In 2017, 140 big proptech funding deals were done with a total value of $1.9bn and deal flow has been growing consistently since Q4 2016, with North America and Europe dominating over the past four years (the UK accounts for 60% of all European activity).
Most popular innovations among investors are property investment platforms, profile & listings platforms, online agencies, marketing & landlord software and property valuation tools.
What Proptech Investors are looking for?
Taylor Wescoatt, general partner of Concrete VC chaired a talk at last year’s Future: PropTech event and when I started to document this topic, I found this talk is still one of the most relevant and perhaps the most insightful sources of on-the-ground knowledge. Not only does it shed light for other investors new to the whole proptech scene, it is incredibly informative and helpful to start-ups as it highlights the minutia of investing in early-stage proptech companies and explains in detail what investors are looking for.
Alex Ubach-Utermohl, managing director of Blackprint PropTech Booster contributed to the discussion as an active sector investor. One of the core products they have now is an accelerator and it is the only one in the German market focusing exclusively on real estate businesses. They are now looking at technology and how they would deal with technology companies and financing.
Specialising in PropTech was expert – Thomas Le Diouron founder and managing partner of Impulse Partners originally brought the business to France, however, they are now expanding to the UK. All of their financing is from large corporate partners, including investment funds, and they work with 200 start-ups.
Eyal Malinger, an investment director from Beringea expressed his personal interests in the sector, the challenges that start-ups have and how best to collaborate with different organisations. They currently manage over $600 billion between funds. The call themselves early-growth investors and routinely invest millions into growing businesses in which they hope/expect to see revenue traction of growth.
Some of the questions asked included “In the PropTech space what they were looking for?”
It was answered by being growth driven or by revenue traction and this is the matrix they are looking for. The two most interesting markets are maintenance of real estate and mortgages. It is a huge market all over the world and the hope is to make it more efficient. Fantastic work has already been done spearheading this, for example, they specifically looked after early stage innovative companies that have potential to manage. Social housing and large assets were seen as a target of potential innovative solutions that can have a big impact. Of course, start-ups transform and can be acquired to create greater value within larger, more established organisations.
The German Perspective
Broadly speaking, in the past, the German proptech scene appears to have been driven by changing regulations affecting landlords. Today, the industry accepts that there are more important areas – hidden areas – that need proptech. Success in this early stage sector will come through addressing inefficiencies. Property management is non-transparent in Germany and if it was based on a great technology that is scalable it would be more successful. This requires working across several sectors, ironically, in the digital property age, relationships matter more. Having said that, driving relationships forward can be a challenge for early-stage start-ups that may not be able to identify and win over that all-important first pilot customer. This will likely be the middle manager who can allow them to really showcase the technology and test resources needed. They let investors see the new technologies and make it available to see what is needed and what isn’t needed.
What makes for successful investment?
On the panel above, they all believed that the ability to create benefits by relationships was vital to start-ups and potential investment. The capacity of the business team and the team of the investor are incredibly important. The ability to reach each other and build something together cannot be taken for granted as sometimes corporate may not see the bigger picture. Successful investment is based on good relationships and trying to do a fast but small venture and pilot project together.
One of the biggest barriers start-ups face is finding out who to speak to and being in the organisation where they have someone to talk to. They need to find the right person in order to have a chance of a deal. If they find the right person, there is a lot more to deal with including showing value and procurement. It is a long and complicated process with many interfaces. Integrating these into those massive information systems bring several considerations but it teaches start-ups how to work with a big enterprise and corporate. Later stage investment is clearly looking for steps of traction that merit a founder’s involvement.
Make decisions and get over the difficulties of the early stages
Preparing for investment while building a business is arduous and the main things are product traction and management. Investors don’t want to take product risks, they want to see the product market fit. It means that someone must be willing to pay for the product/offering. Management is tricky, some think they are good at what they are doing but this isn’t always the case. It is advisable to get professional help early on, if a start-up cannot sell the product or does not have the experience in the areas to do so, they need to get someone to do it for them.
Characteristics of successfully funded start-ups
The characteristics of funded start-ups include having an ideal revenue model, and the founders being entrepreneurial and having excellent capabilities to prove themselves. Bringing these elements to the table is a good start and understanding that it isn’t only about the technology. In real estate you need to network, listen and make critiques of products. Absorbing feedback can be difficult but it is a necessity. Finally, start-ups must be ready to work with partners. Financing of these companies is a long road and giving their share to get the company going on the right foot is the best strategic action. Top tips from the experts: Don’t be too fearful, foolish or insular to get the finance you need from the right funding partner and be sure to get the right set-up to go forward proactively.
These tips are just the start, we are learning all the time. If you have anything to add, please email the Proptech Ireland team.
If you are interesting in investing in Irish-led or Ireland-based, global start-ups, contact us at firstname.lastname@example.org for details and introductions.