Oct 3, 2023

Tom Scarborough outlines why he took decision to close PropTech backed by angels including Alex Chesterman despite strong growth Share: The founder of PropTech Movewise has closed the business. Tom Scarborough said he had an offer of funding to continue “strong growth” at the London startup but took the difficult decision to shut it down after existing investors decided not to back it any further. Scarborough said the property sales service – backed by Connells and Zoopla founder Alex Chesterman and other angels to the tune of £3 million – had another offer on the table, but it was not enough to keep Movewise going. Launched in 2018, the firm employed 14 people at the end with annual revenues of £1 million and “a CRM system with 25,000 contacts”. “Closing a business is hard. Everybody loses. Customers lose deposits, employees lose jobs, wages and career momentum, investors lose capital, suppliers lose revenue on credit extended,” Scarborough wrote on LinkedIn. “When a business has been funded by investors and that investment is no longer forthcoming the stop is sudden and a shock to everyone.” He said the offer it received from other investors “was smaller than we needed in quantum, totally dilutive to non-participating shareholders and my expectation is that that investment of money and further time would ultimately have been lost too”. Scarborough blamed low quality of revenue on the startup’s predicament. “Each transaction is unique, can fail at any time in a 6-9 month process and the bulk (but not all) of our revenue was on completion. “Since the reasons for transactions failing are inconsistent we could not put processes or product in place to solve that. This meant revenue forecasting was weak, making it difficult to raise institutional capital to fund expansion.” He added: “The service requirement selling a £200k property is similar to a £2m property. Since the average property is £280k in value any pan-UK volume business in this space will be dealing with average value property. “Local agents deal with this by reducing the service delivered – most did not progress sales at all after they went under offer – they just accepted the failure rate. This increased the service burden on Movewise as customers were paying a premium to work with us and rightly had high expectations. “Ultimately even with our increased efficiency and higher fees charged, the unit economics on landlord stock was lower leaving little margin for the overhead we required for centralised functions such as marketing and tech.” He said that for the business to achieve an exit and a return for investors, it needed to quadruple revenue, the team and the volume. “This was entirely possible, however scaling like this would hugely increase the volatility of profit and loss,” he explained. “Ultimately ‘going for it’ would have created a very fragile business which needed a substantial cash balance to weather market downturns and we didn’t have enough of that. “The only thing worse than stopping now is being forced to stop in six months or three years’ time.”