As Investments In PropTech Rise, VCs And Investors Bet $1.7B That The Gamble Is Worth It

With a group of people surrounding him, Neal Krajewski lifted up his cellphone with the screen facing toward the crowd, pointed the phone’s camera at an image on a banner, and within seconds, a video appeared.  

Krajewski, an Ormond Beach, Florida, real estate agent, was showing off how agents and commercial real estate brokers could use his augmented reality application, Captum, in their own virtual/video ads.

“I’m not a tech guy but I had a vision,” Krajewski said to Bisnow while he was demonstrating his product at the National Association of Realtors conference on Saturday. “This type of advertisement creates such an emotional connection … And when you stimulate someone’s emotion, the mental retention they will have from that experience is far greater than looking at a traditional (business) card or flyer.”

Krajewski's was one of several companies at the conference showcasing their PropTech business. Booths from data companies, tech property management firms and even augmented reality companies lined San Francisco's Moscone Center, all demonstrating how their ideas might benefit the real estate business.

It is part of a greater tidal wave of property technology platforms that are taking over the real estate industry. 

CRE Tech, a company that connects the commercial real estate and tech industries, reported that venture capitalists invested more than $1.7B across 106 deals in real estate technology companies in October alone.

It is the sixth consecutive “billion-dollar funding month for the global real estate tech venture capital ecosystem,” according to the report released Monday.

In the first half of this year, investors placed more than $14B in real estate tech companies, according to CRE Tech's midyear report. 

“Deal volume increased by 19% since September 2019, however, dollar volume continues to be top of mind for the investor community,” the October report states. “Globally, dollar volume increased by 24% since September 2019. The billion-dollar trend continues to be the topic of conversation, especially at the start of Q4.”

Isaac Coonan, the director of REACH Australia and Southeast Asia, said the PropTech space is booming because investors are driven partly by fear. REACH is the tech accelerator by Second Century Ventures, which is backed by the National Association of Realtors.

The accelerator focuses on later-stage growth companies that impact the real estate industry. Some of their investments have included moving company Updated, home automated company August and e-document company DocuSign.

The real estate industry has always been known as a slow adopter of technology, and those who are slow to adopt it now will be left behind, Coonan said, adding that big commercial real estate firms like JLL, CBRE and others have all created accelerator programs to support PropTech.

"The writing on the wall is that property and the real estate industry are in for a massive amount of innovation and change," Coonan said. "Rather than sitting back, and saying, 'Whatever is going to happen will happen,' many [companies] are being proactive." 

"They are saying, 'We don't want this technology to be built to replace us. We want to invest in this technology that will be built for us,'" Coonan said.

Camber Creek Senior Associate Nate Loewentheil said he is not surprised by the amount of money being poured into PropTech. Camber Creek is a Washington, D.C.-based venture capital firm founded in 2011.

Eight or nine years ago, investors were only putting $100M a year into PropTech. That has obviously changed, Loewentheil said, adding that a recent Deloitte survey of 750 professionals in commercial real estate found that 92% of them plan to maintain or increase investments in technology heading into 2020. 

"When we started [PropTech] was barely a thing," Loewentheil said. "People were mostly using their cellphone and Excel ... Real estate is the largest asset class in the world. There's a long runway for investment, innovation and adoption."

But with all these new startups and tech companies invading the real estate industry, is there a saturation point?

"I don't see it that way," Loewentheil said. "I think the market is about to hit its stride."

Though some investors may have been shaken by what happened to coworking giant WeWork, others see it is part of the gamble of investing in PropTech firms. A 2012 study by a Harvard Business School lecturer found that three out of four venture-backed startups fail, according to The Wall Street Journal.

The Wall Street Journal also cited The National Venture Capital Association, which estimates, about 25% to 30% of venture backed start ups fail.  

"I think we’ve learned that what happened to WeWork, and the book is still being written on them, is that VC investment does work," Coonan said. "It does what it does. It takes risks and makes bets. As a VC, you are making bets for a living."

Loewentheil of Camber Creek said generally speaking, about 25% to 30% of venture backed businesses do fail, and anecdotally, that is about right for the PropTech space. 

But Loewentheil stressed the importance of building up and supporting the company to maximize the return for their investors.  

RET Ventures founding partner John Helm partners with more than 20 multifamily companies with more than 1 million total units to invest in PropTech or in their case, RentTech, tech companies that specialize in the multifamily asset class. RET's investments have included Fernish, TurboTenant and Amenify.

"When we look at the 'RentTech’ category, relatively little capital is flowing in, and we feel that apart from a few of the more consumer-oriented categories such as short-term rentals such as Sonder and Lyric and internet listing sites like Apartment List and Zumper, the category is actually underfunded," Helm said. 

The key to RET's success, Helm said, is that his partners are early investors in companies and pilot the technology into some of their multifamily buildings before adopting it full scale. If the concept works, the RentTech startup, the multifamily investors and consumers benefit. 

"We'll support any technology that helps the built world or real estate operate more effectively," Helms said.

For Krajewski, the Florida real estate agent who created a tech platform to help real estate and commercial brokers market their products using augmented reality, he is looking to raise $5M to promote his product nation and worldwide. 

"This is the future," Krajewski said as he continued to show off his product to passersby.

CORRECTION, Nov. 12, 3:20 P.M. PT: A previous version of the story misnamed RET Ventures. The story has been updated.