Behind the Big Investment into Florian Hagenbuch’s Latin American Startup
The Wharton Global Youth Program celebrated the close of another great Wharton Global High School Investment Competition with our Global Finale on May 7, 2021. We were dazzled by the diverse and creative investment strategies developed by student teams in the past several months.
Despite hundreds of unique approaches and portfolio frameworks, one common thread was woven through every team experience: Florian Hagenbuch.
As our 2021 competition client for whom teams were building their unique investment strategies, Hagenbuch, a 2010 graduate of the Wharton School, has become nothing short of a celebrity to thousands of high school students around the world. When competition trading kicked off in October 2020, teams researched all aspects of their potential client to ensure they were building an investment strategy that aligned well with Hagenbuch’s goals and objectives.
Fundamental to Hagenbuch’s profile? His business Loft Holdings, a Brazilian startup that is reinventing the process of buying and selling real estate in Latin America by using technology and data to simplify the process. The company, which operates in the property technology or PropTech (think FinTech) sector, has been called a one-stop-shop for Brazilians to help them manage the home buying and selling process.
Many Wharton Global investment competitors were following the news in March, when Loft hit the headlines for raising $425 million at a valuation of $2.2 billion in an investment round known as a Series D. This was a big round of investment for a young company only founded in 2017 — and one of the largest funding rounds ever raised by a Brazilian startup. A big deal in more ways than one.
“Loft today has about 800 employees and will hire another 500 by the end of this year.” — Florian Hagenbuch, Co-founder
We asked Hagenbuch (who made a virtual appearance during the finale to talk to the top 10 teams competing in the end game) to help us understand the significance of this Series D Round in the context of his industry and his company’s growth prospects.
Wharton Global Youth: What is a Series D Round?
Florian Hagenbuch: It is our fourth investment round in which several market agents have decided to inject capital into Loft in exchange for a share of the company.
Wharton Global Youth: Give us a snapshot of the months leading up to a Series D Round. What does a startup like Loft do to prepare?
Hagenbuch: The most important thing is to prepare information that can demonstrate to potential investors that Loft’s product, and the Brazilian market, offer very attractive earning opportunities at this moment. The Brazilian macroeconomic context favors the acquisition of apartments by the population, with the financial capacity to migrate from rent to operation. Bank interest rates are at the lowest level in history in the country. In addition, the pandemic — and the boom of the working-from-home model — generated strong demand for home appreciation. And it made many families want to move, moving to larger or smaller apartments, to the countryside, to the city. In this favorable scenario, Loft is in a unique position. We are a pioneer at iBuyer in Brazil, and we started our marketplace operation at the beginning of the pandemic. [iBuyers are companies that use online technology to estimate a home’s value and make an offer to the owner in one to two days. If the offer is accepted and the sales transaction closes, the iBuyer assumes the burden of owning, marketing, and reselling the home.] We have two strong differences for the customer: a fully digital journey, and pricing based on information from our marketplace and also on the history of real transactions. While in the rest of the market there is only pricing based on ad prices. The speech for investors was based on these points, which were essential to building the path to our Series D.
Wharton Global Youth: How is the $2.2 billion valuation determined and what does it signify? Loft’s strength and growth prospects in the market?
Hagenbuch: In fact, in April we had an extension of the Series D, which we call the Series D2. We raised an additional $125 million. With it, our updated valuation is $2.9 billion. This figure is capable of showing the company’s potential. [This valuation] is the largest among the property techs in the world, except companies from the U.S. and China. And it is one of the top 10 across the globe. There is a lot of room for growth in Brazil, Latin America, and many other emerging and global real estate markets through the digitization of transactions.
Extensions are common processes. Large investors feel more comfortable participating in the round after evaluating the entry of other major players. We understand that this is proof that the value of our shares still has room for appreciation.
Wharton Global Youth: How many companies are part of these recent rounds of investing?
Hagenbuch: The round was led by D1 Capital with additional participation from new investors Advent, Altimeter, CPPIB, DST, GIC, Silver Lake, Soros, Tarsadia, Tiger Global, and others. Existing investors including Andreessen Horowitz, Caffeinated, Fifth Wall, Monashees, QED, and Vulcan also participated in the round.
Wharton Global Youth: What will Loft do with the money it has raised?
Hagenbuch: We will invest Series D resources in more technology to further facilitate the consumer’s journey, reduce the time of sale for those who want to sell, and increase the portfolio and density of good apartments for those who want to buy. Loft today has about 800 employees and will hire another 500 by the end of this year, with 100 of these new vacancies being technology.
Wharton Global Youth: Brazil has been struggling economically, especially through the effects of COVID-19, so how has Loft continued to grow?
Hagenbuch: Due to the favorable macroeconomic context and the setting up of powerful teams that have already proven themselves in previous experiences in recent years.
Wharton Global Youth: What is your perspective on the company’s growth prospects following this successful round?
Hagenbuch: We have a great job from here to apply the resources raised with the Series D in the best way: our focus is on improving the user experience, increasing the density of apartments by the neighborhood where we operate, and on a gradual territorial expansion. We believe in a long path of growth, which can count on new rounds of investment, private and, why not, also public.
Wharton Global Youth: What else would you like us to know about this important deal in the history of your company?
Hagenbuch: I recommend everyone should be aware of the opportunities that inhabit the pains and problems that our personal experiences offer us. We decided to enter the real estate market in Brazil from a personal trigger. I bought an apartment in São Paulo after going through the broken journey of the Brazilian real estate market. There was little transparency regarding basic data, such as the value of the apartments and even their size. I found out, after buying it, that my apartment is 15 square meters less than what was described in the deed. This made me start to study this niche. I found out more people had this pain and this lack of transparency. Then Loft was born.
