This is a continuation to our four part blog where we look back over the last year of PropTech in the North American market. Previously we have reviewed the effects of COVID-19 on the Proptech market, the stand-out PropTech startups and the verticals they have emerged in; this week we take a look at the focus of funding and portfolio owners.
Looking at the investment landscape within the market, digitalisation would not be where it is today without the VCs, particularly PropTech focused VCs such as the likes of MetaProp, Fifth Wall, Camber Creek, RXR Realty, etc. We are also seeing many more generalist VC’s coming into the space.
The names above pride themselves on being THE real estate technology investors, but increasingly, other more generalist funds are seeing that PropTech is growing and becoming a very lucrative market and are interested in creating their own tech arm. Then comes the need to find someone that can look into the emerging startups with a deeper understanding and knowledge of where to invest.
On one hand there is a great opportunity for these VC’s and investors but also there’s significant risk involved due to so many products entering the market. As we know, failure rate is high; around 90% of start ups fail – 10% of start ups fail within the first year. [Embroker]
Due to the market being in its infancy right now, a lot of VCs are willing to throw large amounts of money at compelling products and attractive ideas. But what does that mean in two or three years time for a lot of these companies? Right now, there is great investment, and people are managing to get high valuations off the back of Seed, Series A and Series B fund raises. But one has to ask how many of those will be successful? If you take a step back you will notice there are a lot of companies who are creating similar products, all creating amazing tech, but as the market gets increasingly more competitive a lot of these companies are going after the same audience. Ultimately there will be one or two that win the race, for others there will be consolidation, either bought by their competitors or large incumbents buying their IP in a bid to stay on top of the trends.
There is good and there is bad from the amount of investment that we are seeing in the market. On the hiring side, there is a huge demand on the market. If you are hiring, it is becoming much more tricky to find someone who has got that background of real estate AND technology which many PropTech companies are craving at the moment because of how young the market is right now. In addition to this, many engineers who took the leap into the FinTech industry some years back are now comfortable and not willing to take a risk into a younger PropTech market. We think this trend will change once people learn more about the PropTech sector, buoyed by large investment from VC’s and subsequent success stories from IPO’s.
We are seeing the big agencies and investment funds setting up their own funds to work out how they can tap into the market or give investment to the VCs.
For those that are trying to set up their own investment funds, it’ll be interesting to see who they get to take charge of the technology drive. Will they be looking for people who have previously been in the VC space? Or will they be looking for someone who’s worked in real estate and therefore still had exposure to technology? Or will they simply be leaning on someone who is in an innovation role?
We expect to see a proliferation of people investing in PropTech companies. It’s always a gamble, but a lot of startups will benefit from the fact that these bigger companies and investors have interest in the PropTech market, which is certainly an ease of capital for them to grow.
There is a lot of government funding in place which helps support the growth of the PropTech market. CMHC, have just launched a new challenge to help with really tackling the challenge of affordable housing that is happening in Canada.
There are also a lot of startups coming out of Venture Studios, such as RLabs. It’s interesting if we look specifically at the VC and the investors that are professionalising the investment in PropTech such as Alate Partners for example who have invested in Branch. But essentially, we have Alate partners, we have Groundbreak VC, WhiteCap, Venturon and Greensoil PropTech Ventures, all raising up new funds and actively deploying capital into new companies. Greensoil just raised a 100 million proptech fund in March of this year. They also invested in Procore, and Dealpath. All in all there’s an amazing amount of action that’s going to contribute to the sector’s growth in Canada, with Canadian capital.
As we continue to partner with many of the early-stage adopters and entrepreneurs within the United States and Canada whose biggest challenge is finding the right resource to help them scale their teams and products.
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