Former Zillow execs raise cash from SoftBank for vacation home startup Pacaso amid controversy in Wine Country
It’s been less than a year since Pacaso officially launched. But the fast-growing real estate startup has already hit a triple-digital revenue run rate, attracted big-name investors — and caused an uproar among longtime residents in areas such as Napa Valley where it buys vacation homes.
Pacaso on Tuesday announced a $125 million funding round led by SoftBank via its $40 billion Vision Fund 2. SoftBank has backed the likes of Opendoor, DoorDash, Coupang, Didi, and other highly-valued tech companies. Its investment in Pacaso is a vote of confidence in the year-old startup founded by former Zillow Group CEO Spencer Rascoff and dotloop founder Austin Allison.
The Series C round, which also included participation from top real estate investor Fifth Wall, values Pacaso at $1.5 billion. Total equity funding to date is $217 million, including a $75 million cash infusion just six months ago.
Pacaso (pronounced like “Picasso”) uses software and data to make it easier for more people to own a vacation home by splitting ownership into several different pieces as part of an LLC — anywhere from two to eight owners.
Pacaso will sometimes buy a home and then find owners; it also buys homes after enough people show interest in a given property. It then serves as the owner representative on behalf of the group, handling various logistics such as maintenance, financing, legal, and more. Its software platform helps owners with scheduling and booking.
The company makes money by charging owners a 12% service fee at the time of purchase, plus a $99/month management fee.
The idea is to make it possible for more people to own a vacation home — at least part of one — and reduce the hassles that can come with co-ownership.
Rascoff, who left Zillow in 2019, called Pacaso’s product-market fit “extraordinary.”
“This product has struck a nerve, and it is exciting to see,” Rascoff wrote in a LinkedIn post.
But not everyone is so excited about Pacaso’s business.
A group called Stop Pacaso Now has formed in California’s Wine Country, started by local residents who say the company is “the newest way for Silicon Valley bros and venture capital vultures to make a quick buck at your expense: By turning your neighbor’s house into what’s basically a glorified timeshare.”
Pacaso sparked controversy earlier this year after buying homes that locals say were part of the workforce housing inventory. The company responded by saying it would resell the house to a sole owner, and would only buy properties in the area valued at more than $2 million, Inman reported.
“We despise the company,” said David Appelbaum, a longtime tech exec who has lived in Sonoma County for 23 years and is part of the protest group. He said Pacaso is “trying to sneak around the existing rules and regulations against short-term vacation occupancy.”
Pacaso is adamant that it does not operate a timeshare model, which Allison described as “commercial hotel developments” with hundreds of rooms and thousands of members. Pacaso, on the other hand, lets people actually buy a piece of real estate versus just time, he said. Its model also prohibits rental activity and large disruptive parties.
“It’s like comparing a bicycle to a commercial bus,” Allison said. “They’re completely different types of of asset classes altogether.”
The debate is now playing out in federal court. Pacaso sued the city of St. Helena in Napa Valley earlier this year after it banned the company for violating laws prohibiting timeshares. The case is still pending.
Allison said the backlash is caused by “misinformation” about Pacaso contributing to the housing affordability crisis. He argues that the company’s co-ownership model redirects vacation home demand away from the median tier to luxury properties, thus opening up moderately priced home opportunities for local buyers.
“It’s actually part of the housing solution, not part of the problem,” Allison said.
The CEO also said most vacation homes sit vacant for a majority of the year, while Pacaso homes have a 90-to-95 percent utilization rate.
“It’s better to have homes utilized year-round to support the local economy,” he said.
Appelbaum doesn’t buy that argument.
“You’re not a co-owner. You’re a transient vacation occupant,” he said. “You’re not joining local groups, you’re not sending your kids to school. You’re not a member of the community. You are coming here for a two-week vacation and then leaving.”
Pacaso announced today that annualized revenue run rate has hit $330 million. In the second quarter of this year, Pacaso drew 1.8 million visits to its website and mobile app, up nearly 200 percent from the prior quarter. Its distributed team across 20 states has also grown from 30 people to more than 120 since January.
Pacaso declined to share specific metrics on the number of owners or houses sold, but said it has helped “hundreds” of people find second homes. It manages nearly $200 million in real estate assets. The company landed $1 billion in debt in March.
The startup is riding tailwinds from rising vacation home sales, driven in part by the pandemic and shift to remote work. Vacation home sales rose 16.4 percent year-over-year in 2020, and 57.2 percent during the first four months of this year compared to the same period in 2020, according to the National Association of Realtors.
And even if the real estate market cools down from record levels, Pacaso’s model becomes “more interesting in a softer market than a hot market, because it’s a more responsible way to own,” said Allison, who sold real estate document signing service dotloop to Zillow in 2015.
“In moments of correction, people don’t stop living, they just dial back the way they spend,” he said.
Owners must hold on to their share of a vacation home for at least a year, but can then sell it at any time — either for a profit, or a loss, depending on housing prices.
Pacaso is now live in 25 destinations around the U.S. It plans to expand internationally for the first time later this year in Spain, and has plans to launch in Mexico and the Caribbean next year.
Gaingels, Greycroft, Global Founders Capital, Crosscut, and 75 & Sunny Ventures also participated in the Series C round. Other backers include former CEO of Amazon Worldwide Consumer Jeff Wilke; Sukhinder Singh Cassidy and Theresia Gouw of the Acrew Diversify Capital Fund; First American Financial; Maveron; and Shea Ventures.