eMoov learned the hard way what it costs to win

Emoov has gone into administration and the assets may be sold by the administrator soon so that existing property vendors and the staff may be ok – time will tell. Shareholders like Episode 1 have lost 100% of the money invested.

The demise of online estate agency eMoov is a cautionary tale of how difficult it is to succeed in a ruthlessly competitive B2C market, even when making what appear to be all the right moves.

It wasn’t lack of a great product that caused eMoov to fold. Nor was it strategic or management mistakes. And it certainly wasn’t because the company lacked good leadership. In Russell Quirk, eMoov had an excellent CEO who did a great job building the business to become one of the UK’s biggest hybrid estate agents. He also hired an impressive C level team with experience from Just Eat, BookaTable and Groupon.

So, if it wasn’t any of those things, what did go wrong?

A solid plan . . .
To really understand that, it’s perhaps best to start with what went right and what convinced us at Episode 1 to invest £1million in eMoov back in 2015, followed in subsequent rounds to a total of £3million from us and c £20million from other investors over the years.

The obvious appeal of operating via an online estate agency platform rather than running a network of physical branches – each with a team of staff – is that it offers opportunities to reduce costs through efficiencies and automation.

In the conversations we had with eMoov before investing, it was clear that they had, sensibly, identified the value of letting customers deal with human professionals when moving home – something most people do very few times in their lives.

Instead of being an entirely computerised experience, eMoov had expert estate agents on hand to guide customers through the process. Being centralised in a call centre offered the necessary cost savings but it also made quality control much easier than managing teams distributed across the country. Consistency of service is something large branch networks find difficult, so the platform approach makes real sense in this industry while also being a lot cheaper.  This approach worked – eMoov went on to enjoy great customer satisfaction ratings and was for many months voted the country’s best estate agent for customer experience in 2017 for all agents on and offline by the industry review site AllAgents, I.e best among over 20,000 estate agency branches.

 . . . a big player . . .
By this time, though, the market had become incredibly competitive with a wide field of players jostling for dominance.  Purplebricks had consistently led the field, being well backed by investors including fund manager Neil Woodford and Errol Damelin, the founder of Wonga. An IPO that came unexpectedly early in December 2015 raised £25million and valued the company at £240million. That made it almost 10 times bigger than eMoov’s the next biggest player. This was far from a two-horse race, with Hatched, Housesimple, Yopa, easyProperty and Tepilo all busily fundraising and looking to grab market share.

In December last year, Carphone Warehouse founder Charles Dunstone topped up an earlier investment in Housesimple as part of a group putting in a further £20million. At around the same time, Toscafund invested £14million into easyProperty. Russell Quirk had been incredibly tenacious in seeking further funding for eMoov as well as exploring possible mergers. At one point in 2017 LSL Property Services, the UK’s second-largest estate agent network, was on the verge of a deal with eMoov but backed Yopa instead to the tune of £20million.

In May this year eMoov did merge, with TV property expert Sarah Beeny’s Tepilo, to consolidate its position as No2 in the market, albeit not by much of a margin. Then, in July, eMoov closed an equity crowdfunding round which raised £1.9million. This wasn’t really enough to make a significant impact on eMoov’s fundamental underlying problem – the company had grown but it just didn’t have enough cash to fund the marketing budgets required. Yopa and some of the other seemingly smaller players had much more money to play with. A tough housing market dragging down the share price of traditional estate agents didn’t help.

There was also a collective realisation among online estate agents that some of the underlying arithmetic simply wasn’t covering costs. Back in 2015/16 they all started out with low-priced, loss-making offerings. The hybrid operators realised that £300 to sell a house was not profitable – certainly with the costs of operations, marketing and running call centres.

Typical fees to sell a home have since settled to a more realistic level of around £1000, which still make it tough to generate meaningful gross profit – leaving fundraising essential to survive and thrive until achieving bigger scale.

. . . but still not enough
Where eMoov came unstuck was not having the huge amount of money for the level of marketing demanded from competing in a pure B2C marketplace. It’s like getting an airliner off the ground. You have to build up a lot of speed up on the runway to get airborne.

That’s hard if you are consistently outgunned by competitors with more cash at their disposal, particularly when there is such a dominant main player like Purplebricks. That tends to create a flywheel effect in this situation where the best at fundraising will have more money for marketing, making them the biggest and fastest growing so best able to raise yet more money, allowing them to pull further away from their competition. The money flows up to them, making it harder for the rest of the field to get investment.

At Episode 1 we’ve been moving away from straight b2c plays for a while now. We’ve found that even with a £60million fund which equates to around £2-£4million per investee company and that’s just not enough to build a national brand and get the necessary visibility in a highly competitive, purely b2c market.

It makes much more sense for us to focus on capital efficient business models where more can be achieved with comparatively smaller amounts of investment. We now prefer sales driven businesses including marketplaces rather than purely marketing driven businesses, so we don’t look at Emoov as a failure but as a healthy learning experience.

Simon

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