An overview of the global PropTech sector is often what I am asked to cover at conferences around the world.
This generally includes an understanding of exactly what PropTech is (and perhaps more importantly, what it isn’t), a geographical breakdown of PropTech in a specific region, but also a perspective on investor appetite.
Investors are a much-needed (though not universally liked) aspect of the PropTech sector, as they are of any new and disruptive sector.
Whilst they offer many a lifeline of possibility. For me, there is a deeper interest - the data they offer up and the forecasting they allow, especially now during this pandemic.
Let me explain...
Our Data Analyst (or ‘Warlord’ as we occasionally refer to him when he has been particularly productive or insightful) recently reviewed the recent PropTech funding data for July.
Usually, big data and data analytics firms looking at the manage stage of the property market generally prevail as the most active and invested sector. There is a significant global trend towards these types of firms that will craft the future of our sector.
July, however, presented a different story, that of mapping and drone firms being at the forefront. Certainly a first for us to see this I must say and, when pushed as to why this was the case, I didn’t have an answer.
What was clear, however, was the push for UK investment in the sector which was led by a fabulous investment in Offr just recently. In a somewhat crowded sector (of trying to speed up and smooth out the transaction process), it was a not insubstantial sum and led by some great institutions in Barclays, the European Investment Fund and the Bank of Ireland.
Given the time we are in, we seem to be in a somewhat bullish investment market which is backed by a recent report by MetaProp which does a six-monthly report into investor sentiment.
Referring back to my initial paragraph, this report features strongly in my conference speeches as an important aspect of the market and the trends.
Not because of the amount being invested but, generally, where they are investing and at what stage of business - usually split into Seed, Series A, B, C, D and beyond (essentially small to large in that order with many sub stages in between - I am keeping it simple and don’t want to bore you all).
I was particularly interested this year to review the results and see how investor sentiment had been hit by Covid-19. My thoughts being that this is one of the last industries to receive such venture capital money but one with perhaps the biggest prize in terms of disruption - the property sector is the second largest asset class in the world after all, particularly when you bring in the construction sector.
It was perhaps no surprise, therefore, that both investor and start-up confidence dropped (33% and 35% respectively). Focusing on the investor side, deal flow, extreme market volatility and political uncertainty were top of the list.
Political uncertainty aside (my one criticism of the report has always been the US bias to its underlying data collection), these are all fair points. It is particularly pertinent to realise that the amount of investments will significantly drop in the next 12 months.
However, you need to look past this sort of assumption into other areas. One was picked up by the authors of the report, the other not at all.
Firstly, M&A activity will increase significantly. Personally, i believe this will happen in all markets, not just PropTech. I suspect we will see much a lot of both - many will have read the quite sensible suggestions (in my view) by Countrywide investors just recently as one such example showing how the property companies will not be immune to this.
Some 63% of investors believe there will be more acquisitions over the next 12 months. This is likely fed from the believe that PropTech adoption will be accelerated by the Covid crisis - 89% of those surveyed believe as much - perhaps an obvious observation.
Less so was the data looking at the stage of investment that the surveyed investors expected to see activity.
Over the last few years, the report has seen a trend to later and later investors, suggesting the industry, or rather the companies within it, were maturing. As maturation occurs, business models are validated (or perhaps further hyped as we will have all seen in some particularly public cases) and investment stages are later (e.g. Series B, C and D).
This year, it was particularly evident that there has been a mindset shift, and I cannot think of any other reason than COVID being the protagonist. Some 86% of investors plan to make investments at Seed level and 68% at Series A.
This suggests a shift to much more early stage investments. The pandemic is likely to open doors to business models, technologies and founding teams that, perhaps six months ago, simply weren’t viable or of interest.
You will often here the term ‘product, market, fit’ when investors or founders talk about their start ups - when a new idea is suddenly validated by potential customers. I might suggest that Covid will have suddenly gifted many founders a product, market, fit for their company which simply wasn’t there before.
The demand was there, the need wasn’t there and therefore the business simply couldn’t justify itself. Going back to the Offr news earlier. It had a good product, it was proven in Ireland but suddenly it could also apply itself to new markets as there was a demand.
I suspect Covid really accelerated its ability to raise funds as all of a sudden it had a model that proved itself to be needed.
Covid and a refreshed perspective from investors won’t help those trying to do the same thing but in a slightly different way on either wildly unsuccessful business models, or wildly successful ones with such a successful plethora of competition just doesn’t seem likely.
Investors know what they are doing for the most part. I just wish some gave them the credit and didn’t try to prove Einstein’s suggestion of madness wrong.