Happy New Year to all my readers! As promised in my last post, I am kicking off 2020 with seven proptech VCs’ predictions on what lies in store for the sector this year and beyond. 2019 was a wild ride, but we can expect 2020 to outpace it!
Once again, thank you to the global proptech VCs that agreed to share their views for this piece. They are Pi Labs founder Faisal Butt, Concrete VCfounder Taylor Wescoatt, MetaProp co-founder Zach Aarons, RET Venturespartner John Helm, Camber Creek general partner Jeffrey Berman, JLL SparkAPAC lead Anuj Nangpal, and Taronga Group cofounder Jonathan Hannam.
What do you think the proptech investment landscape will look like in 2020 and beyond?
The consensus is that this year will see an ever-growing maturity in proptech, characterised by the emergence of clear category winners and consolidation in the space as the ecosystem matures. Though more and more money will keep pouring into the industry, professional investor requirements will become stricter than ever. This said, Wescoatt cautions that with advent of more corporate investors into the proptech venture space, 2021 will see “lot of startups fade away without the rigorous digital oversight traditional VCs bring”.
Berman reckons that “2019’s investment environment (and outcomes) will impact 2020’s financings. WeWork’s failed IPO, Uber & Slack’s poor public performance and a general battening-down of the hatches on fundamentals will bring higher levels of scrutiny on companies with major losses and poor unit economics.”
Butt and Nangpal concur that 2020 will see an an acceleration of collaboration between the proptech start-up ecosystem and real estate incumbents, with Hannam adding that he “would hope that more corporates will start the innovation journey because it takes time and it will challenge the way that a corporate functions.”
What tech and what sectors are you most excited about for 2020 and beyond?
Whilst recurring themes that are hot to watch were tech for the residential space and construction tech, each VC gave a very unique view of the market for 2020 and beyond. Here is what they are most excited about.
Butt is looking at digital innovations in sustainability for the built environment, real estate investment management, construction tech, commercial real estate (CRETech), property related fintech, and technologies for the future of retail, stating that “we’ve seen a lot of interesting solutions within this space, but believe there is still a lot of opportunity for end-to-end, holistic solutions.”
Aarons is particularly positive on construction tech, sharing that “contech is exciting as the large incumbents like ProCore and Autodesk keep growing even larger and creating full ecosystems. Oracle has become very active in the space as well. Both general contractors and subcontractors are using software a lot more, both on the job site and in the office.”
Helm’s list includes smart home technology, the ‘hotelification’ of rental properties, and the emergence of self-leasing. Rental property owners can use smart home technology to streamline maintenance operations, improve resident experience, and create new revenue streams. It is also part of a widespread upgrade in amenities and resident experience, or “hotelification”. According to Helm, “In 2020, a growing number of multifamily and single-family rental properties are going to bring this trend to the next level by taking a page out of the Airbnb playbook and setting aside units for tourists and tenants’ friends and family to maximize occupancy while creating new revenue streams for themselves.” Finally, the multifamily industry is abuzz with empowering people to view prospective apartments without a sales agent. Helm sees this as just the first step towards a larger opportunity for 2020: self-leasing.
Echoing Helm, Berman reckons that “The residential space is going to see some interesting innovation from companies that utilize technology to reduce costs and improve the quality of services for the residential market. Smart apartment technology is also heating up as companies in the space race to own the user experience. Access control continues to be a focus for the entire industry. The “space arbitrage” market will move away from capital-intensive, lease-based business models, like co-working and co-living, and towards business models that leave risk with existing landlords.”
Hannam is focused on the big themes that have the greatest level of scalability in Asia. “Housing affordability is a major issue in Singapore, Hong Kong and Auckland, aging populations that will require different real estate solutions are causing headaches for politicians in Tokyo and Xiamen, environmental concerns with polluted air and water remain major issues in India and China.” Other areas of focus are wellness, predictive maintenance for both real estate and infrastructure, and construction tech. In this space, his specific interest is in worker safety, from onboarding, through innovative use of AR and VR to identify risks, to the digitalization of construction sites and the emergence of real digital twins.
