Real Estate Tech Bubble?
This guest post was written by Michael Beckerman, the founder and CEO of The News Funnel.
If you’ve invested in real estate tech, run a site or just follow the sector, I’m sure this Wall Street Journal article caught your attention this week. It certainly caught mine, as well as many of my investors who sent it to me :)
In a nutshell, some really smart people are suggesting a blood bath is coming to this young sector. And I think they are right unfortunately. And, if you follow tech outside of the real estate sector, that seems to be all the talk as well. Inflated valuations, crazy amounts of money flowing in, and sites that just don't have a clue about generating revenue. It's all foreign to me and I will never really understand how that entire tech culture works. I am old school. I try and build a business with actual revenue and invest my own personal money first before I ever ask anyone for a penny.
But back to the real estate tech scene of which I am focused on. When a few of my investors read that WSJ article, I shared my honest perspective on the state of marketplace. Here are some of my thoughts:
1. It's still soooooo early in the real estate tech scene and anyone who thought this journey would be easy or quick is foolish. It won't be either. So be patient if you’re investing or running a site and plan for a long haul.
2. Raising as much money as you can is NOT A BUSINESS MODEL. From the day I launched my site, I had two primary goals: 1) raising as little money as possible and 2) building a revenue stream. Raising lots of money guarantees nothing expect maybe fancy offices and the ability to hire a team of people with unfocused job descriptions and funny titles. In fact, it often leads to false expectations of how a new start up is actually doing. Force yourself to build the business organically as much as you can. The money will follow. (Just ask Nick Romito of VTSor Jonathan Wasserstrum of theSquareFoot.)
3. If you are a real estate professional launching a site, chances are you have first-hand knowledge of how challenging it is to market a new product to an industry that doesn’t yet embrace tech. It's really, really challenging to get traction in this industry My advice is to get into the trenches…boots on the ground…old school. Do demos! Use your willpower to get your product in the hands of users. Word of mouth will be your best marketing weapon. If the idea is solid, it will work…but it will just take time.
4. If you are not a real estate professional and you are launching in this sector, R U FREAKING NUTS?! Outsiders to this industry often tell me about the upside potential of launching a tech site in our huge market…blah blah blah. That's the wrong reason to enter the space and honestly you are pissing away your money. Because so few professionals are actually embracing tech at this stage, you better set your expectations accordingly and learn how the industry thinks and how you can tailor your product to make their jobs more efficient and ultimately make them money!
5. The key mistake most people make when talking about real estate tech is comparing it to any other tech sector. It makes my head spin when I hear someone say "we are the XYZ of AirBNB" or reference Uber, etc. The concept of even comparing anything real estate tech to tech in general is crazy! Real estate tech isn't even a real sector just yet. Don’t get me wrong…in the “real” tech sector you can build an app or a new site and watch it explode in an instance. Why? Because there is already an ecosystem and user base built. But for real estate, we are just not there yet. Real estate tech is still in the incubator phase and needs time and room to breath.
6. If you are an angel investor, now is an amazing time to invest. There are new sites being launched daily and they need your advice, contacts and money! We need to build an ecosystem of angels. I can’t stress how critical this is. There are few out there like Jeremy Neuer, Jonathan Schultz and Dennis DeAndrebut we need more. That is what will give this young sector the foundation it truly needs to survive.
And so yes, I do think there will be failures. It's inevitable. But it's probably the same cycle that has existed in every new tech sector.
So, my own two cents is to go long, go smart and get engaged. That’s how I’m playing it at least :)