming a founding partner of San Francisco-based LendingHome, where Swain was chief financial officer.
Both men had a front-row seat to the inefficiencies that occur in the market for distressed residential properties.
“I started to realize the unfair dynamic that was occurring between sellers of these homes and property investors,” Stech told me. He recalled an acquaintance telling him that he was buying a troubled homeowner's house for $100,000 and assigning the purchase offer to another investor for almost double that amount. Stech said he thought of the recently widowed homeowner selling her house for just $100,000.
“It just felt so wrong to me in that moment that I just decided that I’m gonna do something about this. That’s what led to Sundae,” Stech said. The company picked the name Sundae, wanting a brand like Apple and Amazon that doesn’t really speak to what those companies do. Stech initially wanted to call the company Sunday, his favorite day of the week because he associates the day with friends and family. He eventually went with Sundae over concerns that naming the company over a day of the week could come with limitations.
Sundae employs about 230 people and plans to hire more as it builds its technology and expands into new markets.
“We have city general managers and a number of roles on the ground that typically means anywhere from eight to 15 people in a city — that’s another source of headcount growth for us,” Stech said. “So 2022 is going to be a really big year. I think we’ll more than double the size of the team by the end of 2022. We’ve got a new group of people starting almost every week.”
Sundae operates in 23 markets, including Oakland in the Bay Area. As for expanding into new markets, the company said its next move may be into the Carolinas. Asked whether that means Charlotte, Raleigh-Durham or the Triad region of Greensboro, Winston-Salem and High Point could be Sundae’s next expansion city, Chief Marketing Officer Shane Steele simply said, “It would potentially be all of the above.”
The company seeks to be a trusted marketplace, helping homeowners of distressed properties package their house an investment, with inspection reports, third-party walkthroughs and construction estimates, among other things that a property investor relies on to make an offer.
“We’re creating price competition so that the seller gets a good price and investors are getting good, consistent deal flow and everybody wins,” Stech said, noting that Sundae has 4,000 investors participating in its marketplace, up from 2,600 in June.
In vetting investors, Sundae assesses their experience level and track record and looks at their financial wherewithal to ensure that they’ll follow through on offers they make to sellers.
Sundae seeks to spur price competition among investors, so the company standardizes the terms so the only difference is price. The offers come with no contingencies and fees are standardized and paid by the buyer. Sellers can also receive a $10,000 cash advance once they accept an offer.
Sundae sees its marketplace benefitting investors too, by helping them find deals and figuring out what needs to be done to rehab the house. That lets investors focus on fixing the distressed houses and reselling them.
“Those things are hard enough,” Stech said.
