Episode 25: Tom Staff: Building a £200m PropTech with my sister

0:01Chris Maguire:Welcome to the Dealmaker Uncut podcast where we speak to some of the UK's most exciting entrepreneurs and hear their investment journeys. We'll discuss the challenges, successes and lessons they've learned along the way with expert deals commentary from Jonathan Boyers, head of Averes and Marcel Corporate Finance and me, Chris Maguire, Executive Editor at Business Cloud. Welcome to the latest episode of the Dealmaker Uncut podcast powered by Avraz and Marcel. My name is Chris McGuire and I'm the executive editor of Business Cloud and as always I'm joined by the multiple award-winning dealmaker himself Jonathan Boyers.

0:37Chris Maguire:Jonathan's been involved in deals totaling billions of pounds during his long and illustrious career and he's a managing director and head of Avraz and Marcel's corporate finance practice in the UK. Welcome Jonathan. Thanks Chris, great to be here. Yeah and I know you're really excited to speak to today's guest but let me tell you a bit about today's show first. We're going to speak to our special guest, and then in the second part of the show, Jonathan's going to be leaning on his 35-plus years of experience in corporate finance to answer listener questions and a few questions from me as well.

1:06Chris Maguire:So, Jonathan, put the audience out of their misery. Who are we speaking to today? Well, Chris, today we're going to be talking to one of the co-founders of a really fast-growing prop tech business called Street Group, which recently sold a stake in the business to private equity investor HG for a deal that valued it at over 200 million. Actually, a deal I know about quite well because I was involved in it, unusually. The company was founded by Tom and Heather staff, who are brother and sister, and has been achieving 100 % growth. technology looks at services 4 000 estates and letting agency businesses and today we're going to be talking to tom staff hi tom hi tom can i just say for the purpose of people listening nodding doesn't work on a podcast okay so uh tom really glad to uh really glad that you're able to join us today um so i'm going to ask a couple of softball questions before we get into the real nitty-gritty of the deals but um let me take you back to the start so you co-founded a business with your sister Heather.

2:12Chris Maguire:Your parents both ran estate agencies and so you grew up really knowing this sector, knowing the pain points within the industry, hence the idea for Street Group. Can you just explain your relationship with Heather and what were you like as kids, but also what are your roles in the business? Yeah, well to be fair we actually always say that our family is embarrassingly estate agent heavy because it's not just our mum and dad who did have their own agencies competing at one point. But our auntie and uncle were also estate agents, so it's fair to say we kind of grew up in the industry. Do you know when you went for a walk on a Sunday and you saw an estate agency board up, would you first of all say that's going to be about£180 ,000?

2:53Chris Maguire:Was it at that level of detail? Well, it is a running joke that we all look at estate agency windows when we go on holiday. And actually when people come into the business, there's always a milestone where they say, I've started looking at estate agents when I go on holiday. I've got a twin brother, and the idea of us setting a business up would never happen. You and Heather as kids, did you get on, or was there any sort of sibling rivalry? Yeah, it's one of the questions that we get most is, how do you work with your sister? But no, there's kind of me, Heather, and Will are the siblings. We also then have two step-siblings, a half-sibling, but we've always got on really well.

3:33so the kind of stereotypical sibling fights and disagreements I mean we had a few but that that relationship wasn't that kind of stereotypical rivalry we always got on and so for me running a business with my sisters as natural as anything we our skill sets dovetail really really nicely I am technical I love marketing and do a bit of creative side. Heather is brilliant at the commercial stuff, so she's got a very different background to me. She went and had a fantastic career at KPMG. She was the kind of corporate high flyer, whereas on the flip side, I've never had a proper job. I made the weird decision when I was a kid that I was never going to work for anyone and I would just set up my own businesses.

4:23That kind of like naivety slash arrogance of being 16 and just being like, yeah, I'm going to do it all myself. So we took very different paths and the skill sets dovetail really, really nicely.

