IPO 2.0
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IPO 2.0

Opendoor — Next SPAC target?

Opendoor might merge with Chamath Palihapitiya's Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB). So, is Opendoor a potential SPAC target?

Disclaimer: Base your investment decisions not on rumors only facts. I’m long Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB) since its IPO.

According to a Bloomberg report, Opendoor, the property-tech startup, is in advanced talks to go public through a merger with Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB).

Opendoor is a property-tech startup that buys homes digitally, makes minor repairs, and lists the properties for sale, charging a fee for the service. It creates a liquid market place for residential housing.

The company was valued at $3.8 billion in a March 2019 fundraising round. At the time said it had raised $1.3 billion from investors including Softbank Vision Fund, General Atlantic, Khosla Ventures, NEA, and Norwest Venture Partners.

In this article, I will discuss why a deal could potentially happen with Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB).

1. Alignment on mission

Social Capital's mission is to advance humanity by solving the world’s hardest problems. One of those problems is the imminent housing crisis and making housing affordable. Chamath has already addressed the housing problem in the Bay Area multiple times publicly.

Opendoor's mission is making moving as simple as possible. This aligns with Chamath Palihapitiya's values perfectly.

“In 2014, we set out to reinvent life’s most important transaction with a new, radically simple way to buy and sell your home. Our mission is to empower everyone with the freedom to move, and we’ve served more than 75,000 customers who have come to Opendoor to make that move easier. Whether it’s getting married, starting a family, or taking a new job, we help people get to their next step in one simple, seamless transaction.” (Opendoor)

Opendoor’s business model is based on the “safe as houses” maxim. Despite some dips resulting either from wider economic tides, or simply scandalous mismanagement around, e.g., sub-prime lending, the housing market is still one of the most important markets for consumers as well as investors.

The second theme is the disruption of the business model for buying and selling homes. That process has mostly remained unchanged for decades, but Opendoor is part of a new guard of startups that is trying to change that.

By creating data modeling, the company is able to identify spot opportunities and gaps in the market for homes. It allows them to get optimal pricing for properties, which helps the company mitigate some of the risks associated with taking assets on to its own books with the understanding that it will be able to offload them in a predictable way.

2. B2C Growth opportunity

Chamath Palihapitiya values more strong consumer brands than enterprise businesses. Opendoor is a strong consumer brand that many people are already familiar with. The residential real estate market offers a high growth opportunity spurred by low mortgage rates and an increased appetite for more space, particularly outside of crowded cities.

According to a late-August report by the National Association of Realtors, U.S. home sales rose an unprecedented 24.7% in July, up 8.7% from the same time last year. Home sales rose 20.7% in June, too (which was a record at the time).

Opendoor said it acquired 11,000 homes in 2018. It hasn’t disclosed how many homes it bought in 2019, saying in a December post that it “bought and sold thousands of homes” over the course of the year.

Typically, the company aims to hold homes for less than three months before selling them to a home buyer. To help fuel all those purchases, Opendoor has raised $4.3 billion in equity and debt funding over the years, including $1.3 billion in equity.

3. Great leadership team

Khosla Ventures VC and former Square COO Keith Rabois is one of the co-founders of Opendoor. He had the vision in 2014 to make buying homes as simple as clicking a few buttons.

Eric Wu is also co-founder and CEO of Opendoor. He used to be Head of Geo and Social products at real estate listings platform Trulia. He and Rabois are joined by two other co-founders, Ian Wong and JD Ross. Wong used to lead data science at Square and Ross oversaw product at Addepar.

4. Support by long-term investors

The company was valued at $3.8 billion in a March 2019 fundraising round, and at the time said it had raised $1.3 billion from investors including Softbank Vision Fund, General Atlantic, Khosla Ventures, NEA, and Norwest Venture Partners.

Already in the first financing round, many prominent Angel Investors got involved. It closed $9.95 million in what appears to be an insane seed round. (To be clear though, Khosla Ventures was the lead).

Who’s involved?

Paypal co-founder Max Levchin, Former YouTube and Facebook CFO Gideon Yu, Eventbrite co-founder Kevin Hartz, Y Combinator’s Sam Altman, Quora CEO Adam D’Angelo, Yammer co-founder David Sacks, Angelist’s Naval Ravikant, Yelp CEO Jeremy Stoppelman, Box CEO Aaron Levie, Initialized Capital’s Harjeet Taggar, Garry Tan and Alexis Ohanian, Former Twitter vice president Elad Gil, Blippy co-founder David King, Flixster co-founder Joe Greenstein, Angel investor Mike Greenfield, Quora co-founder Charlie Cheever, Path’s Dave Morin, Facebook vice president Dan Rose, Trevor Traina, Resolute Ventures’ Mike Hirshland, Caffeinated Capital’s Ray Tonsing, Felicis’ Aydin Senkut, True Ventures’ Om Malik, Thrive Capital’s Josh Kushner, Crunchfund’s Michael Arrington (who founded TechCrunch) and SV Angel.

Rumors, rumors, rumors…

It is important to remember that the Bloomberg report is neither confirmed by Social Capital nor Opendoor.

Some SPAC rumors turned out to be true, some didn’t.

SPAQ was rumored to merge with Fisker, it turned out to be true.

But…

FEAC was supposed to merge with Sportradar, it turned out to be Skillz.

HCAC was supposed to merge with Proterra, it turned out to be Canoo.

FMCI was supposed to merge with Impossible Foods, it turned out to be Tatoted Chef.

If Chamath Palihapitiya’s Social Capital Hedosophia Holdings Corp. II wants to merge with Opendoor, it will need to raise additional funding via a PIPE to add to its $414 million cash that is held in trust. Potential pipe investors get special treatment as they can invest prior to the official announcement at $10 per share and get information about the deal.

Without too much speculation, we can assume that Social Capital is gearing closer to closing a deal. Please do your own due diligence!

Disclaimer: Base your investment decisions not on rumors only facts. I’m long Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB) since its IPO.

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