Pacaso, a company that sells fractional ownership in vacation homes, is turning to retail investors as it struggles to adapt to a challenging real estate market. Founded in 2020 by former Zillow executives Austin Allison and Spencer Rascoff, Pacaso pitches itself as an easier and cheaper way to own a luxury vacation home. The company purchases homes in vacation hotspots like Lake Tahoe and coastal South Carolina, furnishes them, and resells stakes in the properties.
Individuals can purchase between 12.5% and 50% ownership in a home and use the space for an equivalent percentage of the year. The company distinguishes itself from timeshare firms by emphasizing that buyers own actual real estate, not just the right to use a property during a specific time. Owners can also easily sell their stakes and potentially realize gains.
A regulatory filing with the Securities and Exchange Commission reveals why Pacaso is seeking fresh funds now. The company’s revenue dropped 59% between 2022 and 2023 after it cut marketing expenses and sold fewer home shares. It reported a loss of $36 million last year, down from a nearly $82 million loss the previous year.
In 2023, Pacaso sold 329 one-eighth shares in its properties, a decline from 593 in 2022, with more than half of the sales being resale transactions. Pacaso attributed the sales decline to “various macroeconomic factors including increased interest rates and inflation, which led to consumer uncertainty regarding real estate purchases,” as well as reduced marketing efforts. “When you have the opportunity to raise money, you should seize it,” Pacaso CEO and co-founder Austin Allison said in a statement.
Pacaso diversifies investors amid challenges
“Pacaso’s Regulation A offering represents a strategic decision to diversify our investor base and raise capital in a cost-effective manner.”
The company intends to use the proceeds from the offering to help grow its operations. Pacaso is selling shares under SEC rules that allow small and mid-sized businesses to more easily raise money from individuals, with a goal of raising as much as $75 million.
Pacaso’s homes require a certain level of disposable income. Its offerings include a $755,000 one-eighth ownership in a four-bedroom, 6.5-bathroom ski home in Breckenridge, Colorado, or $299,000 for the same-sized share in a three-bedroom, four-bathroom home in Palm Springs, California. The company says its business appeals to a growing market of couples and families, with its current clientele mostly comprising wealthy individuals having an average household income of over $1 million and a net worth exceeding $5 million.
Pacaso, which has raised more than $200 million from major venture capital firms and once boasted a “unicorn” valuation, is offering shares to the public with a minimum investment of $1,000. The campaign highlights the chance to invest alongside top venture capital companies like Softbank and individual angel investors, including former Starbucks CEO Howard Schultz. Investing in any early-stage startup is inherently risky.
Pacaso’s offering circular outlines various investment risks, including the lack of an established market for its stock, meaning investors should be prepared to hold it indefinitely. Equity offerings like Pacaso’s have been around since 2015 when the SEC loosened certain fundraising rules. According to David S.
Krause, an emeritus associate professor of finance at Marquette University, startups are successfully gaining more access to capital through such offerings, though more research is needed on long-term performance and investor protections. Glenn Downing, co-founder and principal of investment adviser CameronDowning, underscores to his clients the difference between saving, investing, and speculating, noting that “speculation is at the far end of the risk spectrum, more about a chance to hit big than a reliable return.”
This narrative underscores the company’s effort to navigate financial pressures while exploring new fundraising avenues to sustain and grow its operations.
