PropTech Investors Share What They Seek from Startups

Property Technology, or PropTech, which comprises any technology geared towards the real estate industry, saw close to $20 billion in investments last year, a 38% increase from 2017, according to Venture Scanner, reports Bisnow. Since it appears interest as well investments, in PropTech will continue to increase, Bisnow recently spoke with three of the biggest PropTech in the world, Brendan Wallace (Fifth Wall), Taylor Wescoatt (Concrete VC) and Ricardo Schäfer (Loric Ventures) about what they’re looking for from startups in which they might invest.

Wallace, the co-founder and managing partner of Fifth Wall, a venture capital firm focused on technology solutions for the “built” world, said a number of factors play into his company’s investment decisions. The company often considers three elements, according to Wallace. The first is asymmetric information, which typically comes through corporate relationships that allow Fifth Wall to underwrite future growth and revue traction that a typical venture capitalist usually could not. The second metric is access.

“We have a multitude of advantages that are specific to real estate tech, but perhaps the most important is access to the distribution channels provided by our strategies and whether the company is in a position to benefit from that access,” Wallace told Bisnow.

The third metric Fifth Wall looks for is what it refers to as its “Kingmaker Advantage”, which is the company’s ability to influence outcomes through partner relationships and its internal business development team.

“When we invest and structure partnerships for a company with our strategics, we’re pre-engineering growth that can often immediately boost revenue,” Wallace said.

 

Currently, Fifth Wall is investing in PropTech such as modular housing, construction robotics, technology-enabled senior care, data, analytics and artificial intelligence (AI). The company has also expressed interest in smart city tech.

Meanwhile, Wescoatt and Concrete VC, which makes seed and Series A investments in founders with solid technology and real estate credentials, are looking at factors such as customer acquisition cost-to-lifetime value, revenue growth and value creation when making investment decisions, according to Bisnow.

“In the seed stage, we hope the addressable market opportunity is already validated, so at this stage, we look for product validation,” Wescoatt said. “The first question is, do the customers like it? Here metrics like sales cycle, user engagement and in particular whether early adopters increase their adoption or churn all point to a product really creating value for customers. Once you get to Series A, it’s important to see that the engine works.”

Concrete VC also looks for PropTech companies that have a good understanding of operational metrics such as lifetime value to customer acquisition cost and onboarding and support costs as well as its ability to attract high-quality teams.

As for the types of PropTech Concrete VC prioritizes, Wescoatt noted location is still the most important thing, but data is also high on the list.

“Lease rates and sales comparables are still key, but the appetite to gather them programmatically is increasing,” he told Bisnow. “Foot traffic and customer behaviors and preferences are driving more in the decision and pricing process, and things like five-year pizzeria survival rates and evening Uber pickups are looked at as leading indicators.”

Additionally, Concrete VC has noticed satisfying customers’ demands for “flexible everything” has made the long-term lease more of a rarity and PropTech like sensors, tenant apps and smart building technology help give better insight into what tenants and buildings do, need and want. Wescoatt noted that a number of the companies in Concrete’s portfolio are innovating how sustainability data is reported for BREEAM, LEED and GRESB to help commercial real estate owners better understand and engage with their tenants.

“At the end of the day, a happier customer gives higher yield, a more stable asset costs you less to operate and both together get you a higher sale price.”

Lastly, Loric Ventures, which invests in innovative PropTech companies looking to disrupt the CRE industry, asks how a particular technology will solve a client’s problem with tangible benefits when it considers making an investment. According to Schäfer, Loric also asks what the PropTech company’s founder’s ambition and execution track record to scale the business is, and if there’s enough substance and size in the underlying market to create sizeable revenues. Use cases, the founder’s teams and the company’s market size are also important metrics for Loric.

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“We invest across all PropTech verticals,” Schäfer said. “Our primary focus is not the technology but its use case. In this context, we are excited about business to business solutions across the real estate construction, management, and investment verticals, where incumbent real estate owners and operators can drive efficiency and profitability via tech solutions.”

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