4:36Chris Maguire:We came back together in sort of 2015. You set the business up, which was originally called Agent Software Group, which evolved into the business we know as Street Group today. Heather joined in 2016. Like you say, she spent 10 years at KPMG. As I understand it, what you do is you build software and AI tools for the UK residential property sector generally. I always think for the purpose of a person listening who doesn't know your business, just explain what you do in real simple terms. Yeah, I mean the simple boring answer is we make software for estate agents. We started off with Spectre, which is a marketing tool, and then we now have Street.co.uk, which is a full software platform for estate agents.

5:16They run their entire business on it. It was actually one of the interesting things during the deal of what do we call it, because internally, so in our industry, everyone refers to as a CRM. It's not a CRM. But when we've actually first launched Street, we were adamant we weren't going to call it a CRM. But it's what the industry searches for. So we've kind of had to fold on that point. And so we call it a CRM. Other people might more accurately describe it as an ERP, but that's probably not quite right. So it's a full-service estate agency and letting agency platform so estate and letting agents pretty much run their entire business on the street platform and it's also a platform for their clients so if you're moving house if you're a buyer seller renter landlord you also have a street account and so it's an estate and letting agency platform really it's probably worth just talking giving a bit more of an idea about the scale and because you've been growing 100 % plus haven't you recently So just about how many people you employ, just how many customers, just a bit of the shape of the business.

6:26Yeah, so we're at about 230 people, although I always say that measuring size based on headcount is not a great metric. But we serve about 4 ,000 agencies' logos across the UK. Even how you count estate agencies, again, Jonathan knows, is difficult. But yeah, about 4 ,000 logos across the two products. Street in particular is growing extremely fast at the moment. So, yeah, that's to give you a sense of scale. Okay, so you bootstrapped the business for quite a long time, and that was the whole attitude to doing that that's worth talking about. And then you eventually decided to take some investment on from Potura.

7:11So I'd just be interested to hear the thought process of the whole approach to that, and then ultimately why you did that deal with Pitura. Yeah, well we were quite lucky in that when we started Spectre it was profitable from day one. So when we started Spectre it was just me, so very low cost base. And so we grew kind of organically with Spectre and Spectre was cash generative. So we were building up kind of a bit of a war chest within the company. we didn't take any of that out we just let it accumulate because we knew at some point there was going to be an opportunity we really wanted to go after and Spectre is a fantastic marketing tool for estate agents it's incredibly effective and agents generally love it but it only solves one small problem and estate agents in general get a you know they have a very bad reputation they're down there with journalists, lawyers amongst the least trusted professions, tax collectors.

8:19Yeah. And genuinely, it's a very, very unfair perception. Estate agency is an incredibly difficult job. It is seven days a week. It is long hours. You are dealing with people at their most stressed. A lot of the problems in the industry are actually outside of your control. It's the legal process and it's very thin margin. Working capital structure is very, very difficult in a state agency. So overall, it's an incredibly difficult job and 95 % of all agents are genuinely hardworking, honest individuals who will do the absolute best by their client. There's probably about 5 % that maybe don't fall into that category, but the reputation they get is really unfair and a big part of it is because they are using software that is in some cases quite literally 20 years out of date.

9:13Chris Maguire:Some sort of legacy software. Yeah and I could talk for an hour about why that is and the things that led to that. A big contributing factor was just at the point where other industries were going through this kind of digital transformation. estate agency with the the prevailing thought particularly where the money was was estate agency will go the way of travel agents it will all move online and so we had almost a decade really of money piling into two places which was the portals which is fair enough that's turned out to be an incredible business model but then the other one was online agents so purple bricks Yopa and it took a long time for that to play out and for people to realize right okay no not no significant amount of people are selling their houses online and so there was a decade really where no investment went into estate agency technology and so that was a huge part of the problem and we got to the point where we were then deciding right okay do we want to take on this challenge because it is an enormous challenge to state agency software it's on the face of it a limited time it's incredibly large footprint software it's got to do everything um so we made the decision that we wanted to take on that challenge and so that's when we decided to to build street.co.uk we predicted it would take a year uh it did not it took a lot longer um And so for a while we burned that cash pile.

