Proptech Venture Capital Report

Startups will have to deliver more value next year to secure continued investment. Credit: CRETI

Markets

Investment in real estate tech falls 38% in 2022

Taking a cautious approach to investment, VCs invested $19.8bn in proptech globally this year, down from a record-setting $32bn in 2021.

The figures come from the latest Real Estate Tech Venture Capital Report from the Center for Real Estate Technology & Innovation.

While monetary policy, rising interest rates and recessionary fears have stifled investment, greater diligence among investors is “leaving plenty of capital available”, the report said.

“Founder-entrepreneurs capable of putting together compelling business and revenue models will continue to raise money, even in a tightening market, with a focus on scale, retention and customer acquisition,” CRETI said.

That broadly reflects comments made at recent proptech conferences, such as Propel by MIPIM in New York, where the general feeling was that capital will be more cautious but that real estate recognises that it faces problems – high emissions, low efficiency and occupiers downsizing – that tech can help solve.

Just this week, Fifth Wall announced the final close of its $866m proptech fund – the largest-ever fund in the sector.

CRETI proptech report chart

Proptech investment by month (click to zoom in). Credit: CRETI

Fall in late-stage funding

Funding rounds for Series C and beyond fell 19.7% from 193 in 2021 to 155 in 2022.

Large rounds have been a driving force for deal volumes in recent years. But there was a lack of mega-rounds this year, the report said.

Mike McAra, director at Second Century Ventures and NAR REACH Canada, said: “We have just lived through a decade of historically low interest rates, which has now all but come to a stop.

“While this has broad sweeping impacts for the economy at large, for venture this has dramatically increased the opportunity cost of capital for GPs [general partners]. On a risk-adjusted basis, the hurdle rate for investment is much higher now than just six months ago, and thus capital is being allocated much more diligently and much slower.”

CRETI proptech report chart

Late-stage round funding, 2018-2022 (click to zoom in). Credit: CRETI.

Consolidation on the horizon

Looking ahead, Nish Patel, managing partner at Inertia Ventures, said: “There will be two key themes we will see in 2023, consolidation and sustainable growth.

“In terms of consolidation, many companies will likely sell to or merge with better-capitalised or faster-growing competitors.

“As for sustainable growth, there will be a key emphasis on burn ratios, unit economics and runway. Spending in companies will be scrutinised much more heavily than in prior years, and there will be more attention paid to the quality of revenue.”

CRETI proptech report chart

Funding by region (click to zoom in). Credit: CRETI

Jenny Song, principal at Navitas Capital, added that the company remains “excited” about proptech in 2023. But startups will have to deliver more value.

“They can’t just buy growth. They’re going to have to really demonstrate their value proposition and get tight on their business model,” she said. “That’s going to be a big win for the real estate industry overall in terms of the value that will be felt.”

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