Clutter and the Emergence of Real Estate-As-A-Service Platforms
Reimagining how physical space is utilized and monetized
Today, Clutter announced its $64 million Series C financing led by Atomico, with Sequoia Capital, GV (formerly Google Ventures) and Fifth Wall. This brings Clutter’s total capital raised to more than $100 million, making it not only the largest on-demand moving and storage company operating in the most markets, but also the most well-funded by a factor of over 2x. You can read more about this raise in Bloomberg, Forbes, TechCrunch, and LA Times.
I am fortunate to have been an investor in Clutter since its inception. Back in 2014, I assembled a $250K AngelList syndicate at the Seed stage, and Fifth Wall is thrilled to have committed $12.5M towards the Series C. Brian and Ari’s clarity of vision, ambition, energy and pragmatism deeply impressed me — I emerged from our first conversation with a strong sense that Clutter would become the emergent winner in the rapidly growing on-demand self-storage category. Brian and Ari had an understanding of the unique dynamics of the self-storage industry: a rare comprehension of why the incumbents had neglected their customers and how they were deeply limited by the constraints of urban real estate (where a lot of self storage facilities are located).
At the time I initially invested in Clutter, there were already a number of other players in the category (MakeSpace, Boxbee, etc.), but most of those players were focused on a strategy of expanding self-storage to the Millennial customer: enabling them to store their winter sweaters in the summer and swimsuits in the summer. That business model has proved challenging for those companies because, unlike traditional self-storage, which depends on long-term customers (that rarely want their stuff back), Boxbee and MakeSpace were forced to constantly deliver & pick-up items from customers. Their margins suffered as their business models became rapidly unsustainable and they were forced to pivot or recapitalize / restructure their businesses. By contrast, Clutter demonstrated a clarity of vision from the outset, which is the key reason why they have been able to catapult so far ahead of their competitors in just two short years. Clutter, rather than focusing on growing the number of self-storage customers, instead focused on making self-storage better and less painful for those that were already using self-storage. They weren’t trying to grow the already massive number of storage users in the US; they were simply trying to make the experience of storage better for those users. By taking this approach, they have demonstrated strong gross margins where others have struggled, taken market share quickly from their competition, and raised capital from higher quality investors.
So what does Clutter do? Simple. Clutter is the most convenient way to move and store what matters. Their professional movers help you safely store your belongings, and their logistics platform manages and retrieves your items with the click of a button. They do everything: pack, pick up, photograph your belongings and transport them to a remote, secure industrial warehouse. If you’ve ever been to a Public Storage and lugged your sofa up a flight of stairs to shove into a unit, you can likely appreciate how superior Clutter’s customer experience is.
But the beauty of Clutter isn’t just a superior consumer experience to its alternatives, it’s also cheaper and more efficient. Clutter can store the same items at a fraction of the price of a traditional self-storage facility because those items are stored in a lower cost location outside of a city center. Clutter can pack your items more densely and securely into that space. To put that in context, if you’re storing items in downtown San Francisco, you are paying a higher price for the implicit opportunity cost of the office building or luxury condos that could be built on the site of your self-storage facility. By contrast, as Clutter fills up its remotely-located industrial warehouses with consumers’ belongings, its costs get cheaper and cheaper. And, unlike a physical self-storage location, Clutter can never “fill up;” there’s a virtually limitless amount of underutilized industrial space available at very low rental rates.
Real Estate-as-a-Service
Basically, Clutter leverages technology via their logistics platform to make self storage not suck — and this unique application of technology to reimagine service is what’s perhaps most interesting about the company. Clutter is representative of a fast growing new category of disruptive platforms reimagining the meaning of real estate as a “service” rather than an “asset.” We believe that Clutter is one of the best and most successful examples of this entirely new category of real estate company, a category we called “real estate-as-a-service.” Clutter has, in effect, bifurcated the service of real estate (storing items) from physical asset ownership (owning a storage facility).
The emerging “real estate-as-a-service” category is exploding: Airbnb, WeWork, Common, b8ta, and Clutter all fall into this category. All of these businesses monetize physical space to some extent, which is the definitional hallmark of any real estate business model, yet they also decouple the “service” of real estate from asset ownership. WeWork is selling you office space as a service, b8ta has created a physical storefront for online retailers as a service, Common is selling you a place to live as a service, and Clutter is moving and storing your belongings as a service.
