The Investment Thesis Behind Appear Here

As I think it is a good practice for investors to make investment thesis publicly available, this post will be about the investment thesis that led Forward Investment Partners to invest in Appear Here back in November 2012.

As a backgrounder on the company, Appear Here aims to be THE online marketplace where commercial property is rented out, irrespective of lease length. The investment thesis can be summarised as backing a compelling entrepreneur to disrupt a large, ripe market via a proven and attractive business model.

Market

Commercial property is a large sector (between retail and office rentals, the UK market is worth well in excess of £30B a year), currently undergoing rapid and significant structural changes:

1) Landlords are under pressure as an ever larger portion of their portfolio becomes vacant and occupied lease lengths keep falling year after year.

  • Vacancy rates up. This is driven by the weak economy, and online sales growing as a portion of total retail sales. This has meant UK retail vacancy rate (i.e. readily available retail units as a % of total available retail units) has surpassed 16% towards the end of 2012. This is likely to grow even further, possibly double, driven by ongoing growth of e-commerce and the large number of long-term leases coming up for renewal in the next 2-3 years which are unlikely to be renewed. It is also worth noting that vacancies have a double-whammy impact on landlords: not only do they generate no rental income (opportunity cost), they still incur in business rates which the landlords have to front (actual cost). This cost UK landlords £1.1B in 2011/12;

commercial property vacancy rate

  • Lease lengths down: the average length of new signed leases continues to shorten, from over 20 years in 1991 to c. 9 years in 1999 to below 5 years now, with terms now often including long rent-free periods and short break clauses. There is no sign of this trend inverting any time soon;

commercial lease length

  • Conclusion: landlords know they need to adapt to a new environment where their inventory gets rented out on extremely flexible and standardized terms (e.g. rolling weekly/monthly leases). What they are looking for is a platform that will help them to optimize this inventory so the total net value of the yield is the same.

2) Secondly, on the demand side, brands are increasingly trying to build direct relationships with their customers, cutting the intermediaries out of the equation as Paul Fisher has elegantly illustrated in one of his recent blog post.

  • In the long-term the dis-intermediation of the retail world is inevitable and brands will establish more direct relationships with their customers;
  • Retailers, particularly online ones, are starting to value bricks & mortar as an extension of their brand: much more about the touchy-feely customer experience rather than product revenue. What companies like Rapha, Warby Parker, Moo, Etsy etc. have done offline are good examples;
  • As online cost of customer acquisition keeps increasing month on month and return from online marketing dollars is maxed out, offline becomes an attractive complement as another touch point in the customer purchase cycle. This requires a shift to viewing a square foot of space as media rather than as potential revenue generator;
  • Conclusion: brands need flexible and easily accessible physical retail.

3) Last, dis-intermediation in the property marketplace is inevitable: timing is not clear, but the web WILL disrupt as it has done already in other sectors:

  • the transparency brought by the internet makes it increasingly difficult for middle-men to justify their share of the value created along the entire value chain, leaving buyers and sellers to retain the margin that would otherwise go to the market intermediaries;
  • the compensation model under which commercial property agents are remunerated is still the same as it was when lease length averaged > 10 years, with short-term leases not generating enough commission to be worth their while;
  • Conclusion: the web will enable dis-intermediation in the commercial property market.

Business Model

An online transactional marketplace is a proven business model that is very attractive because of its economics and its defensibility, at scale.

  • Attractive economics: marketplaces generates a fee without taking the cost of inventory and incurring in the risk of not being able to shift it; in the case of Appear Here, the inventory is owned and held by the landlords, and Appear Here valuably facilitates the transaction via its website;
  • Defensibility: marketplaces also tend to be highly defensible, once they reach a certain level of liquidity; this is because buyers/sellers tend to naturally gravitate (and stick) to highly liquid marketplaces where they have the highest chance of being able to find a large number of seller/buyers.

Entrepreneur

Ross Bailey is a charismatic and energetic entrepreneur with a grand vision and the courage to go after it. We, at Forward Investment Partners, love backing entrepreneurs like Ross.

Advertisements

15 Comments on “The Investment Thesis Behind Appear Here”

  1. Great post, really. Transparent (I love the reasons for sharing this) and well documented / thought through. Just one question on the first conclusion: landlords know they need to adapt to a new environment…
    Do they know? I’m just speculating as I don’t know anything about the market, but the gut feeling is that all the signs are out there and yet people won’t admit to themselves the reality (hence, they don’t ‘know’). A bit like being an alcoholic (another area where I lack expertise luckily), before you get on with the treatment, you have to admit there is a problem.

