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The Ups and Downs of Real Estate Venture Investing
Sandwiched between the success of construction software company Procore’s $634.5 million IPO and the bankruptcy of Silicon Valley construction tech start-up Katerra, approximately $32 billion in venture funding went to real estate tech companies, according to a report from the Center for Real Estate Technology & Innovation (CRETI). Meanwhile, real estate companies collected $12.2 billion in such funding, according to CBI Insights.
Will this continue? It depends.
Crunchbase, for one, is forecasting more investment in the industry, especially in software supporting the construction and property management arenas (better known as proptech). Lauren Weston with Thomvest Ventures told Crunchbase that one driving factor in this the growing trend of institutional investors buying single-family homes. More people renting more homes means a greater need for data organization. This, in turn, means uses for different types of technology.
Additionally, while the real estate sector has generally been slow to adapt to technology, COVID-19 fast-forwarded the process, driving the need for efficient tools to maintain virtual interactions and relationships. So from the point of view of real estate technology, venture funding could do well.
But the Wall Street Journal introduced a caveat, pointing out that share prices for real estate companies that went public in 2021 – such as WeWork and Compass Inc. – fell. This makes it more difficult to justify higher valuations of private real estate companies, which doesn’t bode well for future growth. And while the real estate sector is newer and hasn’t attracted a great deal of private dollars in the past, it can be difficult for venture funding to justify such investments. Brokerages and property management tend to have lower profit margins than do software companies.
But this doesn’t mean doom and gloom. On the positive side, the WSJ points to the “massive size of the real estate industry” as “enticing,” while the real estate’s “green” movement means additional opportunities for start-ups to attract private funding.