10:48But then as we launched Street, Street Revenue was coming in. We effectively ran the business at break even deliberately. So we weren't taking anything out. Any increase in revenue just corresponded to an increase in R &D on the other side. And we could have continued to do that. But we got to the point in 2024 where we were in an incredible position as a business in that Spectre was the market leader in its category and Street was by far and away the best estate agency software out there. And it really came down to we've got this opportunity, we need to go for it. And it wasn't necessarily about capital at that point.

11:32We actually had a facility that would have funded that growth. but Heather and I both knew we were making slightly risk-averse decisions and so that was the purpose of taking on that initial investment was to force us out of that subconscious desire to return to break even which is what we were doing we would sit down we would make a plan we're going to burn this much we've got the cash we've got the finance let's go and do it and then you'd fast forward four months and we'd be back to break even. And so we went out and decided to do the first transaction, which was the one that we ended up doing with Prechora, now PXM.

12:15So by then, the business is a category leader now, isn't it? And you took on that investment. Did having them on board change the business in any way? Did it change the way you ran the business? What sort of partner were they? Were they silent? So it definitely changed mine and Heather's mindset. We definitely went more aggressive. Once you've raised money, you know that that money is expensive. And so if you then don't deploy that cash, you've done that for no reason. You've just given away part of your company, especially when you're on the kind of growth curve. You know that that chunk that you've just given away is going to cost you a lot of money.

12:59So it forces you into going more aggressive. um pray tour were a great partner for us and we had pete carraway on our board who was brilliant and i have to say they didn't have to do a huge amount of intervention because um we presented a plan to them and pretty much from day one we were massively ahead of that plan and and so pete was there to kind of guide and question us when needed but for the most part he kind of let us get on with things which is pretty much what we wanted with someone there to kind of force us to grow up a little bit so start doing proper board meetings bring in a bit of good things.

13:43It did help you professionalize the business a little bit having them on board and that led up to a decision to go for a much more substantial transaction which is the one that you've recently done where you've effectively sold a significant minority state to HG Capital who are probably one of the leading software houses and investors in Europe and the world. Can you just talk about the decision to do that and the thought process because that was a big step in the business wasn't it? Yeah, I mean, funnily looking back at it, the rationale behind the second transaction was essentially the same as the first but at a new scale, which was the software is now even better.

14:32We are now growing at an even faster rate. I think what happened with Street was interesting, which was we launched the software and as I said before, an agent, whether they're a state agent, Latin agent or both, they run their entire business on the platform. So when we launched that software, I think a lot of people looked at it and said, that's great software. We'll wait. Thanks. We won't be the first people on it. And so it's a difficult industry to come into as a new entrant. People are understandably hesitant. And so for the first, I would say, three years, especially a lot of the bigger agencies were just waiting.

15:12And we kind of proved ourselves over those three years. We, you know, reliability and everything like that, reliability, security. We demonstrated that we were a safe pair of hands. We weren't going anywhere. And that's when the real growth kind of started accelerating. And so, you know, Praetora were kind of midway up that curve. and we were then in a position where the whole market was open to us. We want to do more, we want to go bigger, we want to go faster. And so it's essentially the same rationale but bigger.

15:46Chris Maguire:A couple of things. I have to mention sort of, so Jonathan's a dealmaker and I'm sort of more of the journalist, the business journalist. You mentioned Purple Bricks and at the time when they were introduced everyone thought this is it and we've seen the problems that Purple Bricks have had in a big way as well. the deal that you did with Pre-Tour and our PXN that valued the business at about 45 million the deal you did with HG valued the business at say circa 200 million, north of 200 million that suddenly changes your profile doesn't it and your dynamic I bet your LinkedIn inbox is completely different now well I tend to stay quite hidden I know you do, you never respond to me so I don't use LinkedIn so Heather's the one that gets bombarded on LinkedIn A lot of people in the industry don't know I exist and I'm quite happy with that.

16:32I think they, obviously this is a deal that I advised on so it's not a lot of the people we talk to on the podcast that's not the case but this one I do know a lot about it. So you were fairly clear in your mind that you probably wanted to retain a controlling interest didn't you? Yeah. And when, certainly in the early stages when we were talking to you about doing a deal and people started hearing the market that it was a possible deal. I mean, the amount of attention that you got was phenomenal. I think we had some over 80 inbound inquiries from people interested, including strategics as well as PE.

