Where Will Proptech Money Head in 2020?
(Deidre Woollard,

Proptech, short for property technology, is an umbrella term for venture capital investments in the real estate sector. Like fintech, it encompasses a wide variety of start-ups that focus on both iterating on existing processes and finding new ways to transact, build, and manage both residential and commercial real estate. This year saw billions of dollars from venture capital flow into a wide variety of real estate companies. In fact, investment in proptech has more than quadrupled in recent years. Real estate is the world’s largest asset class, so it makes sense that the technology for managing those investments attracts a large amount of attention and financing.

Has Proptech Peaked?

This has also been a year of some concerns about overinvestment, specifically around SoftBank’s investments in proptech unicorns WeWork and Katerra. WeWork received as much as $18.5 billion from the SoftBank Vision Fund over the last few years and was the largest recipient of funding in 2019. Earlier this year WeWork prepared for an initial public offering, but shortly after the release of its S-1 filing, concerns over the company’s valuation began and the IPO was later postponed.

SoftBank has also invested $865 million in Katerra, the factory-focused construction start-up, in this year alone. Katerra recently announced that it is closing its Arizona factoryand laying off approximately 200 employees. The company has boasted of its robust pipeline of billions of dollars in commercial real estate projects, but it has been plagued by delays and issues around the construction of some of its modular components.

However, despite these isolated cases, investment in proptech continues apace. In fact, in November alone, according to data from CRETech, over $1 billion was invested in a variety of commercial real estate start-ups. The 2019 KPMG Global Proptech surveyreleased in October found that 87% of those surveyed believe that the real estate companies they work with will increase their spending on proptech solutions within the next 12 months.

The Biggest Proptech Deals of 2019

Some of the bigger moves in 2019 can give us a clue about where venture capital money may head in 2020.

One of the hottest areas continued to be iBuyer start-ups. The leader was Knock, which nabbed $400 million at the start of 2019. Knock’s differentiator is that it works with “trade-up” buyers looking to sell one home and move into another. In March Opendoor raised $300 million, giving it a $3.8 billion valuation. Opendoor is backed by SoftBank’s Vision Fund, among other investors. It has taken a market-by-market approach. Recent data compiled by Redfin showed that iBuying represented 3.1% of all sales in the third quarter of 2019 in 18 markets. As top iBuyers including publicly traded companies like Zillow (NASDAQ: Z) and Redfin (NASDAQ: RDFN) move into the high-priced and competitive markets in California, 2020 may be the year that iBuying faces its biggest test to date.

A WeWork competitor, Knotel, raised $400 million in a funding round in August. Knotel has sought to keep pace with WeWork by growing rapidly and has touted the fact that it has more office space in New York City than WeWork. However, a recent report from Crain’s New York indicated that the firm may struggle to fill all of its space in the city over the coming years.

Another SoftBank-fueled company is Compass, the residential real estate firm that raised $370 million in a Series G round over the summer. The start-up was valued at $6.4 billion at that time. While in 2018 and 2019 Compass was in acquisition mode, buying large independent brokerages in urban areas, it has indicated that in 2020 it plans to focus less on expansion and more on technology. Compass has established a technology hub in Seattle.

While some fintech and proptech start-ups are centered around new ideas, others focus on making an existing system better. Lemonade, a millennial-friendly company that provides renters and homeowners insurance, raised $300 million in April and now has an over $2 billion valuation. Another large transaction was a $160 million Series C round for, a company that aims to streamline the mortgage process.

Proptech areas to watch in 2020

Not all areas of proptech that received investment in 2019 will receive the same amount of capital in 2020. As the possibility of a recession continues to loom over the United States, some investors may adjust accordingly.

Short-term rentals could see a decrease in investment

As we’ve talked about previously on Millionacres, the short-term rental industry is shifting. Really it’s growing up, and as it does so, it’s taking on some of the aspects of the hospitality industry it disrupted. Some of the biggest institutional players in this space include Sonder and Lyric. In fact, Lyric, which manages multifamily complexes and rents them out on short-term platforms, received $160 million in funding in a round in April 2019 that was led by Airbnb. Sonder has raised a total of $360 million and is taking aim at the hotel industry by creating a standardized hotel-like experience inside apartment buildings.

With Airbnb potentially planning a direct listing instead of an initial public offering, some of the potential for a big splash in the short-term rental space may be diminished. While this is good news for Airbnb in that it doesn’t require the massive infusion of capital associated with an IPO, it does mean that there will be less of a public verdict rendered on the overall profitability of short-term rentals.

Overall hospitality is one of the most vulnerable areas when people feel the need to cut back. Even the perception of a potential recession may be enough to cause consumers to scale back their travel and vacation plans. Some investors may, therefore, choose to scale back their investments in some of these burgeoning start-ups.

Platforms to simplify the transaction battle it out

Real estate transactions are by nature complicated. While many other processes have become streamlined by technology, the buying and selling of property remains intricate and time-consuming. Part of this is because of the many players involved in every transaction, including title reps, inspectors, appraisers, escrow officers, and real estate agents. It’s hard to know who is doing what at any given moment, and that can cause frustration and unnecessary delays.

Tech providers like Qualia, which raised $55 million in November, are attempting to simplify the process through the creation of a mobile-accessible platform that stores documents and allows all stakeholders to work together. Another player in the space is Powered by West, which offers a tracker that shows where the deal is currently and what will happen next.

The rush for home equity solutions

While home equity lines of credit (HELOCs)home equity loans, and refinancing optionshave existed for decades, there are a variety of new options for homeowners called alternative equity release products. These allow owners to use their equity without an additional loan. Many of these, such as Hometap and EasyKnock, use a model that involves an equity stake. The companies make their money by taking a share of a home’s appreciation. Both Hometap and EasyKnock raised large rounds in 2019, but a leader in this category has yet to be established.

A make-or-break year for blockchain

Interest in blockchain started to wane somewhat in 2019, but the potential for how the technology can secure and track investments remains largely untapped. A few transactions have taken place over blockchain platforms, and if more follow, especially in the commercial real estate space, interest could continue to grow.

One of blockchain’s greatest advantages is that it serves as a type of equalizer, facilitating faster international transactions that can be easily recorded and tracked. Properties can also be translated into tokens that can be bought and sold through online platforms, allowing some developers and owners to attract new investors from a wider variety of locations.

Artificial intelligence + big data = CRErevolution

Artificial intelligence is set to change every aspect of commercial real estate, including how buildings are leased and designed. More than ever, buildings are connected technology hubs, constantly reviewing data on internet and power usage as well as customer and worker experience. Artificial intelligence can take this data and turn it into actionable insights. This can lead to better utilization of space, conservation of resources, and significant savings for property owners. Artificial intelligence can also inform decisions before a building is constructed. Intricate 3D models allow developers to make better choices at every step of the construction process.

A new proptech record in 2020?

Venture capital’s love affair with real estate shows no signs of abating; it’s more a question of where the money will go next. Also, one interesting prediction from CRETech is that Asian venture capital investment in proptech may soon outpace U.S. investment. Some of the biggest proptech venture capital firms in the U.S., including Fifth Wall, MetaProp, and Camber Creek, are all raising funds and vetting new start-ups and technology. While undoubtedly there will be continued shakeout as some of the larger proptech unicorns struggle with profitability, there’s every chance that a new record for investing could be set in 2020.

Leave a Reply