Sundae Raises $36M to Expand Distressed Property Marketplace

Opendoor has pioneered a new approach, enabling startups to leverage their technical skills in areas like search, marketplaces, and audience targeting to reimagine the traditionally slow and paper-based world of real estate. Currently, a startup focused on properties in need of renovation is announcing a new funding round to accelerate its growth and broaden its reach.

Sundae has developed a platform connecting homeowners looking to sell properties requiring updates or repairs, or those needing a quick sale for financial reasons, with property investors and developers interested in purchasing, renovating, and then selling or renting these homes. The company also has the potential to directly acquire properties for similar improvements. Today, Sundae is announcing a $36 million Series B funding round.

QED Investors is leading the investment, with participation from existing investors including Founders Fund, Susa Ventures, Navitas Capital, and Prudence Holdings. These firms previously invested in Sundae’s $16.55 million Series A round, which was also spearheaded by QED.

In a recent interview, CEO and co-founder Josh Stech, who characterizes the company’s focus as the “segment of homes needing restoration,” refrained from disclosing the company’s valuation. He also chose not to share specific details regarding several other aspects of the business. Sundae is not revealing the number of homeowners and developers utilizing its service (“thousands”), the average property sale price, the total number of properties handled, or the proportion of properties it has purchased versus those sold to third parties (he indicated that investors acquire “the vast majority,” representing more than 50% but less than 100% of properties).

He did mention that since launching in January 2019 in four markets – San Diego, Los Angeles, the Inland Empire, and Sacramento – the company has achieved an annualized revenue run rate exceeding $400 million in gross merchandise value (the total value of homes sold through the platform). This highlights the substantial and valuable data the startup is collecting on home sales, which can be used to enhance its platform in the future.

The speed of this latest funding round, occurring less than six months after the Series A, further demonstrates the company’s momentum.

In addition to these equity-based funding rounds, which are used to purchase properties and provide $10,000 cash advances to sellers, Sundae has also secured a debt fund from high-net-worth individuals and a “substantial” non-dilutive debt facility from Goldman Sachs, according to Stech.

Sundae is addressing a long-standing aspect of the housing market that has become even more prominent in the past year.

The US has consistently seen a strong demand for new construction, both in growing cities and older areas undergoing redevelopment. Notably, this demand increased significantly during the pandemic, with interest in new homes being up to four times greater than that for “existing” homes.

Simultaneously, the overall housing supply has been rapidly decreasing, reaching a low of just one month’s worth of sales. As Stech explains, this means that “if no homes are listed, there are no homes available for sale within 30 days.” Consequently, there is increased emphasis on selling older properties to meet the existing demand.

However, properties requiring significant repairs often face challenges, as buyers today are less inclined to take on fixer-uppers compared to the past. Sellers generally prefer to offer move-in ready homes for a faster and more straightforward sale. This often results in distressed properties being overlooked.

This situation creates an opportunity for developers – or property investors, as they are commonly known in the US – who acquire these properties and invest in renovations to make them more appealing to buyers. They follow a process Stech describes as “find, finance, fix, fill or flip.”

Sundae streamlines the process for both homeowners and developers. Homeowners benefit from dealing with a single entity, Sundae, which provides professional photography (using Matterport), guidance on pricing, potential cash advances, and access to a network of interested buyers, including the company itself.

Investors can utilize the platform to expand their search for potential investment properties and streamline the acquisition process.

Stech conceived the idea for this venture after graduating from Stanford and relocating to Las Vegas during the 2009 housing market crash. He purchased a condo for $19,000 in cash that had previously sold for $267,000 in 2007, recognizing a significant market opportunity.

This insight stemmed from his extensive experience in the real estate industry. Prior to Sundae, Stech and co-founder Andrew Swain held executive positions at LendingHome, providing loans to property investors. Before that, Stech established a property business in Las Vegas.

There is a legitimate concern regarding businesses focused on distressed situations, as there is a risk of exploiting vulnerable individuals.

Stech asserts that his goal is to prevent such exploitation by fostering a transparent process where sellers can consider offers from multiple developers, rather than being limited to a single offer potentially prioritizing the developer’s interests.

“The actions of property developers have become questionable,” Stech stated. “The profession has become glorified, and they accumulate substantial profits. It’s easy to overlook the homeowner who is likely being forced to sell.”

While a marketplace doesn’t eliminate self-interest, it introduces the possibility of more balanced negotiations, potentially allowing sellers to achieve favorable returns, even on properties needing significant renovation, particularly in competitive markets like London.

These developments are particularly relevant given the broader trend towards prioritizing homeownership and stability, especially in light of the uncertainties brought about by the pandemic, increasing the desire to buy property rather than rent when financially feasible.

“The understanding of homeownership is evolving. This shift is particularly noticeable following COVID-19, which has created more uncertainty and prompted individuals to reassess their real estate choices. Homeowners are seeking solutions that simplify the selling process, enhance transparency, and ensure reliability, especially within the distressed property market,” stated Frank Rotman, founding partner at QED Investors, in a press release. “Sundae’s rapid expansion is a testament to its unique offering and the trust it has built through a customer-focused approach.”