Local software startups don’t often score venture money, but HouseCall is bucking that trend after closing an $11 million deal late last month.
The company didn’t announce the deal, but its parent company Codefied Inc. filed paperwork with the Securities and Exchange Commission in August signaling that it had raised new money. The startup confirmed that the new capital was a Series B round led by a top-tier venture capital fund in Chicago called Baird Capital. The round also included existing investor August Capital and private investors.
The San Diego company makes a suite of software tools for home service professionals (think plumbers and electricians) called HouseCall Pro. The software helps service professionals with scheduling, invoicing, payments, and marketing, among other features.
Ian Heidt, the son of a painter and the company’s CEO, founded the company back in 2013 to help connect independent service professionals with new customers.
“I grew up in the back of someone’s truck, and I understand how that lifestyle is,” Heidt said. “We want to give back time to those people. If a parent is missing a T-ball game because there’s some kind of inefficiency that exists in the world, there will be a role for software to free up people to live a better life.”
Service professionals are prolific in the U.S., so HouseCall’s target market is sizable. Adding together all of the people working in the industries HouseCall can serve, the figure is more than 5 million individuals, according to market research firm IBISWorld. The status quo to managing service providers workflow has been rather low-tech, with plumbers and electricians, for example, often relying on several apps (along with traditional pen and paper) to manage their projects and payments.
“There’s this big part of the economy that’s largely not had great access to software to help their business,” Heidt said.
Uber of X Model Is Costly
The company’s core revenue driver is this software-as-a-service, but HouseCall didn’t start out that way. When the startup first launched, its main tech was an app that helped consumers find and book carpet cleaning, plumbers, and other home service work. The app was part of the “Uber of X” trend, in which Uber’s early success inspired a whole new category of software startups offering on-demand services.
Once promised as the future of tech, the Uber of X model has recently come under scrutiny as startups in the category falter. Some, like on-demand parking services Luxe and Zirx, have changed their business models. Others, like Instacart, have raised prices. And Uber itself has struggled to live up to its high valuation. TechCrunch went as far as to forecast an Uber of X apocalypse in 2016.
Bobby Ocampo, a local venture capitalist who invests in tech companies, said he thinks it was wise for HouseCall to pivot away from the consumer-facing app and focus in on a B2B product instead.
“To get the attention of everyday consumers like you and me, these Uber of X companies have to spend a lot of money and a lot of time,” said Ocampo, partner at Revolution Ventures. “Even companies like Uber — who we all believe to have succeeded — they burn several hundreds of millions of dollars per quarter. Even smaller companies burn a lot per month. And that’s really hard for an investor to stomach. We don’t want to fund losses, we want to fund profits.”
Eric Otterson, who sees and evaluates a lot of startups in his role as managing director of Silicon Valley Bank, said Uber of X companies have a lot of expenses.
“The challenge of an Uber of X strategy is that you are attacking two sided marketplaces, and you must manage both supply and demand,” Otterson said in an email. “In addition to double marketing/sales costs, you may have dual operations (maybe you have to build two separate user interfaces, for example).”
On the other hand, a direct B2B software-as-a-service company such as HouseCall Pro only has one focused market and can specialize in a niche area (and dominate the space), Ocampo said. In fact, Ocampo’s firm, Revolution Ventures, invested in a different San Diego startup that has a very similar business model to HouseCall Pro. That company was eSUB, which raised $5 million late last year from Revolution. ESUB also took the B2B software-as-a-service approach, and Ocampo said the company is aggressively expanding.
“It’s easier to sign one $1 million deal, then to get 1 million consumers to give you a dollar,” Ocampo said.
Uncovering Bigger Opportunity
Heidt said HouseCall recognized the need to invest in their B2B software within months of launching its business. In the early days, HouseCall’s founders would ride along with service professionals who were using their app, working jobs with them and buying them lunches.
“We saw that they were juggling a bunch of different solutions to keep track of things,” Heidt said. “What we were doing on the consumer side had a really clean fit to help them manage their jobs. So we realized there was a potentially bigger opportunity for us to focus on making their lives better.”
And Heidt stressed that HouseCall will continue to evolve its services. In fact, he didn’t like the word “pivot” at all. He said the leadership team is constantly evaluating the company and its operations, and reiterating over and over again.
“You have to be designed to deal with change, and we won’t stop,” Heidt said.
Company Is Hiring
HouseCall employs more than 50 people in La Jolla, and including their latest round has raised about $20 million in startup capital since its founding. Today, the app company has millions of homeowners using the platform, with tens of thousands of professionals using the software.
Heidt said the company plans to expand its team in several departments, including sales, customer success, engineering, marketing, and business development. Although Heidt declined to share how many people the company would be hiring, he said it was “not a small number” and that the company would be growing “significantly” over the next few weeks.