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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

September 19, 2007 at 9:00 PM

Zillow nabs another $30 million to grow, diversify

Here’s my Zestimate: Zillow will use some of the $30 million it just raised to push into the home improvement and decor market.

The nearly 2-year-old online real estate site was already the best funded Seattle Web startup in the current cycle, with $57 million raised.

Today, it’s announcing a third and probably final round of financing, this time led by Legg Mason Capital Management in Baltimore. Bill Miller, Legg Mason’s chief investment officer, said in a news release:

“We believe Zillow is well on its way towards becoming a market-leader in a huge, and untapped online category of online tools and information for homeowners.”

The word “homeowners” is interesting.

Zillow’s initial focus was home buyers and sellers. It made its splash with Zestimates, a tool for estimating the value of property. Zillow has also been adding tools for home sellers, enabling people to post “make me move” prices and giving agents and brokers more tools to edit listings and advertise on the site.

Meanwhile, the real estate market has chilled.

Zillow Chief Executive Rich Barton has said over and over that Zillow won’t suffer from the market downturn, but the time is ripe for the company to broaden its reach beyond home listing and market information.

If people aren’t buying and selling homes, they’re staying put and working on the place they have. That may be an opportunity for Zillow, especially if it can develop zingy online tools to make it stand out in the crowd chasing “nesting” ad dollars. (That includes magazines, TV and newspapers, which are already competing with Zillow for real estate ads).

Earlier this year Zillow added features that allow people to refer home service providers, and created more opportunities for those providers to advertise on the site.

Comments Barton made during an interview made me think that home improvement may be the next tab to appear on the site’s subject menu. Talking about the latest funding, he said this:

“Raising this money enables us a great degree of strategic freedom and lots of flexibility to go after what we think is a unique opportunity. We’re kind of pioneering a category here that’s not just what’s on the market but all things that are home-related and building a community around that.”

Home improvement subjects are frequently discussed on the site’s community forums. Barton said that’s among the areas Zillow will explore in its next phase:

“That’s part of our product plans — to continue to invest in expanding the community aspects of Zillow and new home-related categories and just do research. We’re trying to figure out where to go.”

The additional funding will be used to develop new products, build the engineering team in Seattle and expand a sales team that now has 20 people based in New York and five other cities. The company has 155 employees, up from 80 at its launch in February 2006. It says more than a million U.S. homeowners and agents have “claimed” homes listed on its site.

Barton said it hadn’t burned through the $57 million in a year. “We had a lot of that left so we didn’t really need it per se, but the best time to raise capital is when you don’t really need it,” he said.

Zillow investor and board member Bill Gurley of Benchmark Capital isn’t worried about the downturn hurting the startup, either. During an interview, he said he’s pleased with Zillow’s revenue growth, brand building and ambition to become “the best real estate site on the Web, flat out:”

Gurley said:

“As a venture capitalist I’ve never thought about cyclical financial swings. It’s not relevant. The move online of the real estate purchasing process is a systematic trend that’s going to go from zero to 100 percent over some timeframe.”

Gurley said Zillow may expand into new categories, irrespective of the real estate market situation:

“I think the company has some very strong amibitons to be a bigger and bigger player in terms of helping consumers have the information they need to make great decisions about their home.”

After seeing Barton in sandals and cutoffs at a recent luncheon, I have a hard time visualizing him becoming the next Martha Stewart. But he might be able to pull off the Norm Abrams look.

Comments | More in | Topics: Startups

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