Online real estate startup Zillow said Tuesday it has raised a $25-million second round of funding led by Par Capital Management.
Many trace the recent swarm of interest around online real estate to Zillow’s last huge funding round, $32 million from Benchmark Capital and Technology Crossover Ventures (TCV). Zillow has raised a total of $57 million, which includes funding from its founders.
In February, the Seattle-based company soft-launched its first product: a free, algorithmic home-value estimate tool. The company lists values for nearly 67 million U.S. homes.
Rather than taking an antagonistic approach toward realtors by getting involved with home-buying transactions, Zillow makes its money from advertising.
Unusual Deal
The deal is somewhat unusual in that Boston-based Par Capital is a hedge fund that primarily invests in public companies.
“We weren’t looking to raise money,” Zillow CFO Spencer Rascoff said.
Mr. Rascoff, along with much of the company’s leadership, including CEO Rich Barton, came from online travel site Expedia. They were familiar with Par Capital and in particular Brad Gerstner, who leads the firm’s investment, through mutual involvement in the online travel sector.
Previous investors Benchmark and TCV also participated in the round. The proceeds, said Mr. Rascoff, are intended to be used for hiring, growing Zillow’s staff from 118 to 150 by the end of the year.
Zillow recently tied up an arrangement with Yahoo to power part of the portal’s real estate site as well as Yahoo searches that are related to home valuation.
Yahoo“We’ll be launching new and exciting things before end of year, but we’re not ready to talk about them yet,” Mr. Rascoff said. Though many have speculated that Zillow wants to get into transactions, Mr. Rascoff insisted the company would stick with its advertising revenue model.
Chasing Ad Dollars
In a recent interview, analyst Peter Conti of Borrell Associates praised Zillow for avoiding approaches to online real estate that depend on lead generation. “It really throws a monkey wrench into the works because you don’t have to fill out any information to have access to the data,” he said.
Borrell estimates real estate advertising spending will drop to $9.6 billion in 2010 from $11.7 billion in 2005. But that’s an overall figure, with traditional outlets like newspapers taking a hard hit. Online real estate advertising, by contrast, is set to reach $3.1 billion in 2010, up from $1.7 billion in 2005.
“The same promotional reach simply costs less money today than it did just a few years ago,” said Mr. Conti, who attributes the Internet.
Contact the writer: LGannes@RedHerring.com