The vacation home startup founded by a former Zillow executive is turning to retail investors after revenue declines

Pacaso, a company that sells shares in vacation homes, is selling shares to individual investors as it tries to adapt to the difficult real estate market.

Founded in 2020 by former Zillow executives Austin Allison and Spencer Rascoff, Pacaso bills itself as an easier and cheaper way to own a luxury vacation home. The company buys homes in popular vacation spots like Lake Tahoe and the South Carolina coast, furnishes them and resells shares of the homes. Individuals can purchase 12.5% ​​to 50% ownership of the home and use the space for an equivalent percentage per year.

The company seeks to differentiate itself from timeshare companies by emphasizing that buyers own the actual property, not just the right to use it for a specific period of time, and can easily sell their shares and potentially realize profits.

Financial information filed with the Securities and Exchange Commission as part of the offering shows why Pacaso is now seeking new funds. The company’s revenue fell 59% in 2022-2023 after cutting marketing expenses and selling fewer home shares. He lost $36 million last year and nearly $82 million the year before.

Last year, Pacaso sold 329 one-eighth shares in its properties, up from 593 in 2022. More than half of the shares sold last year were resale transactions. In its filing with regulators, Pacaso blamed the decline in sales on “various macroeconomic factors, including elevated interest rates and inflation, which have led to consumer uncertainty about purchasing real estate,” as well as a reduction in marketing efforts.

“When you have an opportunity to raise money, you should take it,” Pacaso CEO and co-founder Austin Allison said in a statement to Yahoo Finance. “Pacaso’s Reg A offering represents a strategic decision to diversify our investor base and raise capital in a cost-effective manner.”

Allison added that the company plans to use the proceeds from the offering to grow the company. Pacaso sells the stock under SEC rules that allow small and medium-sized businesses to more easily raise money from individuals. He wants to raise as much as $75 million.

Pacaso homes require a certain level of disposable income – his offer is $755,000 for 1/8 ownership in a four-bedroom, 6.5-bathroom ski home in Breckenridge, Colorado, or $299,000 for the same portion of a three-bed, four-bathroom home in Palm Springs, California.

The company says its business “suits the growing market of couples and families.” The current clientele is primarily affluent individuals with an average household income of over $1 million and a net worth of over $5 million.

Pacaso, which has raised more than $200 million from major venture capital firms and once boasted a unicorn valuation of more than $1 billion, is selling shares to the public for an investment of at least $1,000.

The campaign touts the opportunity to invest with leading venture capital firms such as Softbank and individual angel investors, including former Starbucks CEO Howard Schultz. It points to internal research showing a 20% increase in shared ownership and argues that recent interest rate cuts are increasing customer demand in a market demanding affordability.

Investing in any early-stage startup is ultimately a risky proposition: Pacaso’s offering circular reviews a number of investment risks, including the fact that there is currently no established market for the company’s stock and investors should be prepared to hold it indefinitely.

Stock offerings aimed at the masses have existed in their current form since 2015, when the SEC relaxed certain fundraising rules. A 2023 study of these filings by David S. Krause, associate professor emeritus of finance at Marquette University, found that startups were successful in gaining greater access to capital through such offerings, but suggested that more research should be done on long-term long-term metrics of corporate performance and investor protection.

Glenn Downing, co-founder and principal of the consulting firm CameronDowning in Miami, Florida, said he emphasizes to clients interested in financing startups the difference between saving, investing and speculating.

“Speculation is at the other end of the risk spectrum and in this case the expectation is not about return but rather about the chance of making a big profit,” Downing said. “Money spent on speculation should be money an investor can afford to lose.”

Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages and home insurance.