Q&A: PropertyGuru's Steve Melhuish

Q: What led to PropertyGuru being founded?

A: It was 2007 and the Singapore property market had been fairly quiet for seven years. The economy was booming, the government had launched an immigration program, so the population started to grow rapidly. This led to a housing boom and developers would buy entire buildings, ask everyone to move out, and then redevelop. About $13 billion in property was transacted. I was renting a property at the time and I had to move out. I went online because that’s what I used to do in London, but the reality was the internet wasn’t being used heavily in Singapore then. That said, internet banking was starting to take off, low-cost airlines were starting to offer online booking, and there was e-commerce with eBay. I did some research and it became clear that Southeast Asia’s large population, GDP growth, urbanization and emerging middle class would be key drivers for a very large real estate market. On top of that, online business was expected to grow rapidly over the next 10-20 years. Looking at property portal business models around the world, in markets like France, Germany, the UK, and Australia, they had been around for nearly 10 years and were generating EBITDA margins of 30-70%. And the business model seemed to cross borders quite easily. 

Q: What was the next step?

A: I put together a business plan, pitched it to an investor friend, and he introduced me to my co-founder. We started in 2007. The focus for the first four years was Singapore. We wanted a strong base in the home market before spreading ourselves too thinly. We bootstrapped ourselves for 18 months, then we raised $1.2 million at the end of 2008. There was no VC investment at all in Southeast Asia in those days and a high degree of skepticism around internet businesses. We jumped through a lot of hoops with the government as a potential investor and they came back and wanted to renegotiate the valuation because we were just an internet play. It was already a pretty low valuation. In the end we were lucky to get an initial group of investors, mostly high net worth individuals and early-stage investors as well as a hedge fund. This allowed us to hire some staff, spend money on marketing, and essentially prove we could build a successful Singapore business. We became profitable in 2010 with a 75% market share. We went from 1,000 real estate agents paying to use our services in year one to 10,000 in year three.

Q: You then started expanding into other markets. What challenges did this present?

A: We underestimated some of the complexities going from a single market to multiple markets. It’s not just that the ways in which people look for property are different – for example, in Singapore they search by the name of the condo whereas in Thailand it’s all about the neighborhood and transport stations. There are a bunch of internal challenges. We were in one market and then within four months we expanded into Malaysia, Indonesia, and Thailand. We had a high-performance team – sales and marketing, product and technology, human resources, finance – just focused on Singapore. Suddenly they were being asked to build a website in Malaysia, apps in Thailand, hire 50 people in each country, and think about approaches to branding and pricing. We hired about 150 people rapidly and they soon became ex-staff. We were on the run and they were not inducted properly, and the correct processes weren’t in place. The Singapore business suffered slightly for a couple of years due to the distraction.

Q: How bad did it get?

A: We stretched the team close to breaking point over about two years, 2012-2014. It was also a very stressful time because we were doing a fundraise to support the internationalization process. That took 12 months and it was a full-time job for myself and my co-founder. That was done in addition to spending time in each market, hiring people and supporting the local teams. For the first five or six years we were working seven days a week, 14 hours a day, but 2012-2014 was particularly grueling. 

Q: Has the company also evolved structurally?

A: For the first three to four years we tried to persevere with appointing a country manager as the local CEO running each country fairly autonomously with some support from headquarters. That didn’t really work because we weren’t paying mini-CEO salaries. We then moved to a functional structure: local marketing teams report to the CMO, local finance teams reporting to the CFO. This improved consistency in terms of KPIs and business processes. Country managers are now in charge of all sales locally and act as the advocate for their country, but the functional structure dominates. As a result, we now have moved about 40% of the product and technology team to Thailand and increased the size of the whole team. We also built a finance service center in Malaysia, which is where most of the finance and customer operations are based. So, the headquarter functions are not just in Singapore and two thirds of our overall staff are outside Singapore. 

Q: So where are you now?

A: I would break our lifecycle into three segments. The first was bootstrapping to prove the business model in Singapore. The second was internationalization, that took us from 2011 to 2015. The question was could we build a consumer product that helps people find property and make property decisions and become a market leader in all our markets. It took a little longer than we expected, but we got there. The last two-and-a-half years have been about professionalizing the organization, building out a strong executive leadership team, and the business processes that help to support further scaling. 

Q: PropertyGuru is one of relatively few Southeast Asian start-ups – for now – with a PE investor. What led to TPG Capital getting involved?

A: We raised funding in 2012 from Scout24, a subsidiary of Deutsche Telekom. They were a semi-strategic investor and we worked closely with the property portal team in Berlin. Two years later Deutsche Telekom had a restructuring, consolidated a lot of its businesses including all the digital assets, and sold the majority of Scout24 to Hellman & Friedman. We went from having a highly aligned shareholder to one that was completely misaligned. When we embarked on the fundraise in 2015 we wanted to raise capital to get the business to a profitable position, which is on course to happen this year, and exit Scout24. Emtek, the largest media company in Indonesia and a minority investor in our Indonesia business came into the round alongside Square Peg Capital, which is led by Paul Bassat who has experience of internationalizing Asian businesses. TPG was how we exited Scout24. We were initially concerned about working with TPG. Up until that point we had no experience of working with a large PE fund. At its turned out, all three shareholders have been highly aligned, complementary and supportive. TPG has been good on operations – compensation schemes, finding the right people, vetting people, business processes – and on local relationships by leveraging their network in Southeast Asia with some of the big families and the big banks.

Q: Do you need to raise another private funding round?

A: From an operating point of view, we do not need more private capital. In terms of potential M&A, we might consider another fundraise. Given the scale of the business, the strong performance in the last three years or so and moving back to profitability again, an IPO becomes a very real prospect over the next 18 months to two years.

Q: Start-ups now don’t have the fundraising problems you had in 2007. How complete is the ecosystem?

A: If you had asked me that question two or three years ago I would have said there was a very clear gap in terms of Series B to C rounds. I think that is now gradually being filled. I don’t see a lack of liquidity or investment opportunity in the region. Finding some businesses that scale is the challenge. Not many large companies have actually scaled their businesses across multiple markets. At the same time, the markets are growing rapidly so we will see more companies and more investment over the next five years.  

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• Topics
• Southeast Asia
• Technology
• Consumer
• Real estate
• Singapore
• TMT
• TPG Capital