Confidence in Proptech Is Down For Investors and Startup Founders

In June 2021, MetaProp had just closed an oversubscribed $100 million fund. Now, the venture capital firm formed in 2015 that focuses on proptech released its midyear confidence index. Though the results might suggest a different name: the lack-of-confidence index.

“The Mid-Year 2022 Global PropTech Investor Confidence Index is 5.8 out of 10,” the firm wrote. “This is the lowest Investor Confidence Index to date, declining considerably from its all-time high of 9.3 achieved just six months ago.” The index has been around since 2016.

That confidence has dropped should not surprise. The stock market has been hit hard. Inflation is up, as are interest rates, making deals and profits tougher for the ultimate users of the technology companies would create. Technology stocks in general have been badly affected. And confidence on the part of VCs has generally been off. Some of the biggest have warned their investments to pare costs and hand tight because more equity money isn’t likely to be rolling in.

“PropTech stocks, which rose faster than the broader market during the runup, have fallen faster than the market during this correction,” the report said. “New entrants, many of which made their public market debuts via SPAC transactions, have been hit hardest. Near the end of 2Q22, the average public PropTech enterprise value-to-sales multiples were down 40% for incumbents and 65% for new entrants from NASDAQ’s 4Q21 all-time high.”

On the investment side, it’s not that investors have given up, as 62% said they expect to make the same number of proptech investments over the next 12 months. But at the end of last year, that number was 71%. Just over a third of investors (35%) want to invest in companies focused on multifamily. But that’s one of the best performing and probably more resilient property types. As for office, only 10% of investors were interested in proptech for that sector, “a record low for the category.”

Then there’s the confidence of startups themselves, which is even lower at 4.2 out of 10. One big reason is the message that VCs, investors, and the market in general have been sending to entrepreneurs: “Money is going to be tight, so better figure out what to do.” About 71% of founders think it will be harder to raise capital in the next 12 months compared to 27% six months back.

Since the index started, founders’ confidence generally ranged from 6.6 to a high of 8.3 in the middle of 2021, when CRE was a screaming success. The current 4.2 is even lower than in mid-year of 2020, at the height of the pandemic when it dropped to 4.7.