Opendoor will go public via SPAC

by Lucinda Shen in Fortune Term Sheet on September 15, 2020

Social Capital CEO Chamath Palihapitiya has found his next investment on his quest to become the Warren Buffett of tech investing.

Opendoor Labs, a homebuying startup backed by firms including SoftBank and Khosla Ventures, plans to go public via merger with Palihapitiya’s second blank-check company in a deal that values the company at $4.8 billion, the duo announced Tuesday.

As part of the deal with Social Capital Hedosophia Holdings Corp. II, Opendoor will receive $1 billion in cash, which includes funding from the blank-check company itself and some $600 million from investors including Black Rock and the Healthcare of Ontario Pension Plan. The company was last valued at $3.8 billion in early 2019.

What’s particularly interesting about Opendoor: The company specializes in so-called instant buying, a practice that has grown in popularity among digital real-estate companies. In contrast to real-estate marketplaces where a company merely lists a property, companies using the iBuying model seek to simplify the process by buying the property themselves and reselling it for a profit—but such players are especially exposed during a downturn.

Opendoor struggled in the early days of the pandemic, laying off 600 employees, or 35% of its workforce, in April as consumers stayed at home.

At the same time, digital real-estate companies have held up surprisingly well despite an early dip in the pandemic. Consumers continue to buy homes—especially online—in a socially-distanced society. While it’s unclear how exactly Opendoor is now faring financially, shares of competitors Redfin and Zillow—which have also jumped into the iBuying market, though to a lesser degree—have breached all-time highs. But both, notably, have sought to raise additional funding, with Redfin selling some $110 million of stock to Durable Capital Partners in March and Zillow announcing plans to raise $1 billion through stock and convertible debt offerings.

Opendoor’s raise is a sign of the times. While the first Social Capital Hedosophia took two years to announce an acquiree, Virgin Galactic, Social Capital Hedosophia II priced in late April and found its target in about five months.