What The World’s Biggest PropTech Investors Want From Startups
PropTech had a big year in 2018, with investment in the sector just shy of $20B, a 38% increase on 2017, according to Venture Scanner.
What is getting investors in the sector excited right now, and where is the sector headed? Bisnow asked three of the world’s biggest PropTech investors what they are looking for from startups and their key trends for 2019. All three will be speaking at the FUTURE:PropTech event in London in May, for which Bisnow is a media partner.
Brendan Wallace, Fifth Wall Co-Founder And Managing Partner
Bisnow: Give us a quick overview of your investment thesis.
Wallace: Fifth Wall has a top-down investing model of raising capital from the largest buyers and potential users of real estate technology in order to directly address their needs, and mitigate the distribution challenges with which built-world technology entrepreneurs struggle. We are backed by the world’s largest and most influential real estate owners and operators who represent more than $640B of real estate and more than 7B SF across every major sector of the industry. In serving as an adjunct between these large real estate corporates and the breadth of startups in the space, we’ve found that there is real power in the consortium. While our strategic limited partners may represent different sectors of the industry, the pain points are often quite similar. This creates opportunities for collaboration among our strategic partners, and there is power in that network. Finally, by advising our corporates on which technologies to adopt, we are also providing an avenue for emerging companies to access the largest owners and operators on earth.
Bisnow: What are some of the key metrics you look for when making investment decisions?
Wallace: A company's management team carries a great deal of weight in our decision. Outside of standard underwriting practices, we consider three elements, the first being asymmetric information. This often comes through corporate relationships and allows us to underwrite future growth and revenue traction that a generalist VC ordinarily couldn’t. The second is access; we have a multitude of advantages that are specific to real estate tech, but perhaps the most important is access to the distribution channels provided by our strategics and whether the company is in a position to benefit from that access. The third is what we refer to as our kingmaker advantage, or our ability to influence outcomes, both via partner relationships and our internal business development team. When we invest and structure partnerships for a company with our strategics, we’re pre-engineering growth that can often immediately boost revenue.
Bisnow: What sort of PropTech technologies are on your priority list?
Wallace: We are actively investing in modular housing, construction robotics, tech-enabled senior care, data and analytics and AI — among other categories. Smart city technology is another area of interest, especially as we consider transportation and the profound impact that autonomous vehicles and micro-mobility will have on the real estate industry.
Bisnow: What are some of the really big challenges that no one has solved yet, that founders can try to focus on?
Wallace: I’m fascinated by the utilization of physical space and re-imagining ways in which to monetize that space. One great example of this is our portfolio Clutter, a storage and moving company which transports customers’ items from home to a remote, underutilized industrial property, rather than a purpose-built self-storage building in a city center. As we move towards the adoption of autonomous vehicles, there will be a tremendous amount of underutilized space, like parking garages/lots or extra street space, and figuring out a way to optimally repurpose those spaces will be critical. The tokenization of the real estate asset class and full stack modular construction are two additional challenges which present massive opportunity.
Taylor Wescoatt, Concrete VC General Partner
Bisnow: Give us a quick overview of your investment thesis.
Wescoatt: Concrete bridges the deep industry understanding of our "Braintrust", leading global partners, with the visionary efforts of the PropTech startup sector. By working closely with corporate decision-makers, we seek key gaps and opportunities with large pools of addressable capital or transactions. When we hear founders addressing the same, we know we're on to something. Sometimes it's just a great commercial introduction, sometimes it's a great venture capital investment opportunity, but in the best of all worlds, it’s both.
Bisnow: What are some of the key metrics you look for when making investment decisions?
Wescoatt: Basic digital like customer acquisition cost-to-lifetime value, revenue growth and value creation matter a lot. In the seed stage, we hope the addressable market opportunity is already validated, so at this stage we look for product validation. The first question is, do the customers like it? Here metrics like sales cycle, user engagement and in particular whether early adopters increase their adoption or churn all point to a product really creating value for customers. Once you get to Series A, it's important to see that the engine works. Strong grasp of operational metrics, like lifetime value to customer acquisition cost, onboarding/support costs and a stronger pricing model are important. We also like to see that startups can attract world-class teams at this point.
Bisnow: What sort of PropTech technologies are on your priority list?
Wescoatt: Location, location, location is still the most important thing, but now it's all about using data. Lease rates and sales comparables are still key, but the appetite to gather them programmatically is increasing. Foot traffic and customer behaviours and preferences are driving more in the decision and pricing process, and things like five-year pizzeria survival rates and evening Uber pickups are looked at as leading indicators.
The end customers' preferences are really starting take a front seat as “flexible everything” uproots the old world of five-, 10- and 20-year leases that in no way accommodate the flexible needs of their customers. Sensors, tenant-apps and smart-building tech give greater insight into what occupiers and buildings do, need and want. Here our portfolio companies like Measurabl, innovating how sustainability data is reported for BREEAM, LEED and GRESB, and District and OpenSensors, driving better understanding of and engagement with tenants, are giving asset owners and operators greater insight. At the end of the day, a happier customer gives higher yield, a more stable asset costs you less to operate and both together get you a higher sale price.
It would be a mistake not to mention innovation in construction, or ConTech. Seven percent of world GDP is tied up in buildings, yet the sector operates much as it has for the last 70 years. New materials, better ways to collaborate, efficiency in supply, improvements in safety and more closely tying the way something is built to the way it will be operated are all trends that young construction entrepreneurs are burning to innovate.
Ricardo Schäfer, Loric Ventures Co-Founder
Bisnow: Give us a quick overview of your investment thesis.
Schäfer: Loric invests into PropTech companies looking to innovate and disrupt the real estate space — driving efficiency, productivity and consumer focus for tomorrow’s real estate world. Loric’s thesis is that a range of unicorns are emerging in European PropTech across the value chain. We look for break-out companies or category leaders with €100M-plus revenue and €1B-plus exit potential. Loric combines both classic VC and real estate expertise — this means we can support our portfolio companies with unlocking real estate supply and facilitate their connection with the real estate ecosystem to drive growth.
Bisnow: What are some of the key metrics you look for when making investment decisions?
Schäfer: The main questions for us are: First, to what extent is the technology solving a real pain point with tangible benefits for the ultimate client? Second, what is the founders’ ambition and execution track record to scale the business? Third, is there enough substance and size in the underlying market to create sizeable revenues? Use case, founder team and market size are key for us. We invest across all PropTech verticals.
Bisnow: What sort of PropTech technologies are on your priority list?
Schäfer: Our primary focus is not the technology but its use case. In this context, we are excited about business to business solutions across the real estate construction, management and investment verticals, where incumbent real estate owners and operators can drive efficiency and profitability via tech solutions. We will probably also witness more companies emerging in the early part of the real estate value chain, in particular around planning and project management. This also includes construction tech, where there are exciting new models looking to consolidate the supply chain for building materials, for instance. Another key theme is liquidity and financing. Real estate as a historically illiquid asset class will slowly transform into a more liquid format, for example via pre- or post-equity release products for residential real estate owners.
FUTURE:PropTech is the world’s largest PropTech event, with more than 1,500 people having attended last year. It will be held in London on 13 May. Bisnow readers can get a 15% discount on tickets. Please use discount code Bisnow15.
