Google Capital, the search giant's newest funding vehicle, has invested $50 million in Auction.com, marking its first investment in an online real estate services company.
The deal is the fourth so far by Google Capital, which takes minority stakes in late-stage private technology companies to help accelerate their growth.
The fund, which was formed last year but not made public until two weeks ago, is not to be confused with Google Ventures, which specializes in minority investments in early-stage companies. Both are funded by Google and not outside investors.
Since its launch, Google Capital has also provided capital to Renaissance Learning, Lending Club and Survey Monkey.
The fund's investment in Auction.com reportedly brings the value of the online real-estate marketplace to about $1.2 billion.
So what does Auction.com plan to do with the funding? During a recent interview, Rick Sharga, executive vice president of Auction.com, explained that the company ‘didn't really need capital – we've been profitable every quarter since we started [in 2007] – but there comes a point where you realize you can accelerate your growth with a little bit of an infusion.’
As Sharga explains, Auction.com wasn't just seeking funding – it was also seeking a strategic technology partner that could help bring the online real estate marketplace to the next level.
‘We didn't want to do just a capital raise – we really wanted to find a company that could be a strategic partner,’ Sharga says. ‘I know that's kind of an overused term, butâ�¦ the management team got together and made a list of who might be the best partner for us, to help facilitate growth – and Google was number one on the list. We met with them and, well, we never got to the second company â�¦ ‘
Sharga points out that Auction.com's platform handled more than $7 billion worth of commercial and residential real estate transactions in 2013.
‘It's a perfect alignment of interest,’ he says of the deal. ‘Google Capital's mission is to put capital into late-stage technology companies for expansion – and they're looking for companies that they believe have a chance to fundamentally change how people do business. Our vision from day one has been to fundamentally change how people buy and sell real estate by leveraging Internet technology.
‘Google Capital looks for large, addressable markets – and real estate is a $1.5 trillion a year market in the U.S. – so it was a really good fit,’ Sharga adds. ‘Given what we do – conducting online real estate transactions – having arguably the most successful Internet company in history as your partner is tough to beat.’
Sharga says there are many synergies between the two companies that go beyond just capital.
‘Having a world class enterprise like Google validate our approach to market – we're their first, and so far only, investment in real estate – we think says a lot about what we've been accomplishing,’ he says. ‘But more important, Google has probably unmatched expertise in two areas we hope to tap into – one of which is the development of online and mobile products. If you follow any of the real estate sites, they're finding that as they grow, probably half their traffic is now coming from mobile platforms. So working with a company like Google to expand into that area is something that we're really excited about.’
Where the two companies have perhaps the strongest synergies is online search and marketing.
‘Candidly, there is probably no one better at digital marketing – by that I mean SEO, SEM and those sorts of activities – than Google, and having access to that caliber of online marketing expertise is only going to help,’ Sharga says.
When asked to discuss specific upcoming projects, Sharga says, ‘It's all relatively long-term stuff.’ He says although Auction.com will be coming out with some product enhancements in the next eight weeks – including the rollout of a newly redesigned website – most of that work was already under way before negotiations with Google Capital began.
‘I think their impact is going to be most felt in the next generation of our website and the next generation of mobile products that we come out with,’ Sharga says. ‘That's probably six to nine months down the road.
‘If nothing else, we are working with the company that wrote the book on Internet search – and I think being able to take some of that intelligence and building it into the next generation of the website will result in an even better user experience,’ he adds.
Sharga emphasized that Google Capital's investment in the company is an affirmation that the real estate industry's future growth will largely be driven by online technology.Â
‘One of my favorite customer communications here so far is an email we got from a customer who was watching a soccer match in India when he learned on his iPad that he had gotten a winning bid on a property,’ Sharga says with excitement. ‘Eventually, what we want to be able to do is have a guy at the soccer match be able to place the winning bid on a propertyâ�¦ that's clearly the direction we want to go in.’
Google Capital joins other strategic shareholders in Auction.com including Starwood Capital Group, Starwood Property Trust, Stone Point Capital and funds managed by affiliates of Fortress Investment Group.
‘Auction.com has quietly built one of the largest marketplaces on the Web,’ says David Lawee, a partner at Google Capital, in a statement. ‘We think Auction.com can fundamentally change how real estate, and particularly commercial real estate, can be bought and sold, leveling the playing field for smaller investors.’