    • Yannick Roux says:

      Valid question. They definitely “know” as the data speaks for itself. Real question is how fast are they going to react to it? We have compelling evidence that some of the top landlords are proactively shifting inventory to short term lets from long term, which means the market is moving in our direction.

  2. […] The best example I personally know of this is AppearHere.co.uk. The founder, Ross Bailey (who has the worst jokes in the world) has been brilliant in identifying that entering the market for very short-term commercial leases (pop-ups) has a much lower competition density. He is therefore able to build his product at significantly reduced cost than if he targeted his ultimate target market, the entire commercial property market. The latter he intends to pivot into when the product is sufficiently good enough. The investment thesis from the seed investors explains this in more detail HERE. […]

  3. […] The best example I personally know of this is AppearHere.co.uk. The founder, Ross Bailey (who has the worst jokes in the world) has been brilliant in identifying that entering the market for very short-term commercial leases (pop-ups) has a much lower competition density. He is therefore able to build his product at significantly reduced cost than if he targeted his ultimate target market, the entire commercial property market. The latter he intends to pivot into when the product is sufficiently good enough. The investment thesis from the seed investors explains this in more detail HERE. […]

  4. […] The best example I personally know of this is AppearHere.co.uk. The founder, Ross Bailey (who has the worst jokes in the world) has been brilliant in identifying that entering the market for very short-term commercial leases (pop-ups) has a much lower competition density. He is therefore able to build his product at significantly reduced cost than if he targeted his ultimate target market, the entire commercial property market. The latter he intends to pivot into when the product is sufficiently good enough. The investment thesis from the seed investors explains this in more detail HERE. […]

  5. Gertrude says:

    It was hard to find your page in google search results.
    I found it on 15 spot, you have to build some quality backlinks , it will help you to increase traffic.
    I know how to help you, just search in google – k2
    seo tips

  6. Jewel says:

    I read a lot of interesting articles here. Probably you spend a
    lot of time writing, i know how to save you a lot of work, there
    is an online tool that creates readable, SEO friendly articles in seconds,
    just type in google – laranitas free content source

  7. domain says:

    I’m amazed, I must say. Seldom do I encounter a blog that’s
    both equally educative and engaging, and without a doubt, you have hit the nail on the head.
    The problem is an issue that not enough men and women are speaking intelligently about.
    I am very happy that I found this in my search for something
    relating to this.

  8. We all know what that twinge of anxiety feels like. We know how fear feels in our bodies: the tension
    Oakley Half Jacket Sunglasse http://www.ebuyaccessories.com

  9. Errol says:

    I blig frequenttly and I seriously appreciate your information. This great article has
    truly peaked my interest. Iam going to book mark your website aand keep checking for new details about once a week.
    I opted in for your Feed as well.

  10. I’ve been surfing on-line greater than 3 hours nowadays, but I never found any interesting
    article like yours. It is lovely price enough for me. In my
    view, if all webmasters and bloggers made good content as you probably did, the net can be a lot more useful than ever before.

  11. bonprix says:

    It’s awesome in favor of me to have a web site, which is valuable
    in support of my experience. thanks admin

  12. О книга, и это десерты нездоровы в пользу фигуры предвидит отдельная клушка.
    Но тут на выкинутом результате стиль будем
    вести об диковинной исследованию сегодняшних
    производителей возможностей ради сокращения авторитеты.
    Шоколад Слим чтобы избавления от лишней
    массы тела – пища, но от какого нужно принимать отрада, причем из
    огромной барышом на птиц. Следовательно, тот покупатель, кто
    нашей фирме путает, такой для нас и сориентирует?
    До какой степени действенность
    получится подобная сладостная диета?

  13. Portable battery chargers crapper be the greatest gift you tush give way to them this time of
    year or else of gadgets which they already birth. It whitethorn be dearly-won to steal portable bombardment chargers but it wish truly deserving your money.
    It is truly advisable for you to extend along a courser in your compartment specially during a foresighted journey.

    CHANEL ПОРТАТИВНОЕ ЗАРЯДНОЕ УСТРОЙСТВО Шанель

  14. ReadWritte has a great summary of this ( -retailer-fitbit-healthkit ).

    Apple seems to be like a bully, Fitbit seems shortsighted.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s