Over the last few years, you have probably heard the term “proptech” in discussions around real estate markets and technology. In fact, the term was generated as representing real estate technologies. Not so different from the creation of other industry terms, such as contech (construction tech), cleantech (clean energy tech), and fintech (financial tech), these terms have been helpful to better present and bundle solution sets from an investor perspective. You don’t go to a customer and sell them fintech or cleantech; you sell them solutions that are geared towards how they procure to meet their own needs.
These are helpful investor classifications.
The definition of proptech varies, but in general, it is utilization of digitalization of the real estate industry. It is about the delivery of technological solutions that are either ways of replacing real estate professionals or making their roles more meaningful. Proptech is about making the industry of real estate, from construction to operations, work better.
Here is a visual depiction of how proptech overlaps other technology segments.
Even before the global pandemic, proptech investments were on a tremendous growth trajectory. Propetch investments were totalling over $200 million US in 2012 and have reached more than $2.2 billion in 2016, with over $6.2 billion invested in over 4 years.
In addition to the reported $6.2 billion invested in proptech companies by 2016, the size of the market starts to give some indication of where proptech will go.
The current buildings market size in the US alone is $55 trillion (ICI=$22.2 t + residential=$33.3 t). Savills estimated a global real estate market value of $281 Trillion. (https://medium.com/@mknight_72592/how-big-is-proptech-26fdba00d58d)
The pandemic has increased the speed to which real estate owners and managers have adopted proptech to make their buildings operate more efficiently.
Many proptech startups are funded with the hopes of becoming unicorns- reach a $1 billion valuation. WeCompany and Airbnb are two easy examples.
The challenge for proptech is that each is a game-changer in their own right, but the real estate sector is quite monolithic- pardon the pun- and understanding which businesses your proptech is upsetting should give you a great sense of who not to use to bring your solution to market.
“I describe this problem as being in the blue ocean without an oar.”
A better proptech bet is to ensure that you have a great path to be successful in your go-to-market strategy. De-risking the way in which real estate companies or their vendors and suppliers is just as critical as the tech itself.
For example, if your proptech is an energy load management system then your ability to manage the data inputs and the data analysis is critically important to your success. Quality control of the data, the installation to capture that data, the ongoing analysis of that data, and the commercial model on how you monetize that, is as important as what your energy load management software can do… if it’s actually installed and maintained properly.
Proptech solutions need to attach themselves in very relevant ways to their downstream customers. Everyone remembers when blockchain became a big craze for investments, and now it is simply embedded in the solutions of existing businesses in existing industries. It generates advantages for customers, but on its own, essentially is in a blue ocean without an oar.
Look for investment opportunities that solve that go-to-market challenge.