Pacaso co-founder and former Zillow executive explains how the company fractionalizes luxury second homes into 1/8 shares, handles property management and mortgages, and grew to $1B in sales by year three. The startup raised $240M across Series C, operates in 40 markets across 4 countries, and navigated COVID demand shifts and interest rate impacts.
a little bit more about, you know, Pacaso and maybe what some of those kind of early steps that you took were to start it as a marketplace?
Yeah, so I started Pacaso with a fellow Zillow exec and he's my co-founder and CEO. And I think our top 6 people are all from Zillow and, you know, the first 20 employees basically came from Zillow. And Pacaso is a Series C stage company. We raised $240 million of equity, a couple hundred employees. We are Creating a new product of co-owned second homes. So we take a luxury second home in Malibu or Aspen or Tahoe or Cabo or London, and we fractionalize it and we sell it in units of 8th. So you can buy 1/8 or 2/8, 3/8, 4/8, and then Pacaso does the property management for the home and we originate the mortgage. So it's a much better way to own a second home than owning all the second home yourself because you're right-sizing your ownership. You're only buying a portion of the home. that you're really going to use. It's almost like carpooling, but for second homeownership. We're in 40 markets in 4 countries. We just crossed about a billion in real estate sales in our third year. Lessons learned so far. I mean, like, I guess the zero to one sort of finding product market fit, you're never really done. Like we found really early product market fit at Pacaso, especially during the COVID quarantine when people wanted a second home. And then people went back to work and they didn't need second homes as much. And then we had to sort of find our way again. And then mortgage rates went way up and all of a sudden people said, wait, this is a really discretionary purchase. Actually, before mortgage rates went up, interest rates went up and tech went down. And all of a sudden a lot of our customers Felt poor and said, well, I don't need a Picasso anymore, or I don't want a, you know, a million dollar— yeah, I'm buying a million dollar eighth of an $8 million home is better than buying $8 million, but maybe I don't need any of that. So as interest rates went up and tech went down, we had to go find a different buyer pool outside of tech. And then as mortgage rates went up, we had to change our value prop again and find a way to convince people that they should buy a second home or a portion of a second home at 8 or 9% mortgage rates. So like we've had 3 or 4 different product market fit iterations. We did our, you know, we did our layoff. We kind of had a lot of the same, you know, it wasn't quite as dire as the Hotwire 9/11 story. I kind of glossed over the Zillow financial crisis story, but trust me that 2008 was a difficult time at Zillow as well through the financial crisis and the mortgage meltdown and the real estate meltdown where we had our layoffs and we had our, you know, the same similar challenges to what Hotwire had in 9/11. So by the way, Mike, This is 3 for 3 companies I start. 2 years later, there's a global catastrophe that my industry, travel, real estate, and then real estate again, is right at the center of, you know, terrorism, financial meltdown, mortgage meltdown, and then mortgage rate increase, which caused, you know, caused a huge slowdown. So it's, I'm very unlucky in that sense, but in each of the 3 cases I've sort of managed to navigate through. So anyway, that's Pacaso and we're, we've had a couple great quarters now, so I think we're, you know, we're back on our front foot.
So I guess, is it more of an asset kind of heavy marketplace or are you actually, you know, buying the homes or?
So it's a good question. I mean, when things go well, it's not asset heavy. We take a home that's on the market or not on the market, we put it under contract, And we basically pre-aggregate demand and we sell through it such that at the time of closing, we didn't have to buy it. Doesn't always work that way. Sometimes we have like 3/8 or 4/8 or 5/8 spoken for, and then we buy the rest and we own the stub for the next couple months or sometimes next couple quarters if things don't work out the way they're supposed to. So it's supposed to be asset light. It's not always asset light, and that's a constant struggle of ours to try to become more asset light by pre-aggregating demand more.
