Why Scaling a PropTech Startup is So Difficult

The prop tech market is ready for major growth. Investor confidence in the sector has risen to 8.3 from 8.2 and startup confidence jumped to 7.3 from 6.6 on a scale of 1-to-10, according to the MetaProp Index. These numbers suggest that large real estate incumbents are more eager and willing to adopt tech products created by startups.

Here are some other key stats about the prop tech opportunity: 

  • All of the commercial and residential assets in the world total to more than USD $217 trillion making up roughly 60% of all global assets
  • 76% of investor respondents said that they expect to see more M&A activity in the upcoming 12 months compared to the previous 12 months, up from 57% in Q4 2016.
  • 24% of startup founders who responded reported between $500K - $2M in total revenue to date, a major increase from the 9% that fell in this revenue range in Q4 2016, indicating high revenue growth and rapid startup maturation. 
  • 40% of CEOs believe it will be easier to raise capital in the next 12 months, up from Q4 2016 figure of 33 percent, while only 19 percent of CEOs expect it will be harder to raise capital in the next 12 months, down from 27 percent in Q4 2016.
  • 76% of startup respondents expect to see more competition within the space in the upcoming 12 months compared to the previous 12 months, up 13 percent from the Q4 2016.

Key Real Estate Tech Deals

  • CBRE Group acquired Floored, a leading producer of SaaS solutions, including scalable, interactive 3D graphics technology, in late 2016. Their products are used by firms like Related, Equity Office, Hines and Beacon Capital.
  • Blackstone purchased The Office Group, valuing the company at about $640M 
  • Cadre raised $65M in Series C funding from Andreessen Horowitz
  • Pillow raised a $13.5M Series A from the Mayfield Fund
  • WeWork raised $300M from SoftBank's $100B Vision Fund
  • Houzz raised a $400M Series E from ICONIQ Capital

Challenges for Prop Tech Startups:

Despite the excitement around prop tech, the sales cycle that startups face remains daunting. A recent piece in e27 lays out some of the difficulties of working in prop tech:

  1. Property development and city procurement cycles are long. They involve complicated and idiosyncratic maneuverings from startups. And even then, startups can get stuck in what is known as "procurement purgatory," so patience and the right relationships are keys to success. It is critical to respond promptly to information requests and to make things as simple as possible for the developer you are selling to. Have a timeline ready, outline how you provide support for your product, and make sure they know your startup is viable for the long term. 

  2. New developments have a limited tender window and once those windows are closed startups must wait months if not years for the next one.

  3. Existing asset retrofits are complex given REIT or investment structures and involve multiple layers of approval from different fund managers.
  4. City or property development companies typically do not have the in-house expertise to write tech requirements into delivery contracts so modern technology requirements are often missing due to lack of awareness.
  5. Building and infrastructure projects have many stakeholders from investors, government agencies, architects, commercial partners, to a variety of consultants and contractors necessary to erect a building thus diluting technology’s role.
  6. The languages spoken by real estate professionals and technologists are simply very different.

Dreamit UrbanTech has created a program specifically designed to solve these problems and to help startups deploy their products in large development projects and in urban areas. 

Dreamit UrbanTech is a startup accelerator founded in partnership with SPP---a joint venture by Jeff Vinik and Bill Gates. The team at SPP is working on a $3B redevelopment of the Tampa Bay waterfront, turning the area into the nation's largest experiment in building a smart, connected city in an existing urban zone. Dreamit is using the redevelopment project as a sandbox for innovation for startups accepted to the program, a unique opportunity for founders to scale with enterprise customers like construction firms, developers, real estate management companies, CRE service firms and other key players affecting the built environment in cities.

More about Dreamit UrbanTech