These businesses are becoming enormous — there is $267 billion of aggregate public and private enterprise value in real estate technology companies. WeWork ($30 billion) is valued more than Boston Properties ($19 billion), the largest public owner of office buildings in the US. Airbnb ($30 billion) is valued significantly higher than every other hotel company including Marriott, Hilton, Starwood, etc. But neither WeWork nor Airbnb owns a single asset. Granted these are private market valuations, not public valuations, but the point still stands: you don’t need to own assets to build huge real estate companies anymore.
It’s important to note that the actual brick and mortar buildings where these services are being provided are not owned these service providers themselves; they are owned by regular real estate landlords who have simply leased, master-leased, or somehow partnered with WeWork, Common, B8ta, and Clutter. While those landlords have been in effect disintermediated from the end-users by these real estate-as-a-service companies, this is not an altogether original phenomenon in the real estate industry. In fact, it’s existed for decades: when you stay in a Marriott hotel, you are not actually staying in a physical building that Marriott owns. This new breed of real estate-as-a-service companies have simply applied this model to a broader set of real estate sub-sectors: residential, storage, retail and office.
A New Way to Monetize Space
So with no physical real estate assets, how do these real estate-as-a-service companies actually monetize space? With some combination of a few innovative approaches:
- Rental Arbitrage: Leasing space and then releasing it at a higher rate and/or with denser utilization. When done at scale, this generates a positive margin between the rent charged to customers/tenants and their fixed cost (the rent they pay their landlord). WeWork is the paradigm here: it signs leases with landlords and then releases that space at higher rates with higher occupancy (more tenants, many shared desks/offices) to make a positive rent spread. In some cases, WeWork actually has the leverage to now utilize a franchise model due to its brand recognition allowing them to offload both buildout cost and re-lease risk by simply structuring a revenue-split with the landlord while having no fixed costs.
- Geographic Arbitrage: Utilizing logistics technology to sell space that is far cheaper because it’s in a less in-demand location. Clutter is the paradigm here: Public Storage locations in downtown San Francisco are really expensive. Why? Because there are very attractive alternative uses for this space. Public Storage has to compete with all the alternative and better uses for that location (apartments, retail, office space, etc.). These alternative uses are embedded in the higher rates you pay for these locations. By comparison, Clutter stores your stuff outside the city in industrial storage facilities in remote locations on giant racks where Tetris-like algorithms densely pack items to maximize space efficiency. The result: lower cost, both to Clutter and ultimately to the customer.
- Enfranchising Unused Space: Leveraging sharing economy concepts by enfranchising and then monetizing space that would otherwise go unused. Airbnb is the paradigm here: There’s an enormous amount of underutilized space in the world from empty bedrooms to empty parking spots to spare desks in offices. Individually, they are hard to market but with a marketplace, all of this space is now monetizable for owners and discoverable to end-users. Airbnb is the best example here: it transforms spare bedrooms, sofas, or times when you’re not using your house or apartment into an on-demand hotel room. Airbnb just takes a cut off the top, while creating a supplementary income stream for homeowners or renters.
In truth, all the real estate as-a-service companies referenced borrow from all three approaches, some more so than others. There is some downside here: none of these businesses have a real estate upside. Meaning, when the value of a real estate asset increases, a traditional real estate company captures that upside. Since Airbnb, WeWork, and Clutter don’t own their assets, they don’t capture that potential upside. The flipside of that is that these companies don’t take real estate risk. When real estate values go down, it doesn’t impact these tech-enabled real estate concepts — in fact, it may benefit them as their rents may get cheaper (WeWork is exposed to long term leases in a real estate down cycle but a proliferation of their franchise model could insulate them to a certain extent)
These asset-light tech-enabled real estate companies are encroaching on the largest industry in the US by a wide margin: the real estate industry which represents $40 trillion of asset value (larger than the US debt or equity markets) and contributes $2 trillion to US GDP (14% of the total). They are hyper-scalable, partly because they are so capital efficient you don’t need to purchase and finance hard real estate assets.
Clutter is a rocket ship. In just three years, it has emerged as the clear front-runner in the rapidly growing category of on-demand self-storage and now poses a real disruptive threat to a $30 billion per year self-storage industry in the US. They are launching in Chicago today and are actively working towards 50 more markets over the next five to seven years, including internationally. We couldn’t be more excited to be partners with Brian and Ari!
I sat down to talk with Brian and Ari about the fundraise and what’s next for Clutter here:
