Fifth Wall backs SmartRent in $2.2bn float

Venture capital firm Fifth Wall’s first SPAC will merge with residential automation platform SmartRent in a deal that values the combined company at $2.2bn.

SmartRent allows residential landlords to manage all smart devices across an asset or portfolio. As a brand-agnostic solution, SmartRent is compatible with whatever IoT devices a landlord uses.

Set to close in Q3 2021, the merger with Fifth Wall Acquisition Corp 1 (FWAA) will take the startup public and drive its growth strategy with a significant capital injection.

The deal included an additional $155m PIPE investment – capital from private investors –  including from institutions, and the company will have an expected $513m in cash when the transaction closes.

Managing $2.5bn in the property innovation space and with 70 strategic real estate limited partners, Fifth Wall is in a position to support SmartRent’s expansion into new markets. The startup said it expects to achieve positive EBITDA by 2022.

Why SmartRent?

The merger shouldn’t come as a surprise. SmartRent was already a Fifth Wall portfolio company and, as Fifth Wall co-founder Brendan Wallace wrote in a blog post last week, SmartRent had exceeded their expectations.

Wallace called the startup the “clear winner in the smart home space”, effectively bringing together a lot of competing brands and incompatible apps under one operating system.

On a user level, that means managers (and tenants) don’t need to download an inconvenient number of apps to control all of their smart devices. Once a manager has started using SmartRent, anything with an IoT device –access control, energy management, parking management or even self-guided tours – can be controlled with one platform.

As a business, that means SmartRent can potentially be adopted by any landlord operating any kind of home in any location. Fifth Wall and SmartRent are betting on the sheer size of that market and their ability to beat their competition to it.

Fifth Wall said SmartRent already has a bigger market share than all of its competitors combined and it’s now targeting an expansion into Western Europe, Japan and Southeast Asia.

SmartRent’s PIPE investors include Starwood Capital, the third largest owner of multifamily homes in the US and Invitation Homes, the largest owner of single-family homes in the US, both of which are rolling out the tech across their portfolios.

Barry Sternlicht, chairman and CEO of Starwood, said: “I’ve known Lucas [Haldeman, founder and CEO of SmartRent] since he served as our CTO at Colony Starwood Homes and have been impressed by his leadership, vision and execution. The opportunity to partner with Fifth Wall on this transaction made it all the more compelling.”

Wallace added: “Through a consistent stream of early investments in category-leading real estate technology companies, Fifth Wall has identified a pattern of technology adoption in the real estate industry that is playing out to SmartRent’s benefit. As an early winner in the eyes of some of the largest national real estate owners, SmartRent has rapidly become the industry standard solution.”

The other selling point is the environmental angle: smart devices can help users save energy, and a platform like SmartRent can do that on an industrial scale. The company has estimated that if all rental buildings in the US adopted the platform, the country’s energy consumption would fall by 4%.

Lucas Haldeman’s statement:

Lucas Haldeman, founder and CEO of SmartRent

“We started this business as frustrated real estate operators looking for a comprehensive smart home solution. We understood the deficiencies of the enterprise smart home industry and knew that if we could build a fully integrated platform that met the needs of operators and their communities, we would have an impact not just on their business, but on society at large. Today we offer the most robust and deeply integrated platform on the market, validated by its rapid adoption and 100% customer retention.”

“SmartRent’s comprehensive platform has a clear technological edge on competitors and significant growth potential, and Fifth Wall, through its extensive investor and partner network, is uniquely positioned to help us expand our capabilities globally.

“Fifth Wall is a trusted investor and visionary. With its track record of supporting and investing in leading proptech companies, the Fifth Wall team understands technology, markets, and real estate—including what the real estate industry will adopt next.”

What’s next for Fifth Wall?

Fifth Wall has been on a mission with SPACs – special purpose acquisition companies – this year. Just two months ago, the venture capital firm raised $345m in FWAA’s IPO, which is now doing what it set out to do: to merge with a business it considers a leader in property innovation.

In March Fifth Wall announced a second SPAC, seeking to raise $150m for another merger with a business plugging tech into real estate. Before the dust could settle, it registered for a third SPAC, targeting $250m for a business working in the residential space.

In documents filed with the SEC, Fifth Wall said that SPACs are “an important extension of Fifth Wall management’s approach to partnering with leading real estate technology companies to create long-term value”.

Fifth Wall’s fund strategy has historically focused on early-stage investment, and six of its 40 portfolio companies have gone on to become unicorns with a valuation of more than $1bn.

But now, as the technology in property and the companies behind it have matured, Fifth Wall sees more opportunity in backing those later-stage businesses, taking them from private to public markets.