Proptech investment: new funding models mark record year
The latest proptech investment trends confirm what the industry has known for a while: the rising impetus around real estate technology has translated into an ever-increasing appetite to back the most promising ventures.
Research from JLL reports over $9.7 bn of proptech investment in the first half of 2021, the most active first half on record. Additionally, the market shows signs of maturation as funding begins to shift toward established players and increasing consolidation drives the emergence of industry leaders.
“While real estate technology adoption was on the rise before the COVID-19 pandemic, it has become essential for today’s leading real estate players, buildings and spaces,” says Ben Breslau, JLL’s chief research officer. “Technology is at the center of the most important trends shaping business and real estate. That includes hybrid work, health and safety, and sustainability initiatives, all of which are in high demand. That’s why we expect funding within this sector to break records this year.”
Evolving proptech investment models
As the sector matures, the industry’s funding models are also evolving. JLL has identified some 8,000 proptechs which have collectively raised more than $97 bn of equity funding in the past decade – although capital is increasingly flowing towards the more established companies. As early-stage funding volumes are overtaken by later-stage funding rounds, companies and products with a strong post-Covid adoption rate are also preferred.
Alongside this focus on the most rapidly expanding firms, consolidation is rocketing. In 2020, M&A activity hit a record high of $21.9 bn; but it is already above $18 bn so far in 2021.
The focus on the strongest firms is good for businesses like Spaceti, a hybrid workspace platform which has won multiple awards, including the MIPM Startup Competition in 2019. Says CEO Max Verteletskyi:
We have raised $5 mln from European VCs and managed to grow to 20 countries, including North America. Right now, we are open to investments from funds that have LPs that can bring something beyond money. There’s a lot of capital everywhere – for us the important focus is finding partners who are interested in working with us and adopting the tech for their own portfolios.
Another rising funding model is through special purpose acquisition companies (SPACs), or blank-check companies, which have hit the headlines multiple times in the last 18 months. There were 248 SPAC initial public offerings (IPOs) in 2020 raising some $83 bn, while 2021 has already seen over 435 transactions of this kind, according to data from SPACInsider.
In June, smart building start-up Latch finalized its deal to go public by merger with a SPAC sponsored by landlord and developer Tishman Speyer, valuing the proptech firm at $1.56 bn. The smart-lock company was the latest in a line of promising proptechs to receive backing from Tishmans, which had already invested in around a dozen real estate tech start-ups before launching its latest SPAC. Notes Verteletskyi: “Latch is an interesting success story, having managed to increase its enterprise value five-fold by combining its tech with an established real estate portfolio. The outcome gives its owners a competitive advantage,” he says.
VC funds attract proptech investment
Plenty more savvy investors are entrusting their capital to the most established venture capital (VC) funds specializing in real estate tech, as they seek to get exposure to a range of emerging technologies while making a profit.
Earlier this year, global real estate leader Ivanhoé Cambridge became the single-largest investor in Fifth Wall when it inked a key partnership with the world’s biggest proptech VC and most high-profile proptech sponsor. To date, Ivanhoé Cambridge has committed $85 mln across four Fifth Wall funds focused on climate technology, retail, and real estate technology in North America and Europe, and was the first investor in Fifth Wall’s Climate Technology Fund. Says Stéphane Villemain, Ivanhoé Cambridge’s vice president for corporate social responsibility:
Our investment in the Climate Technology Fund is both financial and strategic. There is a learning benefit to also understand and adopt new technology where useful, applying it to our own portfolio.
Green goals in proptech investment
For Ivanhoé Cambridge, like many of their peers, proptech investment is a key instrument in long-term goals to green their portfolio and meet challenging net zero carbon targets, which are increasingly being imposed by governments worldwide. A recent JLL survey found that, among nearly 650 leading global occupiers and investors, the top priorities are to create places that are human and green.
Villemain adds: “We want to invest in innovation, and that means investing in those funds that help us innovate and improve. From a carbon standpoint, technology is one of the key solutions to help make our buildings more sustainable, which is a central goal.”
JLL warns that that despite real estate companies increasingly focusing on decarbonization as part of their proptech investment strategies, a range of issues are slowing progress. These include a fragmented technology landscape, lack of industry standards, privacy and security needs, and more. Responding to these challenges is likely to require greater cooperation and collaboration among technology firms, property companies and the industries they service, as well as national and urban governments.
However, for Villemain, attaining ESG goals through proptech investment doesn’t have to mean choosing between profits and sustainability.
“We are more convinced than ever that there is a very strong correlation between ESG and financial performance,” he affirms. “If you don’t take into account all of the ESG aspects going into the future, we risk holding assets which become financially illiquid one day.”
Raj Singh, managing partner of JLL Spark, agrees: “Recent events across the globe have highlighted the importance of addressing our industry’s impact, and leaders are taking this to heart,” said Singh. “Proptech startups and more established tech and real estate firms are at the forefront of solving the industry’s challenges — with benefit to the world at large. Continued investment in these companies is an investment in the future of real estate.”
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