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A year ago, I pondered whether the flood of venture capital to the real estate and proptech sector could set a new record in 2020. Clearly, I didn't anticipate a global pandemic that brought much of the real estate sector to a full stop early in the year and continues to drag on commercial real estate.
The Center for Real Estate Technology & Innovation (CRETI) tabulated the amount of money venture capital invested in proptech start-ups in 2020 and found $23.8 billion was invested, a decrease of nearly 25% worldwide. That's actually pretty encouraging, considering the pause the venture capital world took during the middle of the year.
CRETI identified 425 investments in proptech companies. Nearly 18% of the investments took place in March 2020, right before the pandemic fully hit. However, some of the biggest funding rounds hit in the last quarter, including a $700 million investment in REEF Technology in November 2020. REEF, which received funding from SoftBank, wants to transform parking lots into neighborhood hubs. The REEF deal was the largest proptech funding round by a fairly substantial amount.
The Real Deal also rounded up the top 10 proptech deals of 2020, which totaled nearly $2 billion. After REEF, one of the biggest rounds went to Pacaso, a start-up from the former CEO of Zillow (NASDAQ:Z) (NASDAQ: ZG), Spencer Rascoff, which raised a total of $267 million. Pacaso allows people to buy shares of second-home properties, and $250 million of the funding raised was debt to buy future homes. What these two large funding rounds show is that venture capital is rewarding new solutions and innovative uses of existing real estate.
What to look for in 2021
All of the real estate tech professionals I talked to in 2020 said the same thing: Adoption of new technology skyrocketed during the pandemic. Whether it was virtual tours, data-driven real estate decisions, or remote property management, technology accelerated dramatically in 2020. That could set the stage for a dramatic increase in interest in proptech.
I asked Michael Beckerman, CEO of CREtech, what he's seeing from his position as someone who tracks the commercial real estate technology world on a daily basis. He said:
I am confident we will see an extremely robust year of venture investing in the sector this year, topping 2021 levels, but it will be a challenging year for early-stage start-ups looking to raise seed capital. The biggest trend in the space, I believe, will be the emergence of a fast-growing investment trend focused on climate, sustainability, and ESG technology companies in the built world.
Where will the money land? The combination of the hype around the Airbnb (NASDAQ: ABNB) IPO and the impact of vaccines on the short-term rental market should mean we see more start-ups that focus on property management once again.
Already in 2021, we've seen our first big funding round in real estate: $100 million for Landing, a company that rents out furnished apartments for flexible, long-term stays. Landing raised $45 million in a Series B round, plus another $55 million in a debt facility to rapidly expand its number of units around the country.
The end of 2020 brought some mergers and acquisitions in the proptech sector, such as Avail being bought by Realtor.com and Thoma Bravo's $9.6 billion move to take RealPage private. The amount of IPOs and SPACs in 2020 showed that there's a lot of capital ready to be invested.
It makes sense that we'll see more M&A activity in 2021. Beckerman agreed, saying, "As 2021 will clearly be the first year where the real estate tech sector witnessed a slew of successful exits via IPOs/SPACs and significant M&A activity, my view is that we will continue to see more of the same trends we witnessed during the latter half of last year, namely larger and later-stage venture investing."
At Millionacres, we'll keep bringing you news of these significant moves in the real estate sphere, as well as what they mean for individual investors.
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