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Neighbor raises $2.5M for its peer-to-peer storage marketplace

Neighbor connects users to their neighbors to store their stuff cheaper and more safely

Financial trends and news by Steven Loeb
March 28, 2018
Short URL: http://vator.tv/n/4b4c

In big cities, it's not very hard to find a facility to store your stuff. They're basically everywhere in cities like New York and San Francisco, but that's not really the case in a lot of places around the country, however, including smaller cities.

In those places, a storage facility will be in some out of the way, industrial part of town and those facilities also lock people into contract leases. So what winds up happening is people wind up with their stuff being far away from their home, locked into a contract they can't break. Not to mention it's also very expensive.

These are the problems being tackled by Neighbor, a peer-to-peer self-storage company, that allows people to store their goods in their neighbor's houses.

Already used by thousands of people in its core market, the Salt Lake City-based Neighbor is ready to begin expanding, so it announced on Wednesday that it raised $2.5 million in seed funding from Peak Ventures and Pelion Ventures.

Neighbor vs traditional storage facilities

Founded in 2017, Neighbor allows people to store their stuff in a residential area that is close by, with someone they know, which solves many of the issues commonly associated with storage facilities, Joseph Woodbury, CEO of Neighbor, told me in an interview.

"First, we're close to you. Oftentimes our renters will store three doors down from themselves so your stuff is very close, you're just storing it with someone who has the space. Second, it doesn't require you to lock into a long-term contract. Our renters can rent for as little a week or two, or as long as three years or six months, it's completely flexible," he said.

"Third, your stuff is much safer with Neighbor. Storage units have a high crime rate as compared to residential areas. To quantify it, it's about seven times higher. The reason residential areas have such low crime rates is there's a lot of social capital: dogs, alarm systems, neighborhood watch programs, whereas storage facilities are zoned industrial and often very low security with just a padlock."

Hosts set their own monthly prices for storage, though Neighbor will give them a pricing recommendation, based on the dimensions of the space, as well as what other amenities are being included, such as a security camera or alarm system. While the hosts aren't required to, Woodbury says that the majority of them do follow the guidance, and that, on average, the cost is 50 percent lower than it is in a storage facility. 

The trust issue

Even with all of those benefits, the idea of giving stuff over to another person to keep in their house is one that some might balk at. 

"Trust is the number one hurdle in a marketplace, and everything we focus on always comes back to trust," Woodbury told me, and so the company takes extra steps to ensure that a renter's stuff is secure. 

"Airbnb uses an ID verification program, Uber uses a background check program, Neighbor uses both. So we ID verify all of those that get on the platform, they have to submit a government ID or a passport, and then we offer the option of any host can request a background check on their renter and the renter can request a background check on their host."

The focus on trust is why, along with the funding, Neighbor also announced the launch of its "store with a friend" feature, which connects Neighbor to a user's Facebook profile to show which friends or mutual friends are also hosts or renters on Neighbor's platform. The company had to get special permission from Facebook to use their data.

"In the past we've had to rely on reviews, which are great, but we wanted a more instant to know you trust someone. When you see that they have 10 mutual friends with you, you instantly know, 'I can call John and ask him if this host is safe.' We love using technology to improve that trust barrier," Woodbury explained. 

Currently, more than half of what is being stored are either large furniture items or boxed up household goods, while 35 percent are a boat, an RV, a vehicle or a trailer. The remaining 15 percent are small business inventory. So what happens if something is damaged?

The way that the Neighbor terms of service breaks it down, the host is liable for gross negligence, so if they knock over a box and something breaks, they are liable for full replacement value, but the renter is liable for everything else. So if the host's home floods or burns down, then the renter is liable for that. Neighbor provides a $10,000 guarantee to both the host and the renter, which covers the renter if the home floods, and it covers the host for any damage. For example, if the renter dings the wall when bringing in a piece of furniture, Neighbor will pay to get the wall fixed. On top of that, the company also offers renters insurance through its partner, which can cover the renter or host for up to $25,000 or $30,000. 

The storage market

While some might think of Nextdoor as a potential competitor to Neighbor, the company doesn't see it that way, as Nextdoor acts as more of a social network than a marketplace. 

"We view ourselves as very focused on the storage industry and providing a way for users to safely rent out space in an easier way than Airbnb or in a more passive way than an Uber. We think there's a real need for that workless, passive income. Whereas with Airbnb you have to clean out your space, and then they come and they stay for two days, then you have clean up again for another customer, on Neighbor, our renters come, they put their stuff in and you get a passive income deposit in your bank account," said Woodbury. 

For that reason, Neighbor sees its competitors as the storage facilities themselves, which spent $4 billion last year just on land acquisition and construction costs.

"We think it's our job to provide a safer, cheaper alternative that's closer to your home so that we don't have to keep building these facilities," he said.

Another competitor are what Woodbury calls "storage innovators," like Clutter and Makespace, who provide a premium storage model for their users .

"They tweak the storage model, they still build the storage facilities, but they provide moving services. One of the things we really like about our model is ability to not have that in-house. We don't have to spend the capital to build the facilities, or buy the trucks or hire the employees, but rather we can provide moving services through partners, using other marketplaces as partners, and we focus on the core capability of providing storage," Woodbury said.

It was that business model that made Chad Packard, Partner at Pelion Ventures, interested in investing in Neighbor, he told me. 

"The three founders, we really liked them. The model that they are going after, which I really liked, was not the halfway model. Companies like Clutter and others who are like higher-end, tech enabled self storage services, they still have to come out and pick up the box, and they find a place where they rent out or buy a location and then store it for you. That model’s been working to some extent, and the Clutter guys are great, but what I really liked about this model was it goes the complete next step, which is a complete, 100 percent marketplace, with third parties fulfilling the rest of the logistics side that they need to do," he said.

What's next for Neighbor

While Utah is its core market, Neighbor currently have users in 25 other states and published listings in 14 other states, and now it plans to use the funding to begin expanding, though slowly and in those places where it makes the most sense.

"If you think about a marketplace, it doesn't make sense to have a bunch of users spread out everywhere; it's a good experience for hosts if there's lots of renters close to them, and it's a good experience for a renter if there's lots of options close to them," Woodbury said. "This funding allows us to take what we've built here in Utah and start expanding it to other markets. We believe in following organic growth, that’s our mantra and we’ve seen a lot of organic growth in certain hot spots around, specifically, Colorado, Nevada, Arizona. These are places where it’s spread quickly without us doing any marketing to those states."

That will mean expanding its seven-person team, adding another five to 10 people by hiring engineers, content designers, in addition to building out its marketing team. 

The funding will also go toward building out the product, and the company has ideas centered around machine learning and AR that it plans to roll out in the next six months, though Woodbury wouldn't say what they were at this time. 

Ultimately, the vision for Neighbor is to make it into a global company. While it already has interest and signups in places like Canada, New Zealand and the Philippines, it isn't able to provide services to those markets yet. 

"Our long-term vision for this is to achieve two things: to provide storage that is cheaper and to provide storage that is easier. Those are our two overarching principals, cheaper and easier. We really think those two thing are powerful disruptors in this industry and we can see ourselves taking significant market share. There's about $500 billion dollars in available market cap just in in the United States storage industry, so even taking 1 percent of the market this is a $5 billion company. We think is a larger market than even the market that Uber or Airbnb are partaking in," said Woodbury.

In addition to the size of the market, the company also has grander visions for how the service can help communities. 

"Personally why are we doing this? Why do we love the idea? We just the love sharing economy model in general. 85 percent of our revenue never hits our bank account. It goes out to the community and we're distributing the profit of this storage industry to people who can use it to pay down their mortgage. We often quote the statistic that 63 percent of Americans can't afford a $500 emergency. Yeah, they can go work for Uber but then they have to drive around all day, and they can't have another job. Neighbor allows them to keep their job and $200 or $300 a month, to subsidize their income.

"We love that this brings communities together. It's not a destination product, like an Airbnb, where you go to San Francisco, you meet person and then you never see them again. This is something where it's a long-term, recurring revenue relationship with someone who lives in your neighborhood. We really want to bring people off social media, and engage them in one-on-one relationships where they're building their communities. maybe a Democrat stores with a Republican and realizes they're not so bad, and a Republican stores with a Democrat and realizes they're not so bad. That's what we love about this model."

For Packard, his role the future of Neighbor means helping the company expand while also giving users the best possible experience.

“What I’m going to help the team focus on its technology, making sure we build the best, scaleable, easy to use, user friendly and trusted platform. It’s about convenience, it’s about trust, it’s about usability. You look at companies in a marketplace like an Uber or Airbnb, and they simplified the use case, so we’ll be focusing a lot on that," he said.

"And it’s just about marketing and channels and adoption and moving across the US. I don’t think you’ll see us pushing heavily into New York next month but what you will see us be doing is probably a lot of middle America, we’re going to be expanding pretty rapidly."

(Image source: storewithneighbor.com)


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