Ignore WeWork. Watch VTS.
If, like me, you are betting your future on PropTech, then stop listening to the noise around WeWork and start rooting for VTS.
Last year was pretty amazing for me. In addition to running a venture fund, creating several private events, speaking publicly about PropTech, writing about trends, and helping build an accelerator, I also helped create an incubator with WeWork.
I know it has its haters, but WeWork really is a remarkable company and their growth has been impressive. I don’t want to take anything away from a company that is now the largest tenant in NY and London. That’s incredible for a company that is 9 years old!
But I’m seeing a narrative in my news feeds that concerns me a bit.
Because WeWork is venture backed, it is portrayed as a PropTech company.
It’s not.
Not in the traditional venture sense.
WeWork is a real estate company. It’s wayyyy more Prop than Tech.
Sure, they have made some tech acquisitions with Meetup and Teem and Waltz and a few others. But if Hines bought a few tech companies they would still be Hines. They build buildings.
And, at WeWork’s core, they simply lease office space by the floor and then re-lease it by the foot. Nothing that complicated about it. They have great design capabilities and an (arguably) enviable culture in Six Flags Under Neumann.
But they absolutely are NOT a tech company.
I’m sure that’s why so many investors are scratching their heads on how a real estate company can be valued at 40x top line revenue.
I bring this up not to belittle or bash WeWork (I already said I admire them), but to try to convince those of us in PropTech not to pin our hopes on high performance in the equity markets for WeWork.
It’s not really directly relevant.
REITs and PE firms should watch closely. They should also track Katerra as an archetype for the tech-enabled developer model. (Actually, Softbank better hope both perform well in public markets or Masa-san needs to reexamine some assumptions about late-stage private equity.)
My theory is that if WeWork performs tremendously in the public markets after its IPO or if it flops and trades at a fraction of its last valuation, I don’t think either outcome will affect the PropTech market in any material way.
I say this because I know enough of the blue-blood and emerging venture firms to know their definition of an exciting tech company. (Hint — WeWork ain’t it.) They want tech-first companies. Many VC funds will only look at SaaS (Software as a Service) companies because of the margins.
So follow my logic . . .
- PropTech needs mainstream and emerging VCs to take an interest in PropTech startups in order for the startups to have sufficient capital sources to exit at a “Venture Pace”.
2. The easiest way to get mainstream and emerging VCs interested in a vertical is through a big exit.
3. They don’t view WeWork as PropTech.
4. Ergo, WeWork’s IPO, while notable, doesn’t validate the PropTech space to these generalists.
Which brings me to VTS.
I know most of VTS’s investors and was encouraged to see their most recent round and $1B valuation. And while I’m always cheering for my investor buddies and like seeing healthy “up rounds” for PropTech startups, this one is different.
At a $1B valuation and the revenue I’m hearing VTS is generating they are a serious candidate for an IPO. Probably not this year, but maybe as early as next year. (I have no insider information on this. Just a hunch knowing the process and metrics.)
If VTS goes public, THAT would be a big deal for PropTech. VTS is a traditional, venture-backed, software solution for the CRE industry.
In my mind, this would be one of the first true, large exits in the early life-cycle of PropTech.
If that happens, the generalists pay attention. If the generalists pay attention, capital flows to PropTech startups. My life is easier because I have more investors to refer my portfolio to. Founders have more options in their investor pool. And the support resources affiliated with these larger, older, generalist funds can be staggering.
So, back to my original point . . .
Pay attention to WeWork if you want. They make for interesting headlines.
But cheer for VTS and help them with anything they need to get to a big IPO. Their success will find its way to the rest of us in PropTech.
