Accelerating Fundraising, Financings, and Exits in PropTech
The PropTech sector is coming of age. The first half of 2019 has witnessed a step function change in capital flowing into our space, driven by strong demand from real estate owners to procure and deploy new technologies to improve their ROI.
“For years, real estate technology startups watched from the fringes as big banks and venture capital firms lavished attention on financial technology firms. Now, ‘PropTech’ has joined the party. Startups are raising more cash than ever while landlords are adopting a range of new software and hardware that is changing the way they do business.”
—Peter Grant & Konrad Putzier, Wall Street Journal, July 2, 2019
VC Fundraising Activity
An increasing amount of capital is flowing into dedicated PropTech funds, and their fund sizes are growing by orders of magnitude. This will allow funds to write bigger cheques to the growing cohort of larger PropTech startups that need later-stage VC rounds (C, D, E etc.), and make bigger bets on their most promising portfolio companies while maintaining healthy portfolio diversification. In combination, these factors will allow improved portfolio construction and better risk-weighted returns.
This is a positive development for all of us toiling in the PropTech trenches, and for GreenSoil, it provides more co-investment dollars for existing and future portfolio companies. These fund closings further establish PropTech as a key vertical within VC, akin to FinTech 2 to 3 years ago. This opens up a broader universe of potential LPs for PropTech VCs, whose capital raising has been dominated up until now by strategic players in the real estate sector.
Here is a sampling of recent PropTech VC fundraising announcements:
Fifth Wall closed its second fund at $500M in July, more than double its first fund, which raised $212M in 2017.
Camber Creek announced the launch of its third fund with a $120M target size, quadruple the size of Camber Creek Fund II which was closed just last year in 2018.
Metaprop has announced the launch of their 3rd VC fund with a $100M target size, more than double the size of Metaprop Ventures II.
Corporate VCs are also getting into the act: JLL Spark was capitalized with $100M by parent JLL in 2018 and Nine Four Ventures, a unit of Laramar Group, started investing in 2018 and has made four investments to date.
Navitas Capital raised its latest fund in 2017, the $60M Fund II which was almost double the size of its first fund.
PropTech Company Financing
Chart 1: US PropTech Financing
Financing volumes for PropTech companies set a torrid pace during the first half of 2019, up 60% compared to the same period last year in the US (see Chart 1).¹ The average equity deal size rose to over $20M in Q2.
Globally, the figures are also up over 2018, but not to the same degree. According to Unissu,² financing volumes reached $8.1B for the first half of 2019, up about 10% on an annualized basis vs. 2018. More noticeable in the global data is the increase in deal size, which rose to $31.4M for 1H 2019, almost double the size for all of 2018. This is the result of more capital going to later-stage deals, a great indicator of the PropTech sector maturing.
PropTech M&A Activity
Chart 2: PropTech M&A
Dollar volumes and number of transactions are also on the rise in the PropTech M&A market. Chart 2³ shows that 2018 in particular was up substantially with over $25B of transactions completed, more than triple the next highest year (2015).
M&A is coming from three areas: Real estate companies buying PropTech, PropTech companies buying other PropTech companies, and PE-led rollups (e.g. Lightbox).
Consolidation is expected to increase going forward in each of these categories as niche tech vendors become part of larger platforms and PropTech vendors reach sufficient scale to move the needle for potential acquirers. GreenSoil portfolio company Honest Buildings is a good example of this trend, merging with Procore to become part of a comprehensive software platform and application ecosystem for construction, encompassing subcontractors, general contractors, owners, all the way up to investors and lenders.