"I've just invested in the most capital efficient company I have ever seen with the youngest founders I have ever backed." Chris Tottman, Notion.

Why I invested in Adfenix

"I've just invested in the most capital efficient company I have ever seen with the youngest founders I have ever backed." Chris Tottman, Notion.

Those who have read about my prior investments know that my hypothesis and energy to invest is based on a market pain. In the case of Adfenix this is based on my personal experience and the universal feedback I have received that the buying & selling of property is ugly.

If we just focus on the estate agent then they can polarise opinion. I have a confession - I love estate agents.

I know I'm in the minority - I love the estate agents I work with (I've bought and sold several properties in my life time starting from the age of 18 to the two transactions I am completing right now) - I focus on the chemistry with the agent, the ability for us to market my property, their brand and reach, the ability to handle the buyers appropriately and manage the entire process to close. I always overpay my agent. I never want my property to rank low in its importance. Yes - I'm odd - but it’s a method which means I always sell my property fast and often beyond my acceptable price level. My average time to offer is 3 weeks!

Having said that an increasing and far larger percentage of people struggle and question the value of the estate agents vs the cost they charge and in my opinion this is often because they live in an analogue world of unconnected systems both with their internal systems and the outside world.

Existential threats in the industry

As a consequence estate agents are threatened by two major existential threats to their business model:

1) The emergence of digital Estate Agencies, like Purplebricks in the UK and expanding into Europe and the US rapidly, threatening the existing pricing model of a traditional agency and pushing fee's down. They run aggressive TV Ads focused on the cost of Estate Agent’s commission vs their own low fixed price proposition. Online Agents are digital at the customer and buyer acquisition side and very lean on the back end – no office costs BUT they do have Agents – Purplebricks call them Property Experts – with more than 600 in the UK at last count. Humans remain essential to the process so they will need to 3x or 4x the amount of listings they manage through digitization.

2) Then you have the market and data dominance of listing businesses like Zoopla and Rightmove (the Duopoly) in the UK or Zillow in the US. These are extracting increasingly larger fees and impacting margins for Estate Agents. The main point here is the Internet in the home buying market are these businesses, not Google. With more than 2.6m daily visitors, this duopoly leverage their power aggressively, with recent research showing that 62% of house sellers factor in the portals an agent advertises on into their selection of an agent.

Summary on the Pain

Online Agents are taking more market share, with Purplebricks being the dominant player, with 72% of total online agent share and nearly doubled it’s market share of total listings to 3.3% in a year.

Purplebricks has sold more than £5.8bn worth of homes in the UK alone. This means the fee value of the market is decreasing and margin pressure puts weaker firms at risk.

In a market where listings and transactions are relatively predictable (bar cyclical drop and recovery) – using the UK as an example, there have been c. 900k - 1.1m residential property transactions over each of the last 10 years. The larger the share of Online Agents the smaller the value of the market becomes. Something has to give. The market will dramatically change in the coming years.

And from a consumer perspective, in many cases Estate Agents continue to give a very poor digital environment to engage in – buyer, sellers and employees. Its improving but all too slowly.

My hypothesis? We need to digitize the industry, creating an entirely new market of winners & losers. As it’s the largest asset class in the world then the owning a dominant chunk of this is extremely appealing.

Why Adfenix & why so capital efficient?

Well they start at the top of the funnel where the most acute pain and need is felt, driving up listings for their customers whilst driving down the cost of acquisition. They increase speed to first viewing and speed to offer.

Remember listing and transactions volumes as relatively static by country, by region and by office / postcode. So if you’re on Adfenix you are acquiring listings faster than your local competitor and as the total is static those not on Adfenix are declining. The more you use Adfenix the faster your competitors decline. This is a very powerful dynamic.

This is a classic “on or off digital network” play leading to market share dominance.

How is this playing out?

They have 10 of the 11 biggest estate agents in their home country Sweden – not bad. They see 80% market share of all listings – that’s dominant. Good start.

When we met in London in January they had 4 estate agents in the UK from the 80 that they’d identified. When we closed last week they had 36 (900% up in 8 months) of 80 all delivered by a single country manager.

This year they have lit up Australia, New Zealand and France. As the speed to value for customers is so fast the adoption and the cost of dominating a country or territory are very low vs market comparisons.

All pre funding. So far Adfenix has raised less than $1m and has run rate of more than $6m whilst operating in multiple international markets with a CAC payback of less than a month. This is quite an incredible narrative.

Summary – It's playing out extremely well – mass adoption of their market with an extremely low cost of acquisition. Speed to value explicit not implied, customers who love them and their prospects are being killed by their customers which further accelerates adoption. Nice.

The team

Lastly as a final note – the core team and the founders have something very special about them and I don’t say this lightly – its because of an very unusual coincidence.

Young, smart, living together, uncompromising with an intellectual rigor which translates to rapid execution. They are operating at an exceptional cadence that I call “Adfenix Speed”.

When building MessageLabs we talked about the challenge of “MessageLabs Speed” - the problem of people joining, getting up to speed and running at our pace. We were young, smart, living together, uncompromising with an intellectual rigor which translated into rapid execution.

Great founders are rare and I don’t want to get ahead of myself but great teams are really really scarce. I encourage founders to make big bets on hires - I say "The best hire is often the hire which makes you the most unnerved". This team really unnerves me and I love it.

Posted by Chris Tottman, Partner at Notion Capital.

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