Related Links
- Wharton’s Zell/Lurie Real Estate Center
- WSJ: Brazilian Startup Loft Eyes $2.8 Billion Valuation
- Wharton Pre-Baccalaureate Program
Conversation Starters
What is a Series D Round and why does a startup go through this process?
Florian Hagenbuch says, “I recommend everyone should be aware of the opportunities that inhabit the pains and problems that our personal experiences offer us.” What does he mean by this? Why should entrepreneurs look for pain points? Take this a step further and read the Related KWHS Story (see side tabs) about innovation featuring Jack Abraham, also a past competition client. Discuss what you learn with your classmates.
Florian Hagenbuch innovates in the real estate industry, which is one of the key business departments at the Wharton School. Interested to learn more? Check out the Zell/Lurie Real Estate Center (see Related Links), research a video or topic of interest in the tabs, and discover the latest trends in real estate!
Within the past year, we have seen the pandemic spur new macro and microtrends such as the further digitalization of the economy and online event holding. I believe that these changes have forced the hands of many innovators, startups, and entrepreneurs to solve issues related to the pandemic. For instance, since the pandemic required social distancing, consumers and company employees now more than ever realized the importance of social contact and interaction. In response, innovators pivoted to create new safe online alternatives to in-person interactions. This spawned new ideas such as virtual tours and meetings on online conferencing platforms.
Innovation has run rampant over the past year and I think that this mainly has to do with consumer interests and concerns changing. Companies have had to adapt and adjust their business models and products to better suit the consumer. I think that successful innovation in a business sense should focus on the inefficiencies and problems that plague the consumer. This is because consumers will be more willing to use a product that is easier to use and solves a problem they have. For innovators and entrepreneurs to predict these adjustments to preferences and find things to innovate, they should, as Florian Hagenbuch puts it, ”be aware of the opportunities that inhabit the pains and problems that our personal experiences offer us”. Opportunities can oftentimes be found in suffering and pain as both are universal. For example, the concept for Uber came on a winter night when co-founders Travis Kalanick and Garrett Camp were unable to get a cab. This personal experience would spark the two to create a ridesharing service that would allow a person to conveniently call a taxi from an app on their phone. The struggles faced by the founders of Uber were shared by millions of others, leading to Uber succeeding and becoming the billion-dollar ride-sharing company we know today. Much like Uber, the Brazilian real estate company Loft was created under similar premises. Loft CEO Florian Hagenbuch’s personal experience with the lack of transparency in the Brazilian real estate market gave him the idea to build a one-stop shop to connect home buyers and sellers, simplifying the home-buying experience. The service was a massive success and propelled Loft to new heights as it fixed what was a glaring problem with the Brazilian real estate market. These examples prove that by looking at your daily life, you can build successful businesses centered around your pain points and struggles.
We all have our personal experiences and struggles, and there is an excellent chance that someone else is also experiencing the same problem. By looking around you and noticing them, you may spot opportunities to improve and innovate. As an entrepreneur and innovator, if you find an ingenious and unique solution to your issue, don’t be afraid to share it! Whether it be through a business or social media, sharing your solution has the potential to liberate others from shared struggles.
I totally agree with you on how our personal experiences and struggles may lead to opportunities since it is highly probable someone else is going through the same issue; “If it’s a problem for you, it’s a problem for somebody else. Solve it” and that’s how innovation and solutions happen. Before the pandemic began, I had an issue that multiple colleges did not offer any virtual events or tours and it was impossible for me to visit, but the pandemic changed this completely and now every event is offered virtually. Companies adapt to their customers, not the other way around. In 2020, the grocery shopping app Instacart saw a 9% in its senior users (the biggest growth within any age group) and since seniors were the ones with the most risks against the Covid-19 virus, it was possible for Instacart to market itself towards the elderly population. It is incredible for me to see how the pandemic has been the actual “Never waste a crisis” saying for multiple companies that have profited from the change and how it has transformed the world altogether towards what might be called a “new digital age. I hope to see more positive changes coming from innovate people.
Entrepreneur Jack Abraham said, “A lot of great ideas come from suffering.” Abraham founded the company Homebound which finds labor from other states and countries to build houses in expensive neighborhoods. He came up with this idea from the suffering he faced when his house was burned down and he couldn’t find any affordable construction company to rebuild his home. Similarly, Florian Hagenbuch believes “Everyone should be aware of the opportunities that inhabit the pains and problems that our personal experiences offer us.” Hagenbuch built the company Loft Holdings that is part of the wave of ibuying companies trying to reinvent the inefficient, expensive, and overcomplicated real-estate market. Loft Holdings enables people to quickly, transparently, and efficiently buy and sell properties in Brazil and other Latin American countries. Hagenbuch started Loft Holdings because he realized how inefficient and overcomplicated the real-estate market in Brazil was when he tried to purchase an apartment.
I believe that it is fundamental to find opportunities from mistakes and unfortunate situations. People always make mistakes; however, it is important to understand that after undergoing the repercussions of your mistake we learn, grow, and gain experience. After someone’s English teacher gets mad, they will make sure to not have a run-on sentence in their next essay. Sometimes we face obstacles that are hard to solve. For example, for years someone was writing essays with horrible grammar. We still have to learn to get back on our feet and overcome the challenges. In this case, the person creates a program to check the grammar of their essays (Grammarly). Chances are if we are struggling with something, many other people have the same issue too. We should then try and bring the solution to our problem to the rest of the world. In this example, turn Grammarly into a household program that saves millions of students and adults from advanced grammar mistakes.
If there is one key takeaway, it is that the next time you’re in a tough situation, try to find a unique and innovative way to improve your situation; then see if you can apply the solution to other people. Who knows, that might be the reason CNBC interviews you on the day of your company’s IPO:)