Nangpal’s list is diverse, highlighting energy tech, both hardware and software, online brokerage markets for leasing smaller spaces, on-demand facilities management, predictive maintenance and finally, robotics.
According to Wescoatt, drones will deliver significant quality assurance and safety to the construction sector, artificial intelligence overlays to CCTV will provide a vastly superior level of oversight on what’s happening in a physical space, and 3D visualisation technology will move beyond virtual tours into operational value creation across many sectors. Construction tech continues to gain traction and will attract ever more investment as corporates and large VCs begin to take serious notice.
What plays that worked in the past are now old news and off your menu for 2020?
Though they are reluctant to classify certain types of tech as old news or off the menu, the VCs concur that there are some verticals which are either quite mature or rather saturated, which they are not actively looking to invest in. For Aarons, one is property management tech. For Butt, it is marketplaces as part of the sharing economy.
According to Wescoatt, “self-contained platforms have had their day, you must integrate or die. Tech for tech’s sake won’t fly, you need to provide a real solution, and hands-off tech doesn’t appear to be working well in real estate – you need to deliver efficiency directly to the customer.”
Hannam, instead, reckons that the entire corporate venturing model should be left behind this year, stating that “There are numerous studies showing how the lack of independence and non-alignment of goals cause the overall model to fail after the initial euphoria. It is quite common for a CEO to state that funding for the Corporate VC will be protected, but it seldom is. Another feature we have seen is that once one major corporate invests, then other major corporates choose not to ever use the emerging business – perhaps due to not wanting to support a competitor.”
What is your main goal as an investor and your wish for 2020?
Here is each VC’s goal and wish for the new year.
Wescoatt wants to focus on technology that will get onto the street (mobility tech), get into the home (residential tech) or generally create a more enjoyable life (hospitality and retail tech). His wish for proptech is that there will be fewer marketing associations, replaced by hard thinkers delivering results and sharing them in the sector.
Aarons’ goal is to to ensure the long-term survivability of the built world, while his wish is to see “lots of initial public offerings ”in proptech.
Butt also wants to see some successful exits, which he reckons are just around the corner, as these will benefit the entire industry. For himself, he wants to focus on ramping up Pi Labs’ activity in Europe and beyond.
Berman’s new year’s resolution is to “stay disciplined amidst an increasingly noisy sector”.
Helm’s goal is to be a positive influence on the rent tech industry. He told me that “We want to help rent tech entrepreneurs gain traction while also providing unmatched value for our LPs. We are very focused on the impact that technology has on the bottom line in 2020 – either through cost savings or revenue enhancements.” His hope is that the proptech sector continues to attract new innovation from entrepreneurs and growth capital from the broader investor community.
In 2020, Nangpal will focus on creating a technology stack to address the specific problems of both investors and occupiers. He will devote his energy to helping JLL Spark’s portfolio companies gain more market share and offer better tech solutions to JLL’s clients.His wish is to see more forward thinkers from within the industry embrace tech to solve real world problems instead of perceived problems.
Hannam will close out the RealTech Ventures Fund 1 this year and continue to invest across the region. By mid-year they will have completed cohort 1 of RealTechX (their government-backed Asian proptech scale-up program) and taken ten companies into Singapore and by year end cohort 2 will have come to Hong Kong, the Greater Bay Area and North Asia. His hope is to find a solution to what he calls the ultimate Asian portfolio challenge, stating that “I want a piece of software that manages the investment review, due diligence, IC approval process and then actively works with the asset to assess whether the investment is operating as intended, reporting, environmental reporting and advises me when I should sell based on the overall portfolio and market conditions. This software must work in multi-currency, multi-language and cover yen per tsubo, A$ per sqm per year, RMB per sqm per month, S$ per sqft or won per pyong. And it can’t be exel.” A dream come true, if it exists!
It is safe to say that 2020 will be a very exciting year for proptech globally. As increasing sums of money are deployed into this every more mature space, investors are becoming ever more astute in their allocations, looking for the startups that will make a real difference to the industry and therefore, ultimately, their portfolios. Founders take note – there is no place for complacency in proptech in 2020!