Lowe's-Backed Porch Raises $65 Million to Target Angie's List | Street Fight

Lowe’s-Backed Porch Raises $65 Million to Target Angie’s List

Lowe’s-Backed Porch Raises $65 Million to Target Angie’s List

banner-960x500In September, Lowe’s made a big bet on a year-old startup called Porch, investing an undisclosed sum and putting the home improvement app into the hands of associates in its 1,707 stores across the U.S. Now, with the second largest home improvement retailer in its corner, the Seattle-based company has raised a $65 million round of funding to beat out a set of cash-rich startups vying to help people manage their next kitchen remodeling (among other projects.)

The speed at which the company has raised capital — over $100 million in sixteen months — is at once remarkable, predictable, and necessary. Two competitors, Houzz and Thumbtack, have each raised in excess of $100 million since August, pitching investors on a rare opportunity to open a massive, and largely still untouched vertical to the web. A handful of other startups — Serviz and Pro.com among them — have raised smaller rounds to develop competitive, though somewhat different, products.

Each company offers a variation on a similar theme: use the web to make finding, booking and managing home service providers easier. On one end, Houzz, the company with the deepest pockets, has developed a content-driven home remodeling site that blends Pinterest with Amazon. Users can share pictures of projects, buy shippable goods like lamps and paintings, and book service providers. On the other, Thumbtack has developed a much lighter-weight professional services aggregator that allows users to request bids for projects.

Porch sits somewhere in the middle. The company has spent the last two years collecting information about home service projects directly from providers, manufacturers and vendors, sourcing photos and data on tasks ranging from painting a bedroom to remodeling a kitchen. The database allows the company to tell homeowners which contractor helped build their neighbor’s addition or whether a painter has worked on similar projects in the past.

And it’s key that the Lowe’s investment in Porch came with more than money. In the fall, associates in Lowe’s’ stores nationwide began using the Porch app to recommend service providers to customers extending a pilot launched earlier in the year. The deal helped to tip the scales for the company, Matt Ehrlichman, Porch’s chief executive, told Street Fight “by making service professionals feel like they had to be there now.”

The retailer has participated again in the firm’s recent round led by Valor Equity Partners, a private equity group that owns stakes in an odd variety of businesses ranging from Tesla and SpaceX to Dunkin’ Donuts and Sizzler. In addition to growing its existing operations, Ehrlichman says the new capital will help the company expand Porch Booking, a product that allows users to schedule and pay for appointments with service providers nationwide.

That service, which the company launched in its home market of Seattle last month, could provide a third, and potentially dominant, line of revenue for the company. The firm currently generates revenue from a subscription product which offers better placement and analytics for service providers, as well as a smaller data business whereby it sells project level data to partners in the real estate industry. A transactional network would allow the company to more efficiently scale its revenue stream, and reach an audience of smaller service providers who might be hesitant to invest in a subscription marketing product.

However, developing that network is expensive, says Ehrlichman. In the home service industry, where most providers price jobs on a case-by-case basis, the company cannot just integrate with an existing point-of-sale system. Instead, the firm pre-negotiates pricing with each supplier, creating individual SKUs for each service a professional may provide. That means the onboarding process is far more time intensive than comparable models in personal care or even transportation.

The rate of innovation within the service sector is another stark illustration of the impact that changing commercial model can have on the marketing industry. Companies can access marketing spending, which was either owned by Google, sunk in print, or non-existent, by using the web to improve the buying experience. The by-product of those transactions — the ability to know who wants what, when, and eventually who bought what, when — will allow these firms to offer new, and far better, marketing products to businesses than media ever could.

Steven Jacobs is Street Fight’s deputy editor.