The Potential Immediate Future for Proptech

Every industry is its own thing, with seasonal influences, rhythms, trends, and expectations. And every industry has high tech businesses attending to its needs.

Right now, things are tough in real estate. The coming year is one of uncertainty. The withdrawal of high leverage and cheap money is like an industry-wide hangover. There’s downward pressure on valuations and rent growth and everything depends on property type and local conditions. That’s going to put a lot of torque on proptech startups.

In general, funding is becoming a problem. Investors don’t want to pour money into new vendors as a form of life support. And yet, there is money available. For example, proptech VC Fifth Wall closed an $866 million fund a couple of weeks ago.

When VCs have money, they need to invest it because the limited partners who put the funds in want to see progress toward a return. No one will say, “Oh, that’s okay if you sit on the money you just got from us, we understand that you asked for it while realizing there weren’t any good investments to make right now.”

It’s one of those times that the favored companies might be those a good way into building a sustainable business and strong revenues, and maybe even profits. Back in September, VTS, which has property leasing and management software, added more than $125 million in additional funding through an E-Series. Three reasons that stand out. One, the company is stable. Two, its software goes to running properties more efficiently, and so reduces costs and improving profits. Three, it has big love from CBRE, which is a customer and clearly wants to continue using the products because it put in $100 million of that round.

Firms that can help with profitability are more likely to get money they need to survive. But as dot.LA, which covers the tech scene in Los Angeles, noted, “companies whose businesses are closely tied to home sales are likely to be hit hardest, given the declines we’re seeing in transactions.” Seems reasonable.

Though young and small companies that might still be able to eke out significant increases in revenue

One of the shakeouts that are likely is a rise in firm acquisitions. Alpine SG (ASG), a portfolio company of private equity firm Alpine Investors, which buys and builds vertical SaaS companies, recently bought Sierra Interactive. Marlette Holdings, a fintech company that operates the Best Egg personal finance products site, acquired proptech firm Till. As financial pressures continue to build, there will be fire sales.

In short, 2023 is likely to be an interesting, and bruising, year for many in proptech.