Today, PropTech investment is at an all-time high, with startups and established tech companies alike pouring billions of dollars into the sector. But what's driving this investment? And how does it play a part in the venture capital realm?
We interviewed expert Rebecca Holbeck, COO at Haflo on her thoughts on the current PropTech and venture capital environment.
In this blog, she reveals her thoughts on the huge spike caused in PropTech investments, the factors to consider when evaluating new PropTech investment opportunities, how venture capital plays a part in the PropTech industry, some PropTech investment trends from the VC viewpoint, and the best strategies for PropTech startups to build relationships with leading VCs.
The Reason Behind The Huge Spike in Real Estate Investments
Technology has had a major impact on how we conduct business, and the real estate industry is no different. The rise of PropTech (property technology) has changed the landscape of real estate investing, making it easier and more accessible than ever before.
Rebecca suggests that there are four reasons as to why this has happened.
She stated that even though "the real estate industry has been infamous for being slow paced, it was ripe for a digital evolution that contributed to the spike."
Second, she suggests that it's because there is a need for energy efficiency and ESG solutions, and the real estate industry has the potential to make strides across all areas of ESG.
Third, she expresses that the market has been pretty steady, as we see solid gains being made by real estate owners and investors in the last years and this made even more room for innovation.
Lastly, Rebecca suggests that it's due to the shift in consumer behavior we experienced during the pandemic. "This contributed to an acceptance of technology and a recognized need for digitalization. Altogether, this contributes to the blossoming of PropTech investments," she adds.
Factors to Consider When Evaluating New PropTech Investment Opportunities
Sure PropTech startups have been bringing innovative ideas and new technologies to the table. However, before investing in any PropTech startup, it's important that you understand what you're signing up for. Rebecca goes into detail on how her team evaluates new PropTech investment opportunities below.
She states that the evaluation of a PropTech investment is done similarly to other startup investments. As with any startup investment, it is essential to consider the size of the market and the market opportunity.
You'll need to evaluate the impact and importance of the problem the company is solving and whether the actual problem is large enough.
After that, Rebecca states that her team would then evaluate if the fund's team has the right experience and complementary skills. "We want to see whether the team has what it takes to solve the problem they outline and having a deep understanding of their market is often beneficial in this regard," she adds.
Next, looking at the product itself, you would need to evaluate it based on the stage of the company and whether or not her team believes in the potential of the product and if it can actually solve the problem for their (potential) customers.
Lastly, it's important to also evaluate the competitive landscape and discuss with the team how they plan to stay ahead of the curve.
The Difference Between Investing directly in Real Estate and Through A VC Fund
VC and real estate are two completely different spaces as a starting point. Investing in a VC typically means investing in a fund focusing on growing, often early, private companies that have the potential to grow with several multiples.
It is usually high risk, depending on the maturity focus of the VC fund, but then again, this could also mean high rewards and strong returns. That implies that investing in a VC fund differs from investing directly in properties. Investing directly into properties could, of course, be risky as well, depending on the characteristics of the property.
Rebecca suggests that it is, however, often easier to calculate risk, operating- and developing costs and future cash flows for properties compared to, e.g., a tech startup. "Investments in VC’s are typically less liquid than real estate, where money is locked in for around 5-10 years in VC investments. By contrast, direct investments in real estate are generally easier to divest, she states."
PropTech Investment Trends from The VC Viewpoint
Rebecca says that since that venture capital market has been seeing interesting innovations in the ESG- and smart cities space, in providing more immense affordability and convenience in how we own and manage properties.
"I believe we will see more solutions where tenants can go from renting to owning their homes. By contrast, we also see solutions which make renting more attractive," she states.
She also talks about how there's been a trend of substituting real estate agents with technological solutions and AI, providing tenants and house owners with new ways of seeing, buying and renting homes and office spaces.
The Best Strategies for PropTech Startups to Build Relationships with Leading VCs
If you're looking to build relationships with leading venture capitalists, Rebecca suggests looking for VCs that match your company's geography and maturity.
In terms of getting in contact with those VCs, Rebecca suggests that rather than starting the conversation by asking for investment, it is important to build a real relationship with the VC.
This can usually be done through networking events and conferences. Luckily, 0100 Conferences hosts regular networking conferences so you can meet and connect with PE and VC investors all over Europe and MENA. Click here to learn more.