The biggest investor in real estate tech company Zillow is a little known Sydney, Australia-based outfit called Caledonia. The investment manager owns 23% of Zillow’s outstanding shares, which in turn account for more than 30% of the firm’s $5.1 billion in public assets. Sure, the Australians like the business model–realtors pay to advertise alongside home data that consumers access for free–and believe opportunity will stem from modernizing the ultimate brick-and-mortar industry. But Caledonia’s big bet on Zillow boils down to something much harder to quantify: culture.
Before you roll your eyes and click away, consider that shares of Zillow Group have more than tripled since its 2011 initial public offering (the S&P 500 is up a relatively meager 100% over the same period) and in the third quarter the company reported a 25% increase in quarterly revenue to $281.1 million, beating analyst estimates. This is not charity, it’s smart business. “Good things happen to good companies,” argues Michael Messara, the Aussie who runs investments out of Caledonia’s New York office. In other words, companies that focus on treating employees fairly and create an environment for people to thrive are better positioned to take advantage of market opportunities: quality employees come and stay saving money, in the long run, other companies want to partner and be acquired by them.
Today most Americans know Zillow—and its affiliates Trulia, Streeteasy and Naked Apartments—for revealing how much their neighbors paid for their house and for making it easier than ever to indulge in wild real estate fantasies. Among tech insiders and some big investors like Caledonia, however, Zillow is lauded for its stellar management and worker-friendly culture.
Zillow’s good company cred is validated by the Just 100, Forbes’ ranking of the best corporate citizens. Zillow rates 51st out of a universe of more than 800 publicly traded companies. Eleven-years after its founding, Zillow is among the youngest companies to break into the top 100 thanks to strong marks in customer and worker treatment, as well as the effect the company has on the number of jobs in the United States.
This bull case is clearest in the way Zillow treats its 3,000 employees. For workers, Zillow, of course, provides tech industry mainstays like ping pong tables and snacks, housed in its sleek (and very expensive) Seattle headquarters. However, CEO Spencer Rascoff says he is less interested in perks than in helping a wide array of workers, treating employees like adults and improving life beyond the office. Benefits include parental leave policies that treat all parents equally, unlimited vacation days, quarterly “hack weeks” to work on passion projects, a sabbatical every six years, engineering education days for kids and choice in how to receive equity compensation. The company has even achieved pay parity for men and women, though its workforce is still 59% male.
“Benefits are a reflection of the company’s culture,” says Rascoff. “So companies whose benefits include things like free dry cleaning and car rides home late at night set a particular tone that employees are expected to not have time to take care of their own laundry and to work so late that they would routinely need transportation home.”
Rascoff thinks deeply about these issues. He calls the company’s annual all-hands get together the most important week of his year and even hosts a podcast called Office Hours, where he interviews a wish-list of leaders about management. Altruism? Sure, but Rascoff is also being pragmatic.
Echoing labor economists who say competition is driving a new golden age of employee benefits, Rascoff argues the company’s intellectual capital is its people. Like an increasing share of the U.S. economy Zillow, he points out, does not manufacture anything. “We have this collection of 3,000 brains and they are all connected to one another internally and that team either produces greatness or not,” says Rascoff. “There is a war for talent that we fight every day against other companies and we have to re-recruit every employee every day and make sure they are inspired to work here.” Rascoff claims his company does not track retention rates, instead pointing to an annual survey in which 96% of employees said they would recommend working at the company and 80% said they intend to stay for at least two years.
This brings us back to Michael Messara and why Caledonia is so concentrated in Zillow.
Since its start as a family office in 1992, Caledonia has taken a long-term view. The founders were early adopters of Warren Buffett’s value-based school of investing. In the early-2000s the fund took a large position in realestate.com, an earlier Zillow-like platform out of Australia. When that investment proved a success they scoured the globe for similar models, finding analogs in the United Kingdom, Germany, and New Zealand. When Zillow brought the model to the U.S. in 2006 and went public in 2011, Caledonia was eager to invest.
But Messara is clear its bet on Zillow would not be so large if the company did not take a long-term, employee-favorable outlook. Noting: “If someone is trying to really build a long-term sustainable, large enterprise and they take that long-term view they know that the investment in people and culture and staff conditions and treatment pays fantastic long-term dividends.”