17:13But you were fairly clear about the type of deal that you wanted to do. Do you want to just talk about that, just to get a bit of a feel for what your attitude to that was? yeah you had so many options you could have almost done anything i mean obviously it's just the business is a strategic business in the sector isn't it so yeah i mean i think for the reasons that i've said before like the motivations behind doing the second deal shaped what we were looking for so we were very much wanting to go faster not anything near an exit or any kind of you know potential exit. We didn't want to touch that.

17:55We didn't want certain types of private equity. So I think before we even started, we had a very clear idea of what we wanted to do. So we've got a huge amount of belief in the business. We know where we want to go. We know most of what we don't know. There's like unknown unknowns, but we knew what we wanted help with and so from the off we were very clear that we wanted to retain control retain a majority we wanted proper growth investment and and we knew what kind of partner we wanted and so before we even embarked on the the very early stages I think we had a pretty clear idea of what we wanted which allowed you to reject lots of people quite early.

18:41Yeah, well, it was clear. Could you talk about the experience of, because you met quite a few private equity investors, didn't you, just the experience of meeting them and how that felt? Because obviously a lot of people who are watching will be entrepreneurs thinking about doing a deal. And it's just interesting to understand how you, because there's a lot of pitching to you going on, and just be interested to hear how you felt meeting different people. Yeah, it's an interesting process. I learned a huge amount during the process. So I've never met a few PE funds, but only kind of like the early coffee chats type of thing.

19:22So I was surprised that there was quite a lot of difference between the different types of private equity. I think there was a huge difference between software specialists and generalists, particularly as we were raising during the Sasspocalypse. That was fun. Sassmageddon as well is the phrase that they use. Yeah, so there was a lot of difference between them, which I thought was quite surprising. I thought some of them were terrible. One of them in particular asked, what are you looking for in an investment? And he said, honestly, three and a half times return with zero risk. that was his answer and I was like it's one of the worst answers I've ever heard in my life to any question and on the flip side you have people who had a really strong thesis of right this is what we want in this environment we've got very strong ideas on how this plays out over the next you know three to five years and we could be right we could be wrong but we've got a strong idea so I really felt like there was a kind of like a bifurcation of private equity particularly with the AI thesis.

20:34And it became clear that you wanted a software specialist who was going to add some value. You were erring towards that rather than leave me alone, I want to be in control. So that sort of became clear. Can I flip the question on what you look for from an advisor?

20:52Chris Maguire:Because you know what you look for from an investor, and obviously Jonathan was involved in this process as well. You and your sister, this isn't your world. I know you know a bit about investment, but it's not necessarily your world. Your world is building Street Group to the business it is today. What did you look for from an advisor? Because a lot of listeners will be out there thinking, what do I look for from an advisor? This is going to be awkward because Jonathan's right there, but I'll answer the question. Just say whatever you want about it. So we had a very strong idea of what we wanted from an advisor.

21:24As you say, this isn't our world. and I think it is relatively rare to get to the scale we were at and never having done anything like this before. So we were acutely aware there is an asymmetry of information, like there is an asymmetry of experience. Me and Heather having never done this versus a private equity team that do this day in, day out. And so the one thing that we were looking for above all else was trust because there's only going to be one party in this entire experience who is going to advise us. And there will be times where things happen and you've got no idea. Is this normal, abnormal?

22:07Is this a fair request, completely unreasonable? And the only person you've got to turn to is your advisor. So we went into it saying essentially we need somebody where when push comes to shove and you're in that situation and your advisor says X, that you trust absolutely that they've got your genuine best interests at heart. So that was the primary thing that we went into that kind of decision with. I don't think I've said that to Jonathan. Okay, yeah.

22:37Chris Maguire:He doesn't like personal glory, but you can spread it to me if you want. So there was quite a lot of prep. For this process, there was a lot of preparation done. It was really clear it was going to be a really attractive process. So we were getting a lot of attention. And you were encouraged to do a lot of preparation. So you appointed almost every type of due diligence provider that you could think of. And some of that, I think, you were being advised to do that. And I think you were challenging that, how much you should do. I'm interested in the experience that you had of going through the technical DD, the commercial, the financial?

