The Dawn of PropTech 3.0

  • Thinning and consolidation. Expect to see fewer PropTech-only funds, but expect them to be bigger and/or stratified. Think about a “core” fund and then niche funds like Fifth Wall did with Retail and ESG/Sustainability. What will happen is a lot of the first-time funds will not hit the return thresholds they need to in order to continue operating in the VC space. That’s just a mathematical certainly given the uneven distribution of returns in VC (and all financial markets). So, some will close or sell their assets or combine. The ones that do generate top-quartile returns will be there to grow and absorb the assets of others.
  • Silicon Valley jumps in. I know Connie at Andreessen and Evan at Khosla have been doing deals for a while. And GV has experimented in the space. Trinity seems to be interested and Homebrew and Founders Fund also dabble. Sway and Tribe are also going to be players here. Plenty of the generalist firms have been poking around it. But I expect one or two of the traditional venture capital firms are going to start dedicating a pool of capital exclusively to PropTech. Expect them to be the dominant lead investor in PropTech in the 2020s. They have the track record and underwriting/support resources to do so whenever they decide to actually focus on it. Expect them to take cues from their FinTech practices and break the niche out between B2B (my space) and B2C (residential). I have a hunch about who it will be.
  • Corporates move back to LPs only. Expect these large real estate funds to give you the old “back to our core competency” bit and simply become passive investors (LPs) with specialists who manage funds. It happens every cycle. It will happen now that we are entering a recession. Real estate firms will focus on real estate and venture firms will invest capital in PropTech startups on their behalf.
  • Growth of Growth. Expect to see more growth equity funds play in this space. We’ve had a dozen or more early stage funds play in the PropTech space for a while now. Very few can effectively write checks at the B stage and later. That will change as more institutional capital (endowments, pensions, SWFs, etc) pay more attention to this space . . . and they are.
  • IPOsAirBnB is the big one. They are a true marketplace and “real” tech. If the public market likes them, it’s a huge win for the industry. Same with ProCore. They just pulled their S1 and raised at a $5B valuation. When they go public, the construction tech industry becomes less reliant on M&A (which is a big deal). VTS, Industrious, maybe Latch, maybe SmartRent are all candidates as well (although I’m less optimistic about the last two). AirBnB and ProCore might be enough . . .
  • Data — Expect to see some big data exits as well. Doesn’t really matter if they are IPOs or just big acquisitions. People care about what happens inside and around commercial buildings and look for companies like Placer AI, Cherre, and maybe Reonomy to have nice exits based solely on high-quality and actionable property-level data.
  • MF Tech — Google and Amazon both want to get into the apartment renter’s wallet BADLY. So far, they have done a poor job. Expect them each to make a large acquisition of a company that has great access to the every day life of apartment renters in the US (see Latch and SmartRent above). Facebook might also dip their toe in this water but it’s up in the air with the vague mandate of their new fund.

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