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Why Are Chamath Palihapitiya and a Major Real Estate Firm Excited About This SaaS Company?

By Matthew Frankel, CFP® - Mar 19, 2021 at 6:27AM

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Some big-name investors see tremendous value in this business. Here's why.

Property technology company Latch is an interesting story among the ranks of special-purpose acquisition companies (SPACs). Not only did it get $300 million in capital raised by Tishman Speyer-sponsored TS Innovation Acquisition (TSIA), but it also received a private investment round of $190 million led by Chamath Palihapitiya himself. In this Fool Live video clip, recorded on March 8, contributor Matt Frankel, CFP, asks Latch CEO Luke Schoenfelder about the impressive roster of big-name investors willing to put their money into this smart home software-as-a-service business. 

Matt Frankel: We recently learned, for those who don't know, you're going public through a company called TS Innovation Acquisitions Corp.

Luke Schoenfelder: Yeah.

Frankel: They are Tishman Speyer, SPAC, I believe is the sponsor.

Luke Schoenfelder: That's right.

Frankel: You're not just getting the SPAC proceeds, you're getting what's called a PIPE that is part of pretty much every SPAC deal, and there are some pretty impressive investors on that. How did you attract all of them?

Schoenfelder: One of our values as a company is just humble excellence, and so it's really focusing on doing the work. We found that we've just kept our heads down and we've just done the work. When we had this opportunity to align with Rob Speyer and the Tishman Speyer team, I had known Rob for years, he had been a customer, they were a small early investor. There was just this really cool value alignment with what Tishman Speyer does in the world and the types of products that they build and the long-term thinking that they have. When we went out to raise our PIPE, the clear value that we could create together, but also the clear alignment of corporate values and just philosophy, we've got people really excited. So if you look at the folks that came in on the PIPE, Fidelity, Wellington, BlackRock (BLK 2.16%), Durable, Chamath, that's a really incredible set of folks and we have the fortune to get to learn from their perspective, but also have them supporting us in this next phase of our growth.

Frankel: Speaking of Chamath, he actually called you guys the best software-as-a-service company he's ever seen or invested in. That's a pretty bold statement.

Schoenfelder: It's high praise, but if you look at our published numbers, we've never turned a customer, the average customer signs more than a six-year contract, and 97% of our customers pay upfront for all six years of their software. It's pretty incredible working capital dynamics, and again, it's a completely reasonable and rational economic act because of the way the buildings are financed, and so it is very interesting. I flash back to raising money early days in Silicon Valley, people didn't understand what we're doing. They didn't understand why we weren't selling to consumers. They didn't understand the real estate industry, and frankly, a lot of people thought that the rental market was niche. I'm sitting there being like, there's 47 million rental units in the United States, there's 47 million households, I don't know how that niche. But it just didn't click because I think a lot of the folks in Silicon Valley, they drive their electric car, particularly if you're talking about someone on Santa Road, they drive their electric car to a three, four million dollar suburban house in Palo Alto and thinks that's how the rest of the world works, and it's not, it's really not. We practically built our products to be inclusive and think about the needs of everybody. We're really proud to work with affordable housing, and really look at the entire spectrum of folks that are living in buildings in urban dense environments.

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