With fintech, a lot of what’s new is actually old. That’s because the financial industry has always been a large consumer of technology, using it to solve business problems. That means many of today’s top technology firms aren’t necessarily doing something new, per se. The difference is that they’re technology firms at their cores, built to scale quickly and participate in a larger financial ecosystem.
Enter proptech, various technologies taking aim at the modern real estate industry. Technologies like these have always been around. The difference with proptech is that many of these technologies are converging together to communicate with one another, working in step to modernize and digitize the real estate market.
How would you define proptech?
Generally, proptech (also referred to as property technology or real estate technology) is a set of cross-industry technologies changing the way we research, rent, buy, and manage property. For our purposes, because we’re so pumped up on fintech, we’re focused more on the transactional side of proptech and will leave out construction technology and smart home technology, like Nest’s smart thermostat, from our discussion of the market.
Proptech is predicated on connecting various pieces of the property market, so that participants in the real estate ecosystem (think buyers and sellers but also brokers and lenders) can make better decisions with less friction.
Where are some of the opportunities for innovation in real estate technology?
Real estate is the largest asset class in the U.S. Because it’s so vast, opportunities abound, but it’s important to break them down by the various sub-sectors of the market.
- Residential real estate: Early entrants into proptech, like Zillow, have focused on assessing values on residential homes by using big data and crowdsourced data. These listing services are positioned to become the future online brokers. Online lenders are popping up to help home buyers buy a new home or refinance an existing mortgage. Other proptech firms, like Point, are trying to deconstruct the way we mortgage our homes and create an entirely new type of home financing. There are a slew of crowdfunding platforms that give investors access to invest in equity and debt of single family homes.
- Commercial property: Surprisingly, the commercial side of the property market still mainly functions as an old boy’s network, driven by brokers. Firms like Credifi are racing to become the data pipes for the commercial real estate industry. Crowdfunding platforms give smaller and bigger investors alike access to invest in CRE (equity and debt) in way smaller denominations than was traditionally accepted. Technology designed to streamline property management should help real estate owners worldwide better track and oversee their assets. Brokerage has begun to undergo digitization but there is still a lot of opportunity for proptech to make a difference.
In the sharing economy, I can imagine that proptech is changing our notion of real estate in general. Is that true?
In a sense, that’s right. Our notion of real estate is changing because technology is forcing it to. Similar to how Airbnb became an alternative to hotel rooms, modern shared office space firms, like WeWork, a global network of hip spaces, have turned office space into real estate on demand. No long term contracts, pay as you go, and scale up or down on a monthly basis.
Other firms are doing something similar for retail and popup spaces. WeWork has recently begun applying this same philosophy and structure to living spaces. If you listen to how these firms describe themselves, they see their work more like tech and product firms than they do commercial real estate plays.
So, can you give some flavor on investment scene in proptech?
2016 was a record year for total amount of investment dollars flowing to proptech. According to CB Insights, Since 2012, real estate tech companies have raised almost $6.4 billion in funding across 817 deals. A growing percentage of proptech investment is going towards companies in their growth stage, who are thirsty for capital.
Some of the most active investors in proptech include 500 Startups, Thrive, Frontier Digital, SV Angel, BoxGroup, DCM Ventures, and RRE Ventures.