NAR iOi 2019 Roundup: Part 2
With Day 1 in the books, the second day of the NAR iOi promised to be a real treat with some great panels and some interesting announcements. After a hard-fought Pitch Battle the night before, Second Century Ventures’ Chris Smith was on hand to announce the winner.
Here’s Mark’s roundup of Day 2:
Many, many congrats to the team for an absolute firecracker of a job.
One of my personal favorite sessions of the day concerned why PropTech is being targeted by investors.
Follow the Money: Why PropTech is a Major Focus for Investors
• Dave Garland – Second Century Ventures / REACH
• Dino Vendetti – Founder of Seven Peaks Ventures
• Elie Finegold – Venture Advisor with MetaProp
• Julie Sanders
• Scott Smith
In the first half of the year, $3B has already been invested in PropTech. Hundreds and hundreds of millions of dollars focused on investing specifically in the Property Technology industry.
Why now? What’s changed in the last 3-5 years? Is it a fad?
Not a Fad
- Real Estate is a disaggregate ecosystem where there are so many players and interesting opportunities.
- Technology has evolved to the point that creating even enterprise-level software solutions is easy enough that you don’t need massive technical resources anymore.
- We have access to a ton of data now.
- Automation has become more widely available.
- Because it’s Real Estate, there’s a lot of money to be made.
- C-Level Funding available, and capital is pouring into the industry. Last year 137 C-Funds were created. This drives a lot of competition, which in turn, leads to high valuations, higher excise across multiple sectors.
- And an evolution of consumer behavior in Real Estate.
Is this Sustainable as an Industry?
- We’re seeing not just massive influx of capital, but the consolidation of a large part of the real estate industry “service stack”: big service or finance companies, transaction, they’ve been consolidating over the past decades. Finally have big enough targets to shoot at.
- The stack of technology has changed. The mobile revolution has made everything available anywhere. Real Estate was massively affected by this since Real Estate is, by nature, a disaggregate practice. Homes are all over the place. People are all over the place. This particular cycle of PropTech has lasted long enough, enough capital has been raised, and enough commitment has been made, to see this generation of PropTech through any kind of recession.
- In the past, anytime there was a bump in the market, RE people have been conservative; they’re protecting one of the largest wealth pools in the world. Thus far, whenever there’s been a recession, people move away from technology. Now, with the level of financial capital dedicated to PropTech, this funding needs to be spent, and can withstand a recession.
The panel seemed to agree, that yes, this is sustainable.
Why? We’re at a very specific shift in the industry. We have the following, all in convergence:
- Mobile technology
- Massive firms investing in and buying up technology / consolidating technology
We’re moving to a world where technology is an asset. You can’t live without it. It creates a better ecosystem for our industry, which keeps the money flowing in.
Where is this Money Coming From?
Because of tightened regulations, it became harder for companies to go public recently. So for a lot of companies, it makes more sense to stay private, or stay private for much longer.
Looking at the market caps back in the day for companies that went public, we were looking at 400-800 million dollar range. Today, with companies like Linkedin and Facebook, looking at their initial market cap, these were multi-billion dollar companies, and the IPOs are only getting bigger. Because of this, private investors can participate in this and for longer.
Funded primarily by family offices, where there is a significant allocation to invest specifically in PropTech, the liaison between investors and a network of companies, that vacuum has been filled by family offices. By the time a company gets to their A round, they’ve already seen some significant funding.
What’s the Money Chasing?
According to Scott: The Boring Stuff (and he’s not talking about Elon Musk)
- Core business fundamentals (sales strategy, strong customers, great lifetime value, sustainable acquisition cost).
- Getting closer to the consumer and the decisions they’ll make.
- What’s the team?
- What can they accomplish?
- What can they get to market?
- How can they scale?
According to Julie: There’s been a long-standing tradition of disintermediation in our industry.
But the next wave of entrepreneurs are coming for your lunch.
You need to understand what’s special about your work. What you can contribute to the customer experience. Agents are and still will be an important part of this ecosystem. So the smartest innovators have partnered with them, and vice versa. In the long term, the gain is in the one-to-one approach.
However, on the buyer side, especially, the human touch will remain an important part of that transaction, since it is an infrequent and emotional transaction. iBuyers are great for the seller side.
For Founders: How Do You Attract the Attention of Investors?
It comes down to the people. The inevitable entrepreneur. Team-building capacity. If that’s not there, it’s a no. There’s got to be something magical.
Is there a business model there? Is there revenue. If the answer is: “If you buy us, we’ll be successful.” That’s a no. Keep it simple.
“You can throw money at the business to force it to scale, but that doesn’t make a great business.”
Dino Vendetti gave up trying to predict the future as a VC. He understands that the entrepreneur is the closest proximity to successful innovation. Find the entrepreneur that has seemed to “figure it out” and invest in them. Can they figure out a clear go-to-market strategy that allows them to scale? You can throw money at the business to force it to scale, but that doesn’t make a great business.
“LMPs can’t find enough places to pocket this capital.”
According to Julie Sanders: LMPs can’t find enough places to pocket this capital. That drives a lot of competition. Which in turn lead to higher valuations. Higher excises across multiple sectors. An evolution of consumer behaviors in Real Estate.
Beyond the talk, Morgan Carey of Real Estate Webmasters dropped this bombshell of a quote:
“We are expanding to the world and we are an acquirer now.”
Chew on that for a second.
Speaking of chewing, I’m gonna go make a sandwich. Catch you next time.