Case Study: Spruce
Why we invested in an apartment resident app
We encountered Spruce, formerly known as Apartment Butler, in 2019 and invested in their seed round. It’s a classic story of investing in a company solving a problem you have personally encountered and wondered why a better solution did not exist.
Years ago I spent time commuting and living in apartments. One of the challenges when moving to a new city is finding the best services such as dry cleaners, dog walkers, or maid services that are trustworthy and also willing to work with someone living in an apartment. When renting an apartment I would often ask the leasing agent for recommendations but most of the time there was not even a referral list. It was surprising local businesses would not partner with apartment complexes as a way to generate additional business.
A rough example I often considered was a maid service. Assume a 300 unit complex where 25% of renters request the service once a month for $100. That’s $90,000 in annual revenue from one complex! It’s also achievable at a lower cost since the customers are in one location. For years I wondered why nobody was solving this problem.
In 2019 I heard a pitch from Spruce, which at the time was using the name Apartment Butler. The founders solve the problem by building a local network of service providers and then approaching apartment complexes with a revenue sharing model to encourage tenants to use the app.
Why We Invested
For us the investment was driven by solving a problem we personally encountered several times. The company also had strong initial traction with several local apartment developers which helped prove out the business model.
A few other components to our investment thesis:
According to the National Multifamily Housing Counsel, about 50% of apartments are rented by single people. Easy access to already screened and vetted services when living along is a strong selling point.
It was a unique marketing tool for apartment complexes and something they could offer to offset higher rents or encourage lease renewals.
The founders came from the investment banking industry so understood structuring transactions and managing cash flow, two important components of running a start-up. The team also recruited several people with strong backgrounds from the B2C space.
COVID
We invested in late 2019 so enjoyed a few months of watching the company grow until the world shut down due to Covid. Suddenly apartment dwellers were working from home and nobody wanted a stranger walking through their house. Dog walking services evaporated, maid service requests became non-existent, and nobody needed dry cleaning anymore.
Good management teams understand how to remain flexible so the Spruce team quickly cut all expenses including their own salaries and searched for an opportunity. Covid and the new work from home environment drove an increase in relocations, so the team launched a move-in / move-out disinfecting service, which became a strong offering for apartment managers.
Despite a few setbacks during Covid, the team found ways to pivot the business and streamline operations. While most companies operating a B2C service model may have failed, the Spruce team continued to find ways to move quickly and capitalize on customer desires.
Next Steps
Spruce recently completed its first acquisition and continues to partner with a growing list of apartment complexes. The original investment thesis was based on a company which solved a long standing personal problem but the additional diligence we conducted on the team provided us the comfort to know even during an unforeseen global shutdown the company would continue to remain innovative and push forward.