Started with big ambitions
Proptech Linus is now pursuing a rigid austerity course
By Charlotte Rick
07/01/2023, 2:15 p.m
The Berlin real estate startup Linus started with great ambitions – and money from a dazzling financier: Alexander Samwer. After going public, the company was worth 240 million euros. Today there is not much left of it. How did the dramatic fall come about?
Nobody expected bad news when the management team of the Berlin real estate startup Linus set up a conference call on August 2nd last year. In the end, all signs pointed to growth: the company had aggressively poached top people from other digital companies, and the team had grown to over 100 employees within a short period of time. But then founder David Neuhoff announced that a fifth of the team would have to go – “out of nowhere,” as a former employee who was there describes it. “Everyone was in shock.” Some listeners had even started at the company the day before.
Linus started with great ambitions. The team around founder Neuhoff wanted to offer investors exclusive real estate investments that were otherwise reserved for investors worth millions. One of the people behind this was a dazzling financier: Alexander Samwer, the youngest of the three Samwer brothers. The entrepreneurial trio had acquired many properties over the years – and the startup Linus now wanted to make the business suitable for the masses.
In the first few years, the plans worked out and the business grew steadily. In spring 2021, the company was able to raise fresh capital at a valuation of around 150 million euros – and a short time later even dared to go public. A courageous step after the difficult Corona crisis year. At times, the company was even worth 240 million euros on the stock exchange.
Does the business model still work at all?
Today there is not much left of it. The share price has fallen from just under 40 euros to less than 4 euros in the past two years, and the company is now only worth around 24 million euros. The team has also shrunk considerably: the first wave of layoffs was followed by a second. And even the management had to record a series of losses. How did the dramatic fall come about? Does the previous business model still work at all?
In 2018, Linus came onto the market with an offer that was tempting at the time: Investors could invest in real estate from a sum of 200,000 euros, and the company later lowered the hurdle to 50,000 or 25,000 euros. Linus himself acts as a so-called anchor investor, so he participates in the investments himself – the difference to other crowd platforms for real estate. On the website, for example, one of these projects is called “Berlin Portfolio”: The two objects contained in it in Kreuzberg and Neukölln are to be renovated and expanded with the loan arranged by Linus. Depending on the amount invested, this should bring investors a return of between 7 and 8.5 percent over 16 months – on paper, a good offer in a time without interest. The company is now advertising other projects with 10 to 14 percent interest. It should be real estate deals that would otherwise only be accessible to people with much greater wealth.
Linus was successful with this model for a long time – certainly also thanks to the strong tailwind for the real estate industry in recent years. The company has been able to continuously increase its business figures since the beginning: According to the annual report, Linus recorded a transaction volume of almost 500 million euros and “record sales” of more than 12 million euros in 2021 – still small, but growing quickly. The team behind Linus also grew quickly, at times there were more than 100 employees who were supposed to set up the investment platform.
Heralds of the critical business situation
The turning point came in the summer of 2022. Due to the sharp rise in interest rates, real estate financing suddenly became considerably more expensive, and in many places construction projects were stopped or not planned at all. Real estate prices also fell as a result of the increased financing costs. In addition, disrupted supply chains, especially in the energy and raw materials sectors, led to rising construction costs and delays.
Linus was also struggling. In the 2022 annual report, the company writes about the negative impact on business activities of interest rates, inflation and the economic downturn. The transaction volume of the financing brokered by Linus – and thus the majority of sales – fell by more than 50 percent. The company only took in around 8 million euros in 2022.
There were already harbingers of the critical company situation in the middle of the year. At that time, the company said it had to withdraw the forecast for the financial year that it had made at the beginning of the year. “The volatility of Linus’ earnings has increased significantly,” the half-year financial report said. “In view of the signs of a significant slowdown in the transaction dynamics in the investment market for the full year 2022, the Management Board is no longer sticking to the growth course.” Rather, the aim is to return to operational profitability – i.e. profit before tax and interest payments. The company was last able to show this in the 2020 financial year, but only to a small extent.
“We were all lied to and fired”
After years of euphoria and growth, a rigid austerity course followed: Of the more than 100 employees on the LinkedIn career platform, only just under 40 are left today. An ex-employee even said there were far fewer, maybe 20. Those affected were released immediately. “They had to leave the company without any handover – it was quite a brain drain,” he says.
And this despite the fact that a lot of money was invested to recruit employees. According to the annual report, in 2021 Linus still spent half a million euros on headhunter services. Experienced managers from the Berlin tech scene, such as from Zalando, Scout24 or Ratepay, could be recruited in this way. Large parts of the management also fled: the CTO, CFO, CMO, VP People and CEO of the British branch all left the company around the turn of the year – apparently without a successor. Founder and former CEO David Neuhoff unexpectedly moved to the supervisory board in January this year – “for personal reasons,” according to a statement from Linus. On request, the company also states that changes in management have always been made by mutual agreement.
“Ethically, I cannot understand why Linus was so aggressively poaching people from other companies until the very end, only to fire them again shortly afterwards,” says a former employee. “The precarious situation should have been recognized much earlier and investments should have stopped.” Former employees also comment on the hasty turnaround on the Glassdoor careers platform: “We were all lied to and fired after we were told our jobs were safe,” it says there, among other things.
It remains unclear why Linus pulled the handbrake at such short notice. Upon request, the company refers to its obligations under capital market law. According to them, Linus was not able to transparently communicate the layoffs to his employees before the publication of an ad hoc announcement. However, the question remains as to why the change in strategy only took place in August. Perhaps the management actually stuck too long to a course that could no longer be financed. The company emphasizes that it “reacted immediately” and changed the strategic focus. There could have been a turning point with the Axel Wieandt personnel. In the media, since mandates at Valovis and Hypo Real Estate, he has been considered a “renovator” – someone who takes a very close look. At the end of June 2022, Linus appointed the experienced bank manager to the supervisory board without much notice. A good month later, the company abruptly initiated austerity measures.
Sentiment on the real estate market remains tense
An indication of the causes of the problem could lie in the company’s development: the initial real estate transactions were apparently so successful that the model wanted to be scaled and built into a platform. However, the question arises as to whether the business model was even suitable for scaling. “Finding wealthy private customers for investments over 200,000 euros is extremely difficult and, above all, very expensive,” says an insider. “It’s extremely difficult to become profitable with a model like Linus.”
In fact, in recent years, Linus has spent between 4 and 5 million euros annually on marketing and sales alone. Average five-digit sums are said to have flowed per customer won, estimate industry insiders. Former employees say that few new investors came without advertising. “It seemed like they wanted growth at any price and didn’t react to market developments in a timely manner.” Now Linus is driving back the growth course. On request, the company states that it intends to “grow organically and sustainably in the future” – this will certainly be at the expense of sales and marketing. The annual report states accordingly that the intention is to focus on high net worth private customers, family offices and institutional partners via indirect sales. This is also indicated by the recently announced cooperation between Linus and competitor Exporo. According to a company statement, Linus has provided a loan in the single-digit million range for a real estate project in Erfurt via Exporo.
Whether and how Linus can become profitable again remains to be seen. In any case, the mood on the real estate market remains tense: just this month, the European Central Bank raised the key interest rate again to four percent. This is likely to slow transaction dynamics further for the time being. When asked, Linus said that the demand for alternative financing solutions was increasing due to the reluctance of traditional banks. The company is optimistic about the future.
This article is first at Finance Forward appeared.