The squeeze on venture capital could hurt real estate startups

  • Some real estate companies are valued using different standards than others -- top-line revenue instead of net income or vice verse.
  • This leads to sky-high valuations for some companies -- but there could be bumpy roads ahead for tech startups.
  • Deals are still getting done though -- and the goal is to be a "cockroach," a self-sustaining company that doesn't need huge valuations and funding rounds to survive because it is continuously profitable.

Real estate broker Joe Rand feels envy and frustration when he reads about the financial valuations of companies like Compass and Redfin — or even ZipRealty when it sold to Realogy for $166 million in 2014. Zip was valued at six times top-line revenue, while the valuation arithmetic for traditional brokerages — like Rand’s profitable Better Homes and Gardens brokerage — is only four to five times net income.