Case Study: Proptech Start-up
Challenge
The client’s business experienced financial challenges due to an absence of robust financial infrastructure and a growth rate that significantly surpassed initial projections. The core of these issues was largely related to the company’s revenue model, which hinged on the chances of a client selling their home. The company lacked a comprehensive forecasting model to accurately predict the probability of home sales. Consequently, they were unable to systematically differentiate between homes likely to sell (“good”) and those less likely to sell (“bad”). As their portfolio expanded, they started to feel the impact of this shortcoming on their profitability.
Approach
Addressing these challenges, we embarked on a systematic and strategic approach. Our first step was to develop and implement a comprehensive financial infrastructure, designed to cater to the accelerated growth rate of the client’s business. We aimed to create a robust system that would accommodate and effectively manage the rapid expansion, thereby preventing any future financial disruption.
In addition to the improved financial framework, we recognized the need to refine the client’s revenue model. To rectify the issue of dependency on home sales, we initiated the development of a detailed probability of home sale forecasting model. This model would enable the company to systematically differentiate “good” homes, which are more likely to sell, from the “bad” ones, which have a lesser probability of sale.
This twofold approach not only provided a more stable financial base for the company but also improved their ability to manage their property portfolio effectively. By enhancing their predictive capabilities, they could make more informed decisions, ultimately leading to an improved bottom line.
Implementation
Securitization Model: We constructed an internal securitization model, which served as a cornerstone in the client’s capital-raising efforts. The model incorporated the underwriting of potential home sales, their future value, and the probability of default. This data-driven approach played a pivotal role in effectively communicating the client’s business model to potential venture capital and private equity investors.
Sales and Conversion Optimization: To improve sales conversion rates, we developed and executed a predictive model. This model identified and prioritized leads based on features associated with higher sales conversion rates. The implementation of this approach led to a considerable reduction in cost per conversion and a corresponding increase in the underwritten Internal Rate of Return (IRR).
Portfolio Management: With the help of our probability of home sale forecasting model, the client could now effectively manage their property portfolio. By understanding the likelihood of a property selling, they could make more informed decisions about which homes to prioritize, leading to improved profitability.
Results
Capital-Raising Success: The implementation of the internal securitization model led to increased investor confidence, assisting the client in raising their $12 million Series A round from prominent San Francisco venture capitalists.
Enhanced Conversion Rates: The application of our predictive model for sales and conversion optimization resulted in a 32% reduction in cost per conversion. This efficiency gain, coupled with an 6% increase in the underwritten IRR, substantiated the value of our approach.
Strengthened Financial Infrastructure: The improvements made to the client’s financial infrastructure facilitated their business’s accelerated growth rate. With our robust systems in place, the client reported a 18% reduction in financial disruptions and increased output per employee, due to the enhanced monitoring mechanisms, contributing to smoother operations and improved profitability.
Improved Portfolio Management: The introduction of our probability of home sale forecasting model led to more informed decision-making. As a result, the client reported a 24% increase in successful home sales, when compared to the prior year, directly benefiting their bottom line.
The client’s financial challenges were effectively addressed, leading to improved operations and increased profitability. Through these data-driven, comprehensive solutions, we set the client on a path to sustainability and success in a rapidly evolving marke2