Compass is real estate’s latest industry darling and investors are falling over themselves to sink cash into the company. These guys have raised $800 million since starting in 2012, with the latest infusion being a big check from Softbank for $450 million.  If rumors are to be believed Softbank is looking to double down by throwing another $400 million or so their way. That would bring their VC investment to roughly $1.2 billion. I don’t know about you, but where I come from that’s a lot of liquidity to play with.

Compass announced at Inman Connect San Fransico that they will begin leasing their coveted technology stack to other brokerages.  Agents are completely enthralled by Compass’ tools, whether they’d actually use them or not.  If there’s a brokerage struggling to get their own tech tangle sorted out then Compass’ offer could be a boon for them. That begs the question: Why would Compass lease access to its biggest advantage? I can tell you that it’s not because of any altruistic goals of Robert Reffkin. I think it can be summed up in one word: Acquisitions. I think more specifically acquisition of independent brokerages. Compass wants in the door, behind the curtain, and its tech stack is its gateway drug.

If a brokerage implements Compass’ technology stack then all of their data is running through that system.  They’ve just pulled the curtain back to all of their critical performance data. Compass knows how the brokerage is performing, who’s producing, who’s not, conversion rates, etc.  Some, if not all, of the most critical data it would need to do what? Acquire said brokerage.  Who do you think is going to lease Compass’ system? ReMAX, CB, or Keller Williams franchises? I would think that’s not likely.  I keep hearing that “systems” are why agents go to franchise shops. Why would these franchise shops pay for two systems? I can guarantee you that CB and Keller will get their pound of flesh. Why would a franchisee pay CB for their systems AND pay Compass?  Well, they wouldn’t. It’s the independent brokerages are the shops that most likely don’t have solid “systems” in place.

Let’s consider a scenario. There’s an independent brokerage in Charleston, which is a market that Compass currently doesn’t have a presence in. They lease Compass’ systems because they believe that it’s the best solution for them and will give them a leg up on everyone else. Fast forward 12 to 18 months. Compass has been able to look at essentially all their production data, from the inside, and know exactly what their numbers are what their profits and losses look like and how they might approach them. It shortcuts 90% of the footwork and due diligence required for an acquisition.

Compass has already snapped up a couple of indy shops this year.  They grabbed Platinum Drive Realty in February, Colon West in April, The Hudson Company in June, and Paragon Realty in July.  Who’s gonna be next? Reffkin has already publicly stated he’s willing to pay 4 to 6 time EBITDA for a brokerage and that can be a pretty attractive offer to a lot of owners. Take that on top of the fact it looks like the former owners stay on as either managing brokers or sales managers.  They see it as a win-win. For Compass there’s not a downside either. If they can use their tech stack leasing to find valuable acquisition targets then it’s served its purpose, but even if the leasing brokerage isn’t a good acquisition Compass still makes money from the tech lease.

Compass has got to spend all that sweet VC capital somewhere.  Where do you think it’s gonna go?