Proptech reaches record venture capital investment


It’s a tough market for venture capital investing right now. With inflation pressure and chances of a recession in sightsome companies named in startup spaces, like Sequoia Capital and Y Combinator, have warned companies do not intend to raise more capitalas CNBC reported.

The broader context makes the latest VC funding report from the Center for Real Estate Technology & Innovation (CRETI) more remarkable than at first glance. There has been a surge in investment in real estate-focused technology: 26% of global funding, according to CRETI analysis.

“Venture capital investments in private real estate technology companies have outperformed the global venture capital market,” CRETI wrote. “In the first half of 2022, $13.1 billion was invested in real estate technology companies, including commercial, construction, residential, industrial and other sectors.” That was up 5.65% from the first half of 2021, even as the stock market, and particularly the tech side, plunged deep into a cold lake.

The split was around 60% of the money for seed and Series A rounds, while Series B funding and above received 40%. The top tech subsectors targeted for investment were residential and industrial (26% each), followed by hospitality (20%), retail (12%), construction (11%) and other (5%) .

While the report discusses how much and what, it does not address the why, but a review of venture capital business models, historical CRE practices, and recent financial successes offers potential insight.

On the venture capital front, companies raise funds from accredited institutions and investors who act as sponsors. Venture capital firm general partners are responsible for investing money wisely, enduring disappointments in the majority of investments, and achieving resounding success with a handful that generate big profits.

If VCs can’t find anything to invest in, they can’t make money for limited partners, who then risk taking their tax bullet and going home — or at least somewhere else with a promise of return. Even when times are tight and warnings are issued to their existing investments (most of which, remember, will be disappointments to one degree or another), companies must continue to chase returns.

Real estate has been in crisis for a few years, with the pandemic and accommodative monetary policy flooding alternative investments, driving up prices and suppressing cap rates. There was money to be made and, simultaneously, an industry that was slow to embrace technology to aid operations, marketing and performance.

Enterprises and CRE investors had money to spend, and many tech startups saw the field as ripe for innovation, with the ability for customers to back it. This attracted the VCs.

But the continued interest in investing? The CRE industry is already under pressure from questions about whether tenants could continue to allow historic rates of rent growth. Companies also had to deal with significant increases in their financing costs, as the Fed raised interest rates to slow inflation. The combination of factors meant that profits, always necessary, were going to require more work.

The technology offers hope for improved operations, data analytics, marketing outreach, and other areas that could lead to better performance. So VCs continue to fund startups in an area that hasn’t yet seen the great consolidation that has happened in many other tech areas, as GPs hope they latch onto one of the next big winners.


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