23:23Just observations on that exercise. Yeah, I said before that we're a capital efficient business and very tight. So my biggest thing that jumps to mind is the fees involved. I think that was a huge adjustment. Which again, having an advisor that you trust, talking you through that and telling you where to spend the money, where not to cut corners, was very, very valuable. The actual due diligence itself is pretty time intensive. The technical due diligence was very interesting because we were doing that process at the same time as we were ripping up almost every internal process in our engineering department.

24:08and I naively went into the process thinking that the majority of what technical due diligence was going to be is how good is your tech we're going to get in there and we're going to we're going to write a report of how good is your tech how good is your code and infrastructure but really I think the vast majority of it really is around process so how mature are you as an organization and how much you are adhering to best practice within the software development life cycle so we're doing that process and being marked against what almost I know they want to hear and on the flip side we're actively doing the opposite of all of those things internally because just by pure chance we were doing that process whilst the kind of the wave of agentic engineering was coming through and it was just ripping up all the stuff that you knew about software engineering.

25:05So that was a weird experience, slightly fraught at times. Commercial due diligence I thought was super interesting, just as an experience, like a learning experience for me. FDD, didn't get too much involved in, to be honest. No, probably as well. Yeah, left that to our CFO, Matt. Yeah, he did a good job.

25:33Chris Maguire:How long did that whole process take with the HC deal, from start to finish? Jonathan mentioned there were like 80 inward-bound inquiries, but from start to finish, how long was the process? I think it really depends on where you define the start. So when did we actually launch the process? April? Yeah, so there was quite a lot of meetings with potential buyers, investors in the period before the process, wasn't there? And that was happening when the DD was being done. But I think from the... it was in April, wasn't it? One thing about this process happened very quickly once it was in the market, but there was probably three or four months preparation done from when the IM went out to completion.

26:22I think it was something like 41 days from the IM going out to signing, remarkably quickly.

26:29Chris Maguire:The reason I asked for it, I almost thought Jonathan would put a sign outside. We rate investment in 41 days, or like they do with an estate agent's board as well. I've got one more question I want to ask, but I don't know, Jonathan, this is your deal, this is like a busman's holiday for you. Have you got any other questions you want to ask, Tom? No, I suppose the one decision we haven't discussed is the decision to actually appoint HG because we ended up with bids, with several bids, a couple of bids almost at the same level, we talked about it, over 200 million. And they were both good deals, they were pari-passu deals, you could have probably done one of of several deals but just how did you what the decision to to appoint HG it's probably just worth talking about that for a minute they're now on board with you aren't they yeah and I think HG are probably the only private equity company that we've come across where almost I say almost I would say universally everyone has a high opinion of them and and so we kind of we knew that people had a very high opinion of them.

27:46When we met different PE houses throughout the process, HG were consistently throughout the process on it. So they knew things about our business that we didn't know. And that level of professionalism, they didn't miss a beat throughout the entire thing and so externally they have a very good reputation at an event yesterday and chatting about it and every time I said yeah we end up going with HG people say brilliant yeah really really good partner and you hear that again and again and again so like this kind of external validation how they behaved within the process itself was excellent but then we liked the people the people were both it's quite a rare mix to be very personable and extremely impressive at the same time there were a lot of people we met that were one or the other but it's quite rare to be you know fun to be around and you can have a joke and a laugh and a five-hour meeting doesn't feel like you know How's the relationship been post deal?

29:07It's still very fresh to be honest. It's only been six weeks and four weeks of that was August. After the deal completed, me and Heather hadn't taken any days off in an awful long time. We've been away, they've been away. So really we're just kind of getting started. But the resources that they have made available already is a very good sign that we've made the right decision. And one of the other reasons we went with HG is throughout the process, they all talk about what they can do for you as a founder. But what HG do, they do that as well. But they have a big emphasis on what they can do for your management team.

29:51so all of us kind of senior leadership team that explicitly kind of mapped it out and said right this is what we would do for your head of UX head of products we put them on this course so it wasn't just about bringing me and Heather you know up to the next level it was everyone and and so that's already started and they've been very impressive so what's next for Street where we're over the next few years?