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Proptech investing had down year in 2022

A recent Center for Real Estate Technology & Innovation (CRETI) report revealed that real estate tech companies saw less funding from venture capital groups in 2022, reports. Property technology (proptech) companies raised $19.8 billion globally from venture capital firms in 2022—a 38 percent drop from the $32 billion raised the year before.

“The narrative in the proptech industry continues to change along with the macro real estate environment,” CRETI said in its report.  “Real estate organizations have adopted a more defensive position as entrepreneurs, founders and investors navigate through a cautiously conservative landscape.  Market volatility continues to persist due to monetary policy, rising interest rates, and recessionary fears.”

Inflation has been a key factor in this trend, according to the report. As the Federal Reserve raises interest rates, investors have more choices in where they put their money. These more competitive investment options have created higher opportunity costs that are combined with risk. With that in mind, any risk-adjusted returns have to be higher to make an investment worth it. And last year, a lot of the limited partners that fund venture capital firms didn’t see the potential.

Meanwhile, proptech company deal volume was lower in each funding round as investors couldn’t pinpoint companies’ true valuations.

“Globally, late-stage deal volume, Series C equity rounds, and greater, in proptech companies declined by 19.7 percent from 193 in 2021 to 155 in 2022,” the report said.

Large, late-state funding rounds drove proptech investments in the past, reports. With valuations dropping, there’s less money invested in each funding round, which impacts the companies looking for a Series, C, D or E round in some cases. Pressure on the upper end decreased global proptech investments overall. Property technology investments was the highest in the U.S., however, according to the CRETI report, with 43.2 percent of the worldwide total.

For 2023, companies will be taking a cautionary approach when it comes to proptech investing, according to the report.

“As long as monetary policies remain in flux, the macro real estate industry, proptech investors, and the greater real estate technology industry will deal with some rough and choppy seas,” Ashkán Zandieh, CRETI co-chair and president, said in the report. “While some investors and entrepreneurs have experienced economic headwinds, many have not, which will drive proptech companies toward consolidation or insolvency.”

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