Bloomberg — Brazil-based proptech startup Tabas announced on Wednesday it has raised $14 million in equity and debt in a Series A round led by U.S. firm Blueground.
Echo Capital and Brazilian investor Nelson Queiroz Tanure, chairman of PetroRio, also participated in the financing round.
Tabas is led by CEO Leonardo Morgatto, a Brazilian entrepreneur with a degree in production engineering and who spent four years at Siemens. While in France studying an MBA at INSEAD in 2018, he met Tabas co-founder Simone Surdi, who is Italian.
After they both moved to London for a summer internship at a consulting firm, Morgatto says he needed a furnished apartment in the city, but had “the worst rental experience” of his life. “At the time, I managed to rent an apartment for a disproportionate price for the market, and it was in a run-down state,” he recalls.
It was at a dinner with Surdi that the idea of building a real estate company occurred to them. Surdi was studying physics as a PhD in the U.S., but decided to abandon that area of research because he wanted to see short-term results.
“The rental experience in London was terrible because we had no quality guarantee, and it was hard to find a place to stay for two, three months. There was no flexibility. We saw that these problems were related to the fact that in this business startups are usually marketplaces that don’t manage the customer experience from end to end, they are a bit like brokers,” Surdi says.
The silver lining came when the co-founders thought about renting the apartments from long-term owners, renovating, and offering flexible stays as Blueground does in the United States. Blueground reached a valuation of $750 million after its most recent financing round in September 2021.
In 2020, the duo moved to Brazil to debut their new business. “For owners, the Brazilian real estate market is fragmented. For a long time in Brazil, everyone built buildings to sell and use as an investment, but the real estate agents only oversaw the commercial side and and management of the receivables, and not the investment in the asset [the apartment],” Morgatto says.
The Covid-19 pandemic was a bucket of cold water on the new company’s excitement, however.
When the real estate business virtually froze in March 2020, the global economic crisis caused by the coronavirus forced the startup to spend about seven months raising money from family and friends to maintain operations. “We would run out of money, and ask for another small round. We had a not so glamorous experience in terms of entrepreneurship,” Morgatto said.
But then the comeback came: in October 2020, Tabas procured an international investor, Venture Friends, which invested $1.5 million in the startup. Last year, the company raised 20 million reais ($3.64 million) via CRIs, Brazil’s certificates of real estate receivables.
Of its $14 million Series A funding, half comes from receivables debt and the other half from equity, which dilutes the company’s control.
“The money from the debt goes to the purchase of a television, dresser, bed, and renovations. And the equity goes to hiring people, technology, processes, branding,” Surdi says. For Tabas, it doesn’t make sense to raise capital to buy furniture for apartments that the company intends to rent out, because unlike investing in processes and technology, financing furniture doesn’t add value over time. “It is something that depreciates. Our business model allows for that line of investment for renovations”.
The startup doesn’t buy the properties from the landlords, so it uses the rental receivables as collateral for the business. Most properties come to Tabas through brokers. The data team analyzes the asset and the startup does the leasing, even without being sure of tenants.
The risk of the apartment not being rented exists, however. But Surdi explains that the technology team has chosen the right apartments. “Proof of this is that last year we were 93% leased,” he says.
On Tabas’ website, customers can visit the apartments virtually and rent them online, which, according to Morgatto, is what happens with 80% of the apartments. But he adds that the company is open to partnerships with marketplaces or brokers who want to negotiate apartments rented by the startup.
Tabas aims to reach 130 employees by the end of the year, but does not intend to go much beyond that number of hirings, since, according to Morgatto, it is necessary to grow sustainably.
With the latest financing round, he believes it is possible to have a portfolio of 1,200 apartments by the end of 2022. Today, there are 360 leased properties spread around the cities of São Paulo and Rio de Janeiro.
Looking ahead, the company wants to consolidate itself in São Paulo and expand to other cities, such as Brasilia. Starting in 2023, Morgatto intends to take the business to Mexico City, while another plan is to offer financial products for owners and partnerships with developers to operate several apartments in the same building, something similar to what Brazilian startup Housi does.
If the startup rents a property and renovates to rent it again, the idea of buying an apartment for rent in the future is not ruled out. “I prefer to buy after renting for two years because then we already know the performance of the apartment and its occupancy rate, and we know if it makes sense. But the thought of the owners selling the apartments is something we are looking at much further ahead, in maybe two, three years from now.”