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Proptech Investment Has Nose-Dived | RealtyNXT

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Like other sectors, proptech has seen venture capital investment plummet since the onset of the coronavirus pandemic.

But a number of companies have managed to meet the moment and may see more demand in the long term as a result of it, experts say.

In Q1, VC deal activity in real estate tech dropped about 45% year-over-year, according to market data company PitchBook, with April data chronicling a Q2 drop-off. Cumulative deal value tells a similar story: VCs poured $1.6B in proptech companies in Q1 2019 and $300M in Q1 this year, dropping 81%, PitchBook data shows. 

The decline follows a big year for proptech and coincides with continued consolidation happening in the maturing sector. Established players like CoStar Group, MRI and RealPage are sticking with active acquisition plans, as reported at the beginning of the month. But for the time being, most companies will have a harder time raising venture capital in a crunch that could sound the death knell for startups that have strayed too far from profitability. It will also squeeze any that have a dated business model or were just unlucky in the timing of the latest funding round, JLL Spark Director of Investments Kitty Sullivan said.  “One of the biggest drags on capital deployment is uncertainty,” Sullivan said. “Those trying to raise right now are probably going to struggle, and certainly see reduced valuations, unless they happen to be one of these sectors that are really well-positioned to respond to the crisis.”

Among the best-positioned are companies allowing owners and agents to continue new business development. Virtual reality touring and online leasing companies like VirtualAPT and Truss have seen business quintuple or increase tenfold.  For VCs, Prologis Ventures Managing Partner Will O’Donnell said it has taken effort trying to balance the need for immediate proptech solutions with making sure investments “have a value proposition that expands beyond the fact that at the current time we need to stay 6 feet apart.” “That’s the immediate need, and we can invest around it, while making sure the business model expands or has applications that provide a more lasting use case,” he said. JLL Spark, the proptech division of real estate giant JLL, is giving a lot of its focus to startups that make the workplace more sanitary, reduce the risk of contagion or improve communications between company teams or a building and its occupants, Sullivan told. A number of companies are adapting existing offerings to address the needs of landlords and occupants figuring out how to reoccupy buildings. Deloitte partner Dharmesh Ajmera, who leads the U.S. proptech practice for the company, said the agility of the sector’s current stock of startups gives it an advantage, especially relative to traditional CRE solutions. He pointed to flexibility found with short-term rental inventory and not found in traditional hotels as an example. “Proptech companies may be forced to re-examine their mission and business model after COVID-19,” he said. “A key question is how to leverage both existing as well as newly developed assets to seize new opportunities in the future.”

JLL Spark portfolio company VergeSense, which uses AI and sensors to give space utilization and occupancy planning info to companies, has changed to meet new needs. It responded to the crisis by launching dashboards that help employers monitor the distance between employees and see how much they are congregating together, Sullivan said. Prologis, meanwhile, identified companies in its supply chain logistics and industrial CRE-focused portfolio as ones positioned for growth by virtue of e-commerce’s growth spurt. One such company is Outrider, an autonomous vehicle company that automates the yards of warehouses. It also pointed to Locix, another spatial utilization company that has crafted a solution for monitoring social distancing.   “Where we see a lot of change on the proptech side will be related to the digitization of the experience with our customers,” O’Donnell said. “We’re really doubling and tripling down right now to accelerate our growth in digitization.” Though proptech companies reliant on floundering sectors like brick-and-mortar retail and hospitality will tend to struggle, some will act as go-to life preservers for struggling owners and occupants. “The ones that have a really strong ROI story and are focused on driving major cost savings could be potentially more attractive in this environment,” Sullivan said of those companies’ ability to raise capital. But until there is more clarity, most deals will be harder to come by, Sullivan, O’Donnell and Ajmera said. “What everyone’s struggling with is that we don’t know what normalcy will be,” O’Donnell said. “I think we all know it will be different.”

Source: Bisnow

(Note: The story has been published without modifications to the text. Only the headline has been changed.)

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