- Homebound, the buzzy home construction startup, raised $20 million in new capital from existing investors Fifth Wall and the LP network Trusted Insight.
- The $20 million convertible debt comes on top of the $35 million funding round the company raised in August, 2019, at a valuation of $210 million, according to Pitchbook.
- Although convertible debt is an unusual way to raise cash for a growth-stage, venture-backed startup, Homebound CEO Nikki Pechet tells Business Insider she didn't need the extra cash.
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Homebound, the buzzy home construction startup, raised $20 million in convertible debt from existing investors Fifth Wall and the LP network Trusted Insight.
The new capital comes on top of the $35 million funding round the company raised in August 2019 at a valuation of $210 million, according to Pitchbook. Convertible notes usually have a cap on the valuation at which the debt will convert into equity ranging from the current valuation to a higher multiple. A valuation cap is a promise that when a company does raise its next equity round, it will hit a certain valuation.
Three sources familiar with the deal told Business Insider the valuation cap for Homebound is well north of the previously reported valuation, but below the coveted $1 billion unicorn status. The company declined to comment on the exact terms of the deal.
Homebound has had a successful run of fundraising in its short history, bringing in almost raised $73 million in total money, including this new round, raised in under three years. Other existing investors include GV, Khosla Ventures, Forerunner Ventures, Thrive Capital, and the celebrity Ashton Kutcher.
Debt in the form of convertible notes is classically used to fund early-stage startups that are not ready to establish a valuation but need access to quick cash before the next priced round.
In Homebound's case, CEO and co-founder Nikki Pechet said while she's thankful for the new capital, the company actually did not need the extra cash and wasn't looking to fundraise this year. Since the pandemic began, she said, Homebound has benefited from all sorts of tailwinds, including historically low-interest rates and remote workers moving to new places and building homes for the first time.
While she declined to give specific financial numbers, Pechet said Homebound has seen months of record revenue growth and "still has multiple years of runway left in the bank," meaning the startup is not at risk of running out of money anytime soon.
"We initially set a limit of no more than $15 million because we really don't need money," Pechet told Business Insider. But she eventually gave in to taking on more because there was so much demand from not only existing investors, but also a number of outside investors who wanted an opportunity to invest.
"This felt like an easy way to get a fast cash infusion from our existing partners who wanted to put more money in, and to give us kind of an opportunistic chance to have a balance sheet that lets us be a little more aggressive in light of the tailwinds that we've had," she added.
More established startups raising money by taking on convertible debt is not unheard of. In 2016, Spotify raised $1 billion in convertible debt in the run-up to its IPO from private-equity firm TPG and hedge fund Dragoneer Investment Group. Last April, Airbnb also considered issuing a convertible note with investors ahead of its public debut, according to Bloomberg News.
"It's super easy," said Pechet as to why the company decided to go with a convertible note right now instead of a traditional funding round.
"The paperwork takes two days to turn around, and we had the whole thing done in a week," she added.
And while she maintains the company really does not need the money, she's already preparing for a future fundraising event, especially because most convertible notes typically carry a maturity date of 18 to 24 months. The deal closed just before the end of the year.
"We're in conversations with lots of growth-stage investors who are excited about doing a growth round when we're ready for it," she added.
From the ashes of the Northern California wildfire
Founded by tech executive Nikki Pechet and venture capital investor Jack Abraham, Homebound literally rose from the ashes of California's wildfire in 2017. Pechet and Abraham joined forces to reinvent the home building process with Homebound just three months after witnessing the devastation in their own communities. The company is still headquartered in Santa Rosa, an area of Northern California where nearly 3,000 homes were destroyed.
The best way to describe Homebound is a tech-enabled general contractor that helps manage all aspects of rebuilding a home from the floor plan to the kitchen tile. The company's software can track and manage 370 unique tasks associated with building a home. Homebound takes a fee of about 10% to 25% depending on the cost of the project, give or take about the same rate that general contractors charge.
With a small team of only 76 employees, Homebound currently works with about 150 homeowners in fire-prone areas like Sonoma County in Northern California. Its business model is to follow the devastation, reacting quickly whenever tragedy strikes. Homebound set up shop in Malibu, California, shortly after the Woolsey fires, for example, and Abaco, Bahamas, after Hurricane Dorian.
The company says it can save customers up to 12 months of work by streamlining the home building process. Homebound's average home project is typically finished in about nine to 18 months compared with the industry average of 18 to 40 months, according to a company spokesperson.
"We founded Homebound at Atomic to create a better way to build homes and help natural disaster victims rebuild their lives," Abraham told Business Insider. Aside from being a co-founder, Abraham is also a managing partner at Atomic VC and a Homebound customer. He's currently in the process of rebuilding the home he lost in the 2017 wildfires.
"I was appalled at how hard, confusing, expensive, and time consuming it was," said Abraham. "I thought there had to be a better way to build a home, help the thousands of families who lost their homes, and rethink the entire process of home building," he said.
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