2023 Proptech Venture Capital Report
In light of prevailing market volatility and economic uncertainties, the proptech narrative has undergone a significant shift. Companies at the intersection of real estate and technology are increasingly cautious, strategically recalibrating their approaches to align with the current economic climate. This change in posture reflects a broader response to the challenges and headwinds the market faces.
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The proptech sector in 2023 observed a recalibration of venture capital flow, amounting to $11.38 billion, reflecting a cautious investor sentiment, one that was foreseen by CRETI in 2022. This recalibration represents a 42.38% dip from the $19.75 billion invested in 2022 and a significant 64.44% decrease from 2021's investment high of $32.0 billion. The retraction in investment