Round Hill Ventures on avoiding startups that ‘burn cash heavily’

Falling startup valuations are an opportunity to back businesses that tackle urgent issues like the ongoing energy crisis, proptech VC Round Hill Ventures has told PlaceTech after two back-to-back investments.

“Like most investors, we have understandably become more cautious in the current climate,” Teresa Lee, VP of strategic engagement at RHV, says. “However, we know that this is an opportunity for investors with cash to deploy.

“Valuations are down from the highs of last year, so we continue to be enthusiastic when we find exciting deals with strong fundamentals in spaces we are bullish in.”

What is the firm bullish about? RHV announced investments in two building management systems – Kterio for commercial assets and Erste Hausverwaltung for residential – within five days of each other at the end of August.

The overriding trends in both investments are ones unlikely to be dampened by economic volatility; namely, the hunt for efficiency, cost cutting and carbon reductions.

For example, Kterio – which raised $10m in its most recent funding round – does what you would expect from building management software. By aggregating data from various building systems (HVAC, lighting, meters, etc.), it tries to help building owners manage their buildings effectively to reduce costs and, where possible, carbon emissions.

At the time of the announcement, RHV MD Arnie Sriskandarajah, said: “The pressing need for buildings to be more transparent about their environmental performance and the current energy crisis gave us greater conviction that a $bn+ company can be built.”

Erste Hausverwaltung similarly helps residential real estate managers “be more proactive in their property management” by digitising management processes.

‘Recession anxieties’

Lee says her team targets startups focussed on what she calls “true technology” rather than ones that simply “burn cash heavily”.

She says that possible recession anxieties among startups mean these fledgling businesses are shoring up capital to get them through the next 24 months. In that environment, companies happy to burn through their capital might raise a few eyebrows – or set alarm bells ringing.

But there is clear appetite for the right company. Lee says: “As regulations, particularly in Europe, are pushing or the need for ESG, the aspect of improving the world through tech is one we are passionate about – aligning with what KPs are looking for in their own goals.”

Companies that help the industry cut its energy and carbon consumption are obvious targets, but so is construction in general.

“As a very old school industry, construction is beginning to wake up to the benefits of technology,” she says. “In this industry, there is a lot of low-hanging fruit in tech-enabled startups that deliver things such as materials and equipment.”

She singles out a company called Constru as an example of the sector’s potential. Constru identifies and analyses objects on construction sites to predict a project’s timeline and potential risks or obstacles.

That leaves RHV with enough sectors to keep them excited in the coming months. Having already invested in four companies in 2022 – taking their portfolio to 17 – RHV is likely to complete a fifth one before the end of the year.

“We are optimistic looking forward, and feel there is still large potential in proptech in 2023 and beyond – particularly in Europe,” Lee says.