The Winter Of Proptech's Discontent May Be Ending

For the last 18 months, proptech companies have been slogging through a frigid funding environment as venture capitalists left them out in the cold.

"It was tech winter," said Amy Polvado, founder of proptech data company Facilimax. "A lot of companies that had gotten an early round of funding in 2021 couldn't raise again and had to shut their doors."

The ice is starting to thaw, and 2025 is forecast to be a lot balmier. The catch: Valuations aren’t coming back to their prepandemic levels anytime soon.

Proptech funding has been on the decline since late 2022, after interest rates began to go up. After raising $19.8B that year, proptech firms saw investment fall 42% in 2023. It has tumbled further, with the $4.4B raised in the first half of 2024 coming in 14% lower than the same period a year ago.

But the second quarter was better than Q1, and in July, things really started to heat up: $769M was invested across 45 companies, and there was more than $300M raised from July 29 to Aug. 4 alone, CRETI reports. This time last year, funding struggled to cross $100M. 

Management platform Guesty raised $160M in April, with KKR, Inovia and Sixth Street among the investors. EquipmentShare closed the largest VC deal of the year when it raised $600M in an April debt round. 

EliseAI, a healthcare and rental proptech company, closed a $75M Series D led by Sapphire Ventures this month that pushed it into unicorn valuation status.

2023 was a year on the defensive, but this year is shaping up to be more offensive, said David Eisenberg, founder of VC firm Zigg Capital.

Zigg is among the investors ramping up activity now that interest rate cuts are likely on the horizon. Zigg took part in Paris-based proptech company Zefir's $12M Series B round that closed in April. Eisenberg described the company as a next-generation Zillow.

"A lot of folks pushed out just when they would raise as far as they could and now are starting to come out to market," said Aaron Ru, principal investor at RET Ventures. 

RET Ventures was part of a $19M Series B round in June for Parity, a platform for HVAC management. In January, the firm led an $8M Series A round with Wise Ventures for startup PredictAP, which automates invoices for real estate accounting departments. 

RET Ventures is investing at largely the same rate as in 2023. Ru said it is still a tough market to fundraise in, but it is better than 2023. On the flip side, he said, now is a great time to invest because there is less competition for proptech deals.

Funds that previously invested in the space, especially big Silicon Valley VCs, have pulled back or stopped investing in the sector, he said. And some funds that used to be proptech-focused found other places to put their money as the real estate sector dipped over the last two years.

Kleiner Perkins invested in proptech during its boom, backing Zumper in 2020 and 2022, mortgage app Better.com in 2021 and office management platform Avo in 2021. It has been silent in the sector this year and last. The company announced $2.1B in new capital in June but aims to deploy the cash to the enterprise software, consumer, healthcare, fintech and hardtech sectors, with no mention of proptech. 

Alternative investor Tiger Global was active in proptech in 2022, backing tech operator Facilio, unicorn NoBroker.com and Nestaway. After a quiet 2023, the investor was part of a Series B round in early August for Cents, a garment-industry proptech firm. 

The last 18 months haven’t just been slow — they’ve seen a major reset in valuations, and investors aren’t sure what returns look like in this new environment.

"The reason why the growth equity markets, the much bigger rounds, are a little bit quieter right now is because no one is really sure when they're going to be able to get liquidity from those rounds," Eisenberg said. 

JLL Technologies reported a 7% drop in revenue in Q2, which it attributed to less new business, “client decisions to delay projects” and losses from investments in its JLL Spark Global Venture Fund. It still led a Series A funding round in August for startup Probis, which uses AI to give users control of a development project's finances as well as cost and revenue management. 

There’s consensus that VC funding had gotten too frothy prepandemic, and that has led to fallout in recent years. A slew of major proptech firms closed their doors or slashed staff in 2023, including Softbank-backed View and WeWork, unicorn Veev, Zeus Living and Latch. Nestaway was acquired by competitor Aurum Proptech last year at a 95% valuation cut.

Proptech valuations are down 80% this year overall, according to CRETI.

Eisenberg said investors have to be disciplined when underwriting and proptech companies have to be realistic about their expectations in future rounds. 

"I think a lot of founders are even prefacing conversations by saying, 'Hey, I understand that my last round raised crazy multiples. I'm not expecting the same thing this time around,'" Ru said. 

In fluctuating economic environments, proptech companies need to understand their valuation, which is influenced by external factors, and value, which is a business's constant, JLL Spark principal Ajey Kaushal said in July.

The investors Bisnow spoke to expressed optimism about where proptech is headed and are open to investing more as the year progresses. They are looking for stable companies with realistic expectations about funding in 2024's market. 

As the saying goes, only the strong survive. 

"I think we will see more companies continue to shut down," Ru said. "But you know, a lot of those just fundamentally may not have had business models that worked without nearly zero interest rate funding.”

CORRECTION, AUG. 21, 12:15 P.M. ET: This story has been updated to better distinguish between JLL Technologies and the JLL Spark Global Venture Fund.