In Case You Missed it, read the highlights from CREtech Talks in a Time of Uncertainty: The VC Perspective Part 1
The real estate tech venture capital market is about to undergo a massive stress test. In a recent CREtech Talk: Perspectives in a Time of Uncertainty webinar, three of the most active investors in real estate tech, including Jeffrey Berman of Camber Creek, Andrew Ackerman of Dreamit Ventures, and K.P. Reddy of Shadow Ventures, discussed with Steve Weikal, Head of Industry Relations at MIT, how the pandemic has impacted the startup real estate tech market, venture capital investing and what it means for the global real estate tech ecosystem.
I think the startups that you’re seeing that are large consumers of capital, or large consumers of capital to grow, they’re already getting hit, according to Shadow Ventures Founder K.P. Reddy. “I think its time for the kids to get out of the pool. Its adult swim,” K.P. added.
The conversation touched on almost every aspect of the pandemic’s impact on real estate tech, including a major shift in venture capital and the market's overall access to dry-powder.
“There is a lot of dry powder,” said Jeffery Berman. However, a major shift is upon us. “I think you’re going to see a tightening from the underwriting perspective.”
While the panelists seemingly agreed that the macro real estate tech investment market will be impacted, at times, the types of investors was a point of differentiation, especially on the topic of strategic investors and corporate inventors.
According to Reddy, companies that are real estate focused that have a venture or innovation group, “might want to dust off their resumes.”
However, the biggest impact may not be on the venture capital side, but rather strategic investors and corporate venture capital inventors - making way for companies with strong balance sheets.
“Within real estate, the involvement of strategic investors at the early stage is higher than any other sector that I’ve been involved in. There’s just a lot more of that money in higher proportions of the deals, so to that extent it's going to be much hard for proptech companies to raise their rounds relative to other industries.”
Regardless of the types of investors left in the market in the wake of the pandemic, when real estate tech companies are pitching investors, the question remains, is there a viable path to venture return?
“The vast majority of companies that we’ve seen do not have any hope of creating that venture return scenario because they’re not scalable in a way that is going to allow them to get the heavy-lift without raising massive amounts of capital that's not really appropriate for,” said Berman.
While the pandemic “is a fundamentally different externality” according to Berman, for many real estate professionals, technology will soon be a matter of necessity - creating tremendous opportunities for investors and startups, alike.
“I do think that there are some people that have been forced to adopt things, according to Reddy.
“Within the proptech space, there are certain companies whose solutions are relevant right now. Like when multifamily operators now have everybody living and working in the building rather than leaving during the day and going to work, according to Ackerman.
“I think you’re going to see a continued trend to the digitization of various workflows, specifically as it pertains to real estate out of necessity,” according to Berman.
- venture capital