A major backer, which lost all of its £3m investment in Emoov, has said that there simply wasn’t enough cash for the huge amount of marketing needed to make a success of the venture.
He has also revealed that LSL had been on the verge of investing in Emoov but instead switched to Yopa, to the tune of £20m.
Most of all, Emoov could not compete with Purplebricks.
Simon Murdoch, a director of Emoov, said that his vehicle Episode 1 will not look at Emoov as a failure but as “a healthy learning experience”.
Murdoch also defends the business model and management, and the leadership of founder Russell Quirk.
Murdoch says: “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.”
Murdoch says: “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.
“So, if it wasn’t any of those things, what did go wrong?”
Murdoch says: “What convinced us at Episode 1 to invest £1m in Emoov back in 2015, followed in subsequent rounds to a total of £3m from us and around £20m 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.”
Murdoch continues: “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 £25m and valued the company at £240m.
“That made it almost ten times bigger than Emoov’s 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 £20m.
“At around the same time, Toscafund invested £14m 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 £20m.”
Murdoch says that Emoov came unstuck because it did not have enough funds for marketing: “It’s like getting an airliner off the ground. You have to build up a lot of speed 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.”
Murdoch concludes: “At Episode 1 we’ve been moving away from straight b2c plays for a while now. We’ve found that even with a £60m fund which equates to around £2-£4m per investee company, 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.”
The full analysis is here: