Is Compass the next WeWork?

David Goldsmith

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Like WeWork, Compass is backed by billions in VC money and claims to be a "tech company" rather than a Real Estate firm. But also like WeWork, there doesn't really seem to be any revolutionary tech involved, and they seem to just be throwing tons of money at acquiring market share. In addition, a lot of what are being bought as "assets" are somewhat ethereal - you buy a Real Estate Brokerage with X number of agents, but none of them have binding contracts or non-compete agreements so you could lose them at any time.

Historically when the market goes down and agent's income decrease, the first place they seem to blame isn't the market or themselves, but the firm they work for, and as a result a lot jump ship. You also see a lot leave the business altogether in favor of more mainstream jobs where they are not independent contractors and receive benefits, don't pay double FICA, etc.

Now they seem to be losing the executive talent they recruited as wunderkind and scrambling to get new talent in new positions while not filling the vacated job slots

If the entire market sees a huge drop in transaction volume (which is looking more likely every day under this Coronavirus/Credit Crisis/Global Recession/Stock Market meltdown) can a firm seems to be following in WeWork's footsteps survive?

David Goldsmith

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And their main competitor:

"In 2019, Realogy shares dropped to new lows amid competition and pressure on margins. It also hit a few bumps, including one after announcing “TurnKey,” a partnership with Amazon, and another after it filed a wide-ranging lawsuit against rival Compass. The suit accused the SoftBank-backed firm of predatory poaching and other illicit business practices.
But the stock closed at $5.51 per share on Friday, down 57.7 percent from $13.04 per share on February 25. Year over year, the stock is down 52.1 percent; it’s down 78.8 percent since March 2017. On Monday, Realogy stock plummeted to a new record low of just $3.96 per share. Its market cap sank to $452.9 million, down from more than $7 billion several years ago."

David Goldsmith

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I find this interesting because from what I understood this was the single biggest edge being enjoyed by the firm's agents:

Compass to scale back lending programs
Brokerage “temporarily” suspends bridge loan advances

Amid a global pandemic and massive economic uncertainty, Compass is scaling back its Concierge and Bridge Loan services, The Real Deal has learned.

The SoftBank-backed brokerage is “proactively” restricting the programs at the behest of lending partners, according to a March 16 email to agents that was seen by TRD.

“We partner with leading financial institutions and lending partners to drive the Concierge program and based on what they are seeing in the overall market, they have strongly recommended making these temporary adjustments,” read the email from Mark McLaughlin, president of Compass California.

According to the email, Compass is restricting approval for Concierge — which fronts money to homeowners who want to renovate their homes — to $30,000 on homes under $3 million. The program will no longer be available in certain-second home markets, including Napa and Sonoma counties and Malibu.

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Compass faces a reckoning
VC-backed firm has ascended the ranks nationally. But with spendthrift days in the past, it faces an uphill battle in over a dozen markets: TRD analysis
It was an audacious goal from the start.

Five years after Compass hired its first 10 agents in New York City, CEO Robert Reffkin pledged the company would have 20 percent market share in 20 major U.S. cities by 2020.

“That means we’re going to expand,” he told agents who gathered in New York for an all-team meeting in 2017. “We’re going to expand to Seattle, San Diego, Phoenix, Dallas, Austin, Houston, Atlanta, Philadelphia and Chicago.”

Having raised $1.5 billion from investors, Compass ended 2019 with 15,500 agents across 325 offices. It now has a presence in California, Seattle, Chicago, Colorado, Texas, Nashville, Atlanta, Florida, Washington D.C., Boston and the New York metropolitan region.

But a closer look at Compass’ track record across the country reveals uneven growth, even as the SoftBank-backed firm — now valued at $6.4 billion — has ascended the ranks nationally.

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Compass lays off 15% of staff
Company expects 50% revenue drop over next 6 months, CEO tells agents

Compass laid off 15 percent of its staff on Monday, The Real Deal has learned.
With the economy reeling from the coronavirus pandemic, the Softbank-backed brokerage said it was projecting a 50 percent drop in revenue over the next six months.
“We aren’t just facing an economic recession, we are facing an economic standstill,” CEO Robert Reffkin wrote in an email to agents. “The best we can hope for is a V-shaped recovery as opposed to an extended recession.”
In the letter, Reffkin said Compass took steps over the past week to reduce costs before announcing the layoffs — many of which took place via video because of social distancing.
“Today was not an easy day for Compass,” he wrote. “While the timing of the economic recovery is uncertain, we are certain that by making these hard decisions today, our company’s future is secure.”


David Goldsmith

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Compass has long claimed to be a "technology company" but like WeWork it seemed that was largely puffery. But now under the shifting dynamic brought on by the COVID-19 crisis they may have found themselves forced to live up to those promises. Necessity is the mother of invention.

Compass to agents: It’s (virtual) show time!
Brokerage unveils virtual services to cope with lockdowns

With real estate agents largely sidelined by shelter-in-place orders, Compass said Wednesday that it is rolling out a set of virtual tools ranging from 3D video tours to targeted mobile ads.
In a company-wide email, CEO Robert Reffkin said the firm’s new “virtual agent services” are a combination of existing and new products that were piloted in Houston over the past few weeks. Last month Compass also launched a virtual open house template.
“It’s not just virtual open houses, it’s more of a well-rounded approach to every touch point for buyers and sellers,” said Sabrina Evans, Compass’ Houston regional marketing director, who led the firm’s compilation of products.

For both agents and firms, keeping deals flowing during the coronavirus pandemic is a key concern given the prospect of lost commissions.

Last month, citing an “economic standstill,” Compass laid off 15 percent of its staff. At the time, the Softbank-backed brokerage said it was projecting a 50 percent drop in revenue over the next six months.
The virtual agent services toolkit includes enhanced 3D staging, location-based mobile listing ads, digital listing brochures and virtual neighborhood walks.
Over the past few weeks, with states including New York ruling that real estate agents are not essential workers and therefore cannot go out to work, demand for virtual services has skyrocketed.
Listing giant Zillow reported a 191 percent increase in its 3D home tours and discount brokerage Redfin touted a 494 percent spike in requests for video tours. Smaller New York City firms, such as Keyo, Urbane Brokerage and Ideal Properties Group, also launched video tours. More recently, deals have also started to close virtually.

Though it’s not alone in embracing all things virtual, Compass’ new offering builds on a mobile-friendly platform it launched last year called Compass Anywhere.

The program lets agents work remotely with access to a virtual assistant, Compass laptop, courier services and on-demand printing at Compass-vetted print shops. They can also work from designated Anywhere spaces.

It’s unclear how many Compass agents enrolled in the program, but sources put it at roughly 20 percent, according to one published report. Offering agents increased mobility, and Compass saved the expense of opening more brick-and-mortar locations.

A Compass spokesperson said although there are overlaps between Anywhere and virtual agent services, the latter focuses on helping agents stay connected to clients.

“Compass was already a place where agents were able to work virtually,” said Evans. But in this “new world,” she said, agents are finding efficiencies, such as sharing virtual tours with many buyers at once instead of conducting individual tours. “In this new world, as we look further out,” she said, “it may be a place where they prefer to work virtually.”

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Compass: We can survive slump of 6 to 9 months
SoftBank-backed brokerage laid off 15% of staff in March

Compass is one of the richest residential brokerages, fortified with $1.5 billion in venture capital. Now facing an uncertain economic future, the company said it has enough cash to withstand a slump of two or three quarters.

“We can sustain a downturn for six months, eight months, nine months,” CEO Robert Reffkin said during an interview on Los Angeles agent Danny Brown’s podcast, The Deal. “We have the capital to be able to do so.”

Reffkin’s comments come as the SoftBank-backed firm faces a potential 50 percent drop in revenue thanks to the coronavirus pandemic. The firm, valued at $6.4 billion, sold $88 billion worth of real estate last year, up from $45.5 billion in 2018. As of October 2019, it was projecting $2 billion in 2019 revenue and said it had run-rate revenue of $3 billion.

Last month, Compass laid off 15 percent of its staff — roughly 375 people — in anticipation of an “economic standstill.” At the time, Reffkin projected a steep revenue decrease over the next six months.

On the podcast, he said Compass was in a lucky position, and that firms that are not so well capitalized are likely to pursue mergers or partnerships to stay afloat.

He noted, too, that Compass has seen an uptick in agents joining the firm. “We’re able to onboard agents virtually,” he said. “The great agents always gain market share in a downturn. It’s a question of how much market share you can gain.”

Residential firms around the country have laid off and furloughed employees in recent weeks, as have other VC-backed companies in real estate, including WeWork, Lyric and Sonder.

On the podcast, Reffkin predicted the residential market is likely to bounce back as early as this summer. He said that he personally made two offers on property last week. “I know the buildings, I know the neighborhood,” he said.

David Goldsmith

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Start-up Compass Promised to Revolutionize the Real Estate Business. It Hasn’t Happened.

Compass maintained that its technology would make its agents more productive and profitable than traditional brokers. But so far, the company, which was founded in 2012, hasn’t fundamentally disrupted the real estate business, and it continues to play catch-up with industry leader Realogy (ticker: RLGY).

Last year, Compass’ approximately 15,000 agents completed about 112,000 transactions worth $88 billion. The company says that it’s now the largest independent brokerage in the country. But the richly valued Compass remains far behind Realogy, whose 300,000 agents closed 1.4 million transactions worth $505 billion in 2019.

“They are a residential real estate brokerage, just like everybody else,” Susquehanna analyst Jack Micenko says of Compass. “They make their money the same way Realogy does and Re/Max does.” Re/Max Holdings (RMAX) is a franchisor with some 130,000 agents operating under its brand.

Some former Compass employees say that the company’s technology falls short of being a disruptive force in the industry or providing a significant advantage to agents. Former Compass employees and real estate professionals with knowledge of the company’s operations told Barron’s that Compass often struggles to get its own employees to use its technology.

A Compass spokesman declined to answer questions about the company’s tech platform or the productivity of its agents. As a private company, Compass isn’t required to disclose financials, and it declined requests to make financial data available.


  • 15,000
  • $88 B
    2019 Transactions
  • $6.4 B
    2019 Private Value

Co-founder and CEO Robert Reffkin has said that his goal is for Compass to be a “platform to power all real estate decisions” made by buyers, sellers, and agents. His operation, he says, is unique in the real estate industry because it creates a network effect through technology that focuses on both agents and consumers.

Using the Compass platform, real estate agents and prospective buyers are able to share listings and ideas. The realty company also provides agents with technology tools to help with marketing.

In September 2018—the month in which the company announced a $400 million investment from SoftBank, the Qatar Investment Authority, and others—Compass classified two-thirds of its agents as active users of its technology, according to an internal document reviewed by Barron’s. Compass considered any agent who used its technology for at least one minute, once a month to be an active user, the document makes clear.


  • 300,000
  • $505 B
    2019 Transactions
  • $384 M
    Market Value

The company declined to provide other usage metrics to Barron’s.

Compass’ plan to upend residential real estate using technology comes as WeWork, another highly valued SoftBank realty investment, struggles to fulfill its own technology promise. In trying to go public last year, WeWork told potential investors that it had “the power to elevate how people work, live, and grow.”

The company’s S-1 filing said, “Technology is at the foundation of our global platform.” But the same filing disclosed massive losses. WeWork ultimately pulled its planned initial public offering and needed a rescue plan from SoftBank, which later took a $4.6 billion write-down on its WeWork investment.

Compass could face its own reckoning, especially with Covid-19-related shutdowns putting a crimp on real estate transactions. The company’s current value is likely to be a fraction of its July 2019 fundraising figure, given changing private-market dynamics and the performance of public companies in the residential brokerage arena. WeWork’s struggles have weighed on overall private-company valuations, while Covid-19-related shutdowns are hurting real estate stocks. Shares of Realogy and Re/Max have fallen 62% and 41%, respectively, this year.

Several new entrants have struggled to disrupt the real estate market in a profitable way. Zillow Group (ZG) and Redfin (RDFN), as well as SoftBank-backed Opendoor, have poured a huge amount of resources into remaking real estate. Zillow, which grew as a new way for brokers to advertise their services, has pushed into buying and selling homes outright, a service it calls Zillow Offers. The company has lost money in seven consecutive years on a generally accepted accounting principles basis, and Wall Street analysts expect it to lose $427 million in 2020. And that forecast came before the full impact of Covid-19 was modeled in.

In a statement to Barron’s, Zillow said: “We are operating within the investment framework that we laid out for ourselves as we have scaled our Zillow Offers business, and our core business has generated strong earnings that we have been able to invest in making it easier and more seamless for our customers to move.”

Smaller Redfin also has struggled to turn a profit; in 2020, analysts expect the company to lose $80 million for a second consecutive year.

The travails of these realty operations show just how resistant the U.S. residential real estate industry is to fundamental change. The core of Compass’ pitch to venture capitalists is straightforward: Real estate agents are expensive, and the whole home-buying process is a hassle. To reshape the industry, Compass says it focuses on making agents better at their jobs. The company claims its technology can help agents sell properties more quickly than the competition. “One of Compass’ competitive advantages is that every employee has a singular focus on agent productivity,” CEO Reffkin told Barron’s in 2018.

The company declined to make Reffkin available for this article.


I believe many Compass agents opted to receive stock options in lieu of cash as it relates to commissions. In hopes of an eventual IPO. I wonder how those agents are feeling now...

David Goldsmith

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You may be right, but I thought they took those stock options in lieu of cash as signing bonuses rather than commissions.

David Goldsmith

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This ought to help with employee morale.

Compass slashes payroll, but keeps recruiting
Product and engineering teams not impacted

A month after laying off 15 percent of its staff, Compass announced widespread pay cuts on Wednesday, even as it continues to recruit agents.
The SoftBank-backed brokerage, which has raced to slash spending in the wake of Covid-19, said it would reduce salaries by 10 to 50 percent, according to an internal document reviewed by The Real Deal.
According to the internal document, Compass said the pay cuts will be temporary, impacting three months’ worth of pay. Reductions are being done in tiers: 10 percent cuts for those making under $75,000, 20 percent for those earning $75,000 to $150,000, and 30 percent for those making $150,000 or more. Some executives will see pay cuts of 50 percent. CEO Robert Reffkin previously said he would not take a salary for the rest of the year.
Employees will get the equivalent of their lost wages in the form of restricted stock on August 1, the document said.
“We are unfortunately taking steps to preserve as many jobs as possible during this unprecedented economic downturn,” the document said. “We thought we’d be working from home for weeks, with agents unable to show and sell home for weeks, and now it looks like a matter of months.”
The company declined to comment.
The pay cuts follow a round of layoffs last month, when Compass laid off roughly 375 people in anticipation of a projected 50 percent drop in revenue. At the end of last year, Compass had 15,500 agents nationwide and 2,500 staffers.

Despite raising $1.5 billion from investors to date, Compass has found itself in the same boat as other residential firms, whose agents are prevented from doing in-person showings during the pandemic. All are being forced to drastically cut costs while offices are closed, though some virtual closings are taking place.
Earlier this month, New York’s biggest firms, including the Corcoran Group, Douglas Elliman, Brown Harris Stevens and Halstead, laid off or furloughed staff.

David Goldsmith

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The dominoes keep falling.

Compass’ chief people officer is out
Sara Patterson leaves after three months; firm hires new general counsel

Sara Patterson, the top human-resources executive at Compass, is out after just three months at the residential brokerage.
In an email to staff Wednesday seen by The Real Deal, CEO Robert Reffkin said the brokerage hired Brad Serwin, a Glassdoor executive, as general counsel. But he noted that the firm also “parted ways” with Patterson, a former Walmart and Gilt executive, who was hired as chief people officer in February.

Serwin replaces David Carp, who left in April. Serwin, Reffkin said, “will help us continue to grow while laying the foundation for an eventual IPO.”
Reffkin also noted that Patterson would be replaced by Margaret Smith, who has been at Compass for three years and most recently served as head of talent.

Compass slashed spending after the coronavirus shut down activity in key markets. In March, it laid off 15 percent of its staff after projecting a 50 percent drop in revenue for the next six months. It also reduced salaries by 10 to 50 percent.
Last year, one of its biggest departures was COO Maelle Gavet, who left just a few months after Compass’ top marketing and product executives resigned or were forced out.

Having raised $1.5 billion from investors, most prominently SoftBank, Compass was valued at $6.4 billion in July. But that number has come under scrutiny after WeWork’s botched IPO. The co-working firm, once valued at $47 billion, was this week valued at $2.9 billion.

During an appearance on CNBC on Wednesday, Reffkin conveyed optimism in the market and in his own firm’s prospects. Year-to-date revenue is up 47 percent year-over-year, he said, adding that “we’re seeing an accelerated shift from traditional companies to tech-enabled companies.” In the email to staff, Reffkin noted that Compass was starting a cloud-based initiative that would allow them to support “customers” virtually and “launch in new markets more quickly and in areas we might not have previously considered.”

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Defaulting on lease payments.
Compass used Covid-19 to get out of lease: lawsuit
Brokerage used “form letter” to seek rent relief for Brooklyn office, landlord alleges

A Brooklyn landlord is accusing Compass of capitalizing on Covid-19 to get out of its lease.
In a lawsuit filed Tuesday, landlord Stuart Venner said the residential brokerage used the pandemic to ask for rent relief — and ultimately walk away from its office — at 384 Atlantic Avenue in Boerum Hill. Although Compass told the landlord it was “reducing its real world footprint,” Venner cited the firm’s $1.6 billion in venture funding as evidence that it should be able to pay its rent.

“They are simply, and reprehensibly, capitalizing on the current tragic situation to disguise their intentional and unlawful breaching [of] the valid lease,” according to the complaint.
Compass declined to comment.
The office in question is one that the SoftBank-backed firm inherited when it struck a deal to buy Stribling & Associates last year.

According to the suit, Stribling signed a 10.5-year lease in 2012. If Compass walks away, it would owe $792,129, based on current monthly rent of $24,633 and future increases, the suit said.
According to Venner, Stribing (and then Compass) paid its rent with no issues prior to Covid-19. On March 31, the landlord received an “unsigned, anonymous form letter” from Compass stating that because of the pandemic, it had to close its office. For that reason, “it is unclear that rent is due,” according to the letter.

In addition, Compass’ letter claimed, the circumstances warranted some sort of rent relief. “We believe the situation is still too uncertain to begin concrete discussion regarding rent abatements, and waiver of other conditions, but we look forward to discussing these issues in the near future,” it said.

But Venner rejected the claim, expressing surprise at Compass’ request in light of venture backing. Since 2012, Compass has raised more than $1.5 billion from investors, and it was most recently valued at $6.4 billion valuation.
“As the Coronavirus crisis evolved, we thought that due to the combined strength of Stribling and Compass, your lease payments would be timely and uninterrupted,” he wrote in a letter to Compass executives. Venner added that he was “somewhat perplexed by the ambiguous position you took with respect to rent,” given Gov. Andrew Cuomo’s position that cash-strapped tenants can’t be evicted, but still owe rent.

“We respectfully request that your financially-strong organization understand the pressures that local landlords and businesses are under and not add to our financial stress,” Venner wrote, according to the suit.
Like other residential firms, Compass had to make painful cuts in the wake of coronavirus, when many states shut down non-essential businesses. It cut 15 percent of its staff and slashed salaries to cut costs.

According to the suit, Compass is also evaluating its office footprint. In response to Venner’s demand for rent, Compass asked the landlord to apply a portion of Stribling’s security deposit to its April and May rent. Compass later confirmed its intention to consolidate agents from the Atlantic Avenue office into a new, 11,000-square-foot office at 333 Schermerhorn Street.

In the suit, Venner said when offered a deal of reduced rent, while its commercial brokers found a new tenant for the old space, Compass demurred. On May 8, a Compass executive told Venner “that, immediately upon the lifting of the various orders in place in New York State, Stribling/Compass would be vacating the Premises, they had nothing further to offer and that he had no more time to deal with this.”

Compass’ first acquisition in New York City was anything but typical. Instead of swallowing the smaller firm wholesale, Compass has allowed it to operate as “Stribling at Compass” at the behest of some veteran agents. Stribling’s offices have been another matter. Last month, Stribling founder Elizabeth Stribling sold the firm’s former office at 340 West 23rd Street in Chelsea for $7.55 million.

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Cash, no stock: Compass aims to cut down any Avi Dorfman windfall
Brokerage would rather pay in cash than shares if it loses lawsuit

With a jury trial looming, Compass is trying to lessen the windfall Avi Dorfman could reap if he proves he co-founded the firm.
The brokerage has asked the court to restrict Dorfman’s damages to cash instead of stock. Further, it urged the court to base Dorfman’s damages on Compass’ value in 2012, when he claimed to have worked with CEO Robert Reffkin.

“Dorfman’s recovery should not vary based on fluctuations in the value of Compass stock during the nearly eight years since his claim accrued,” the company, last valued at $6.4 billion, argued in an Aug. 31 motion.

Dorfman sued Compass in 2014, claiming Reffkin used a concept they worked on together in 2012 as the foundation for the brokerage. Dorfman said Reffkin reneged on an early job offer and 2.5 percent stake in the company; Compass maintains that Dorfman turned down the offer only to seek a “do-over.”

This summer, the case took a turn when Judge Andrea Masley said valuation questions would not be part of the trial. Rather, she said, the jury would decide whether Dorfman is entitled to “present … shares” of Compass stock.
The brokerage has raised more than $1.5 billion from investors, including SoftBank. The New York-based firm has more than 15,000 agents nationwide and claimed to have sold $88 billion in real estate last year.

When it comes to Dorfman, the brokerage says equity should be off the table. “He has consistently sought money damages — and only money damages — in this case,” its Aug. 31 motion said.
But Dorfman’s legal team claims that is simply not true. “We believe a jury will find that Avi Dorfman was a founder of Compass, and as a founder he’s entitled to equity in the company,” said Jonathan Harris.

A spokesperson for Compass said the firm looks forward to its chance to “disprove Mr. Dorfman’s false claims that he should receive any compensation for the limited hours of work he alleged to have performed in 2012.”
In the tech world, founder disputes are not new.

Facebook’s Mark Zuckerberg fought off several, including one from Eduardo Saverin and another from brothers Cameron and Tyler Winkelvoss, who settled for just $65 million. Martin Eberhard, a former CEO of Tesla, threatened a defamation suit over CEO Elon Musk’s founder title.

In general, such suits allege breach of contract and the plaintiff, if successful, is compensated with monetary damages.
But in situations where cash is deemed insufficient, the court may award other forms of damages, said Jonathan Gworek, a startup attorney at Morse, Barnes-Brown & Pendleton in Waltham, Mass.
An impending IPO could be one reason a monetary award is deemed insufficient, Gworek said.

“I can see the plaintiff saying, ‘If you give me cash, I won’t be able to turn around and buy the stock. So I’m not going to benefit from the run-up in value when it goes public,’” he said.
For Compass, the financial stakes are high either way. Randall Baron, a partner at Robbins Geller Rudman & Down, surmised the firm is probably “trying to deny him the appreciation” of its shares over the past few years. Sources said the firm may be betting that a jury will have a harder time awarding a staggering sum than mere shares, even if they are just as valuable.

But there are other drawbacks to Compass awarding new shares.
After six years of litigation, the brokerage likely wants to avoid a fiduciary relationship with Dorman. With shares, Dorfman would be empowered to request financial information, and it’s possible his vote would also be needed to approve a company sale. “If the court awards him cash, their relationship is contractual and short-lived. They rip the Band-Aid off,” said Ed Zimmerman, chair of the tech group at Lowenstein Sandler.

What’s more, issuing new equity could have a “cascading effect” by diluting the ownership of other shareholders, Gworek noted. In all likelihood, the company would have to issue additional shares to investors to preserve their position. “That could wreak havoc on the company’s capitalization table,” he said.

In an Aug. 24 letter to the judge, Compass’ attorneys said as much. “While Defendants disagree that Dorfman can recover ‘the current valuation’ of Compass stock as opposed to its 2012 value, the point remains that Dorfman was clearly seeking the value of the shares as money damages, not the shares themselves,” they wrote.

The original complaint, however, says Dorfman was denied a piece of the company and seeks compensatory damages.
In the original suit, Dorfman didn’t specify the value of his damages, only that he originally believed he was owed 5 percent to 10 percent of a founder’s stake. Compass offered 2.5 percent, then 1.8 percent, which Dorfman turned down because they were insulting. Experts hired by Dorfman said in 2019 he could be entitled to 2.5 million shares.

According to court documents, Reffkin paid only $335.50 for 3.355 million shares in 2012. The value of his shares today isn’t clear given that they were likely diluted over time. Compass’ $370 million Series G priced shares at $154.27 apiece, according to Pitchbook.

David Goldsmith

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If you're a Compass agent this statement has to concern you:
"Two years ago, Reffkin said by 2028 he wants agent commission to account for only a fraction of their earnings — with the rest coming from a vast “referral economy” of services."