Nestpick, the troubled Rocket Internet-backed startup that had ambitious plans to move the entire furnished apartment and room rental process online, is rebooting today under new management and with a different business model and product.
Its founders, including CEO Fabian Dudek, left the company in May having already lost majority ownership to Rocket Internet (see below), while the pivot sees the company become an aggregator — or meta-search engine — for furnished apartment rentals.
Similar to search-based aggregators for car rentals, vacation rentals and hotels, Ömer Kücükdere, Nestpick’s new Managing Director of Nestpick since August, says the aim is to consolidate all of the various listings found on partner sites and ultimately make it easier for expats, students or just about anybody to find a new place to rent mid to long term.
“This was a joint decision of all investors in order to kick off with a new business model/restructure the company
He also explains that operating a meta-search engine is a drastically less capital intensive business than the startup’s previous model that saw it offer direct apartment bookings through the site and handle things like the management of landlord deposits and other operations. This has seen Nestpick’s staff go from a high of about 150 to around 20.
“We took some time to analyse our business model carefully and to adjust it accordingly to demand,” says Kücükdere in a statement. “The real estate market is one of the most promising fields with an increasing demand for furnished apartments, for instance by expats and international students. This is a huge opportunity.”
This “huge opportunity” is one that Kücükdere reckons the new Nestpick is the first to address now that there is enough fragmentation in furnished apartment rentals to warrant an aggregator in Europe that can send qualified leads to direct booking sites and apartment rental classifieds. The new Nestpick currently indexes 40,000 listings in 17 European cities.
He wouldn’t, however, be drawn on how much money Nestpick has left in the bank, except to say it was enough after it raised $11 million in Series A funding in November 2015.
Nor would or could he comment on why Nestpick’s founders were no longer at the startup, which had previously been hailed as a Rocket Internet success story, and under what circumstances the board brought him in as its new MD.
I therefore put the question to Rocket Internet. Specifically why Nestpick’s founders had left and if Rocket Internet — who I learned took a majority stake in the startup at Series A, if not earlier, and therefore control of the board — had forced a change in management.
“This was a joint decision of all investors in order to kick off with a new business model/restructure the company,” said a spokesperson for the German publicly-listed investor and company builder.
I also contacted Dudek, who declined to comment but did point me to this Medium post he wrote in August shortly after leaving the company. In it he talks about a lack of trust between himself and Nestpick’s investors and a failure to build the type of company culture he had envisioned.
“I didn’t check them [Nestpick’s investors] and their values like I did the people I worked with early on. It was a critical mistake. Today, I ask myself ‘Why?’” writes the Nestpick founder and ex-CEO. “The efficiency of a board, which is particularly necessary in the early days, correlates largely with the amount of trust among its members. The amount of alignment in the values among all the investors and the founders”.
Once you’ve sold your soul and given up majority in your company you have to unfortunately accept the reality of what that means
In the same post, Dudek also alludes to the fact that he and his co-founders lost majority ownership in return for raising so much money early on and this, in his view, contributed to the original Nestpick’s failure. “I learned that taking on money comes at the cost of giving up control, which slows decisions down,” he writes, in a candid conclusion filled with other valuable lessons.
Lastly, I got on the phone to Mangrove Capital Partners’ Mark Tluszcz. Along with further funding from Rocket Internet and investment from Enern, Mangrove also participated in Nestpick’s Series A and Tluszcz had previously told Bloomberg that he regretted doing so.
Although he questioned Nestpick’s original business model, saying that it worked but would never have amounted to the size of company Mangrove, Rocket and the startup’s founders first thought it could be, in our call he laid failure squarely at the founders losing ownership of their own company so early on.
“We came in post-Rocket Internet essentially buying the company from the founders… the mistake started there,” Tluszcz told me. “We found ourselves in the middle between the founders and the majority shareholders. This was not a match made in heaven but more like olive oil and vinegar that couldn’t get along. But very typical of a bad situation from the outset”.
In typical Rocket fashion, it appears that the emphasis was on growth at almost any cost. “It’s definitely the Rocket Internet model of finding something they like and pushing on the gas as quickly as possible. And when you do that you consume a lot of cash and along the way you make a lot of mistakes. If you have an unlimited amount of cash that’s not a big deal,” says Tluszcz.
“In the Nestpick situation, the guys at Rocket probably don’t think they did anything wrong: ‘we did our usual model, pumped money in, the money that was lost was ours and Mangrove’s, so what the hell are the founders bitching about?’,” he adds. “But you get into the situation where if you need more money the founders get diluted to such a point where they lose interest in running the business and you lose the culture of the company and all that stuff. I think that’s really what happened.”
That’s also a sentiment echoed in Dudek’s Medium post. In it the young founder writes about the pressure placed on him to scale the startup before the necessary experienced management team was put in place, and says he wishes he’d taken VC Fred Destin’s advice — that finding and hiring the core team before scaling is key — a lot earlier.
“Having tried to fund the crap out of the business, both Rocket and then us coming in and giving them quite a bit of money and just saying grow, grow, grow, I don’t think they thought their model through properly,” reflects Mangrove’s TluszczI.
“Then the founders found themselves needing more cash and getting more diluted and that’s when things just go to shit. Once you’ve sold your soul and given up majority in your company you have to unfortunately accept the reality of what that means”.