Funding to venture-backed proptech companies has surpassed pre-pandemic levels, according to Crunchbase data, with construction tech and property management startups leading the way.
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VC-backed real estate companies have raised $10.6 billion so far this year, up from the $8.3 billion that was raised during the same period last year, and higher than any year in that period in the past decade.
“One of the things that also helped was the fact that the real estate market has been so hot,” said Koda Wang, co-founder of Block Renovation. “That sort of had a ripple effect across proptech.”
The sectors within proptech to receive the most funding so far this year are property management startups ($2 billion YTD) and construction ($1.9 billion). Among the largest funding rounds for proptech companies so far this year are ServiceTitan’s $500 million Series F and Loft’s $425 million Series D.
This year has already seen notable public exits for proptech companies, with property management startup SmartRent going public through a special purpose acquisition company and construction management software company Procore doing a traditional initial public offering.
The Procore IPO
Construction was also a traditionally “unsexy” area to invest in, Wang noted, so Silicon Valley investors and founders often overlooked the space. But investors are beginning to realize it’s an untapped market, especially because of the shortage of homes and a shortage of labor.
Procore’s IPO, along with notable exits for Plangrid and Pipe, “has created this kind of second point of acceleration where the venture capital world can see that the industry is willing to adopt technology, the growth can be really strong,” according to Mallorie Brodie, CEO of construction tech startup Bridgit.
Procore’s IPO raised $635 million for the Carpinteria, California-based company.
Both Brodie and Clelia Warburg Peters, a venture partner focused on proptech at Bain Capital Ventures, pointed to Procore’s IPO as a milestone that will likely boost investment into construction tech.
As Warburg Peters noted, “one company can spur a generation of innovation,” similar to how early employees of PayPal — the so-called “PayPal mafia” — went on to create billion-dollar companies like Tesla and Affirm.
“Construction tech is where proptech was probably three or four years ago, in that you have an increasing interest toward the three core constituencies who have to come together in a flywheel to move forward,” said Warburg Peters.
Those three constituencies — the incumbents, the investors, and the entrepreneurs — working together accelerates investment into the space essentially in a positive feedback loop, she said.
The Shift To Renting
Funding to property management companies, which includes companies that facilitate home buying and selling, could be accelerated by the pandemic and the effect it’s had on residential real estate, according to Warburg Peters.
Single-family rentals in particular, is a growing market.
“We’re in the midst of A) meaningful growth of people wanting to rent those assets vs. own them and B) institutions wanting to move into that space,” Warburg Peters said.
The process of managing a portfolio of single family homes is complex, so many tech companies have cropped up and focused on that, including Mynd, where Warburg Peters sits on the board.
“Now we’re moving into a world where people who could afford to aren’t going to live in homes they own for certain periods of their life because they want flexibility … they may then own homes purely as assets,” Warburg Peters said. “And historically that would’ve only been available to institutional owners.”
Going forward, Warburg Peters expects more investment in companies that deal with renting or tools around renting, whether they focus on single family rentals or not.
“I think we’re going to see a continued momentum here,” Wang said. “We’re still in the early innings of this industry modernizing. Most of construction today is done in a super old school way, most property is managed in a super old school way, and most transactions in real estate are done in a super old school way. So there’s a lot of untrodden terrain for companies to be built and to grow.”
Illustration: Li-Anne Dias
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