Global venture capital investment in real estate innovation skyrocketed to $12.6 billion in 2017.
A historical void of innovation in real estate has opened a world of opportunity for so-called proptech startups that are attracting billions of dollars from venture capitalists.
Proptech — short for property technology — is a relatively new term referring to the sector of startups that create new products or business models for the real estate market. While a broad field, proptech can include products or services for homebuyers and sellers, smart-home devices, office administration, building management, marketing, construction and even city-planning.
Companies like Zillow, Compass, Homelink, SMS Assist and, most recently, Opendoor have drawn multi-billion-dollar valuations as they vie to provide new software and hardware products to landlords, builders, property managers and real estate investors. And as proptech startups have grown more successful in developing solutions to improve the real estate market, venture capitalists have keenly taken an interest.
In 2013, proptech firms attracted $459 million in global venture capital funding, according to CB Insights. That amount of funding for proptech surged in 2016 to $2.66 billion, according to CB Insights.
And the growth trend doesn’t seem to be slowing. Global venture capital investment in real estate innovation skyrocketed to $12.6 billion in 2017, according to real estate tech research and marketing agency Re:Tech.
Among the firms nabbing part of the enormous VC pie is Opendoor, a San Francisco-based startup that flips homes in 14 cities through its online tool that aims to remove stress from the buying and selling process. The traditional selling process can take up to 90 days and have a 10 percent chance of falling through, however, Opendoor customers receive offers within 24 hours, according to the company.
Opendoor raised $325 million in June, followed by a September investment of $400 million from the SoftBank Vision Fund, bringing the company’s total equity raised to $1.045 billion. The San Francisco-based startup plans to expand to 50 markets from the 10 markets it operates in today.
New York City-based startup Compass is also among the firms hoping to flip the traditional market of real estate. Compass is a tech-fueled brokerage that employs 7,000 agents who focus on high-margin, luxury homes in mostly coastal markets. The company says it is on pace to control 20 percent of residential property sales in the United States’ top 20 markets.
Founded in 2012, Compass has surged in value to $4.4 billion, having raised a total of $1.2 billion in equity to date.
Rentberry is a transparent rental application and price negotiation platform uniting tenants and landlords. It automates all the standard rental tasks from submitting personal information, customer offers and eSigning rental agreement to sending maintenance requests. Welcome to the Rentberry neighborhood – where new tenants are moving in every day!
While comparatively small to Opendoor and Compass, Rentberry is a blockchain-based rental payments platform that digitizes typical rental tasks, such as application processing, credit reports, lease signing and rent payments. The company — which in 2017 processed more than 250,000 properties in 5,000 U.S. cities — is looking to raise $30 million in an initial coin offering in November to fuel an expansion into to Canada, Australia, New Zealand and the U.K.
The attention on proptech has even led some venture capital firms to specialize in the field. Los Angeles-based Fifth Wall Ventures raised $212 million for its first fund and is en route to raising a second, $400 million vault.
With billions of dollars flowing into innovation, many traditional real estate processes and professions will be transformed or eliminated. From property management and marketing to buying and selling, startups are eyeing any possible opportunity to improve or streamline real estate. For real estate investors, vigilance on cutting-edge technology may prove not only valuable but imperative.