Stake cofounders Rowland Hobbs and Jimmy Jacobson
Courtesy of Stake
Less than a year after closing a $4 million seed round, the cash-back-for-renters platform Stake announced the close of its Series A totaling $12 million, and a $52 million valuation, a valuation being reported exclusively here. The round was led by RET Ventures who included Stake as one of the first investments for their new ESG Fund. Existing investors Shadow Ventures and Olive Tree Ventures participated in the round as did Enterprise Community Partners, Blue Field Capital, Hometeam Ventures, Operator Stack, and Second Century Ventures (the investment arm of NAR). Stake is available in over 12,000 homes in Georgia and 8,000 in Texas, as well as smaller footprints in other markets where they plan to expand as a result of the new raise.
Stake’s cofounder Rowland Hobbs’ previous work in the finance industry showed him how little attention was given to the rental population, estimated to be about 45-48 million people or 36% of U.S. residences, and how hard it was to deliver any programs for the population at scale.
“For the first 18 months of Stake we were testing different solutions in New York. I showed hundreds of apartments as a broker, running up and down stairs in hot August weather,” said Hobbs. After showing prospective renters different solutions similar to reward points models, it wasn’t until one frustrated and angry renter looked at Hobbs and said, “It’s the money, Stupid.” that led Stake to pivot to a cash back model.
Renters using Stake’s platform have a Stake wallet similar to a regular checking account and debit card from which they pay their rent or most other expenses. For those that pay rent on time they receive an average of 4% cash back into their wallet. If they keep at least 80% of the cash back in their wallet they can receive an additional 1% of their rent as a bonus each month. These wallets can be linked with paycheck deposits, Venmo, ACH payments or other typical deposit mechanisms. While they don’t pay interest, Hobbs describes them as ‘fair’ banking accounts since they don’t charge fees, even if the balance is zero, and more people are eligible for an account even if they have a negative financial history because there is the option to keep additional funds in an escrow-like account. According to Hobbs, 25% of their renters use the Stake wallet as their primary checking account.
This application of an end-to-end fintech platform being used in a real estate context has all the promise of being proptech’s next big trend. Namely one which starts at the ground level, rather than aiming to be an industry disruptor which has been the pattern so far in most real estate-focused startups. Fintech has suffered and needs new avenues to seek revenue in order to stay viable, and housing has become so much more out of reach for so many more people that anything which lowers their costs will be seen as welcome relief.
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“Part of upward mobility is interacting with the financial system,” said Priscilla Almodovar, President and Chief Executive Officer of Enterprise Community Partners, one of the investors in Stake. Enterprise Community Partners is a national non-profit focusing on rental housing for low-income or other high-need populations, such as the elderly or disabled.
“Homeowners have nearly 40 times more wealth than a renter,” says Almodovar. “But we also believe that we can’t give up on the idea that a renter doesn’t have that economic mobility pathway. We’re about how [to] create that pathway and it doesn’t just have to be homeownership. That is why this is exciting for us. It’s a solution to test can a renter share in the wealth of the rental property they live in through this cash back.”
For every one dollar in cash back the property owners receive an average of $2.11 in return, says Hobbs. This can be in the form of lower tenant turnover, increased on-time rent payments, decreased promotional costs and overall lower overhead for managing rentals.
“One thing Enterprise does,” says Almodovar, “is we try to move capital markets. We try to show investors they can invest in these systems, why it’s a good return on investment to have a more stable tenancy.”
Stake also applies machine learning and data aggregation to its models to define, “how much cash does it take to achieve the action” as Hobbs describes it. They compare behavior of tenants in studios versus the units with varying numbers of bedrooms, seasonality trends and anonymized spending behaviors based on income levels.
“We’re connected to the property management software,” said Hobbs. “We’re the only group that can really tell you in an anonymized and aggregated way what renters are doing and put that together into models that then also show does this return money to you. For the owner they want to see that they’re coming out ahead.”
Their analytics are also connected to listing sites, such as Apartments.com, and thus far their data show an ad with the words “Cash Back” receives four times as many clicks compared to those without. “Not only does it drive more clicks, but more qualified leads,” said Hobbs. “When we add a cash back reward, people are like, ‘Oh, I get the cash back if I’m paying on time’. So you get an increase in people who have a higher propensity to pay.”
This increase in tenancy stability and putting cash back in the hands—or accounts—of renters may have popular appeal given all the strains on the housing market, but Almodovar suggests it has a bigger ideal in its trajectory. As she concludes:
“This is not about saying cash back is going to substitute being a homeowner or it’s the end all and be all. [But] we can’t accept the idea that renters cannot be part of economic opportunity and have access to this innovation that’s happening.”