Just a little more than a month ago, Connected Real Estate reported a record $4 billion was invested in property technology, or proptech during the first quarter of 2022. That sign of confidence in the sector is perhaps why a number of proptech entrepreneurs and venture capitalists remain confident the ability to raise proptech funds and grow businesses despite this current round of economic uncertainty, Commercial Observer reports.
“Hell no! It’s not time to panic,” Ashkán Zandieh, chair of the Center for Real Estate Technology & Innovation (CRETI), and a venture capitalist in proptech told Commercial Observer. “VCs are investing and flooding the market with earlier rounds of funding. With a handful of SPACs (Special Purpose Acquisition Companies) performing poorly, the public equities market may re-evaluate investing in companies that should have raised another private round instead of listing.”
Meanwhile, Matias Recchia, co-founder and CEO of proptech startup Keyway, noted that the company has seen less funding and noticed a number of companies are restructuring. Recchia also said this current economic climate is a good one for companies that are truly technology first.
“I feel like a lot of proptech has been real estate investment dressed up as technology,” Recchia said.
How VCs are feeling about the proptech sector
Zach Aarons, co-founder and general partner at MetaProp VC, noted a lot of capital has already been deployed and should help companies weather the storm for a while. Given the vast amount of money raised in 2020 and 2021, proptech companies should be positioned to “maintain a robust and late-stage tech startup ecosystem, even if the (initial public offering) window doesn’t open up in the next few months,” he said.
Aarons also acknowledged that some VCs might see the situation differently, Commercial Observer reports. Some funds likely want to get a clearer picture on where the market correction lands before making additional financial moves. Such hesitation could lead to funds operating in more traditional fashion, “meaning your first three years or your initial deployment period,” Aarons said, rather than the faster two-year funding process that’s existed in the proptech environment since 2015.
Meanwhile, there still seems to be a good amount of funding available to proptech startups, Thomvest Ventures principal Nima Wedlake told Commercial Observer. He noted his firm is still looking at new investment opportunities and it’s also the sense he’s gotten from other VC’s. Wedlake believes VC’s are still actively looking to invest in proptech because many of them managed to raise new capital within the last five years and have funds to keep investing, despite the economic climate. Plus, as the investment process has slowed down, firms are taking time to get to know companies better and agree on more reasonable valuations.
Proptech companies remain cautiously optimistic
CREtech and CREtech Climate CEO Michael Beckerman told Commercial Observer he’s “more than ever extremely bullish” about the proptech sector, but also realizes it won’t be immune to the bigger tech market correction. There’s also the possibility proptech could be impacted more given how new it is compared to other tech verticals. On a more positive note, Beckerman said that early stage proptech funding is still solid.
“The temporary slowdown in venture funding in commercial real estate tech that we are experiencing today is therefore a natural and healthy market-pricing adjustment, but it will have no impact on the long-term prospects for this global ecosystem,” Beckerman said.
John Ensign, president and executive managing director of North America for MRI Software, a real estate open technology platform that includes proptech startups and other tech companies, doesn’t believe the industry should panic. Ensign noted the economy is cyclical and the current downturn just means business needs to be conducted differently for the time being. For now, Ensign doesn’t see his company being any more or less aggressive when it comes to acquisitions than it was before the economy shifted.
“We’ll continue looking at that as part of our growth model,” he told Commercial Observer. “Obviously, strong organic growth is critical to any company’s success, but acquisition has been and will continue to be part of how we look at growth and serving our clients. So that will absolutely continue.”
CRE success bodes well for proptech
The optimism surrounding the proptech sector could also be a result of commercial real estate managing to stay afloat during inflation. On Nareit’s REIT Report Podcast, Carly Tripp, global chief investment officer and head of investments for Nuveen Real Estate, noted that CRE continued to provide a solid hedge against inflation. The trend has been borne out of several decades when inflation was more than 4 percent, Tripp said. She also noted that Nuveen research showed that CRE was the lone asset class that yielded an overall net positive return during those inflationary periods.
“We always say real estate is an inflation hedge, and we’re seeing that play through right now. So, it’s a good time to be in commercial real estate in my opinion,” Tripp said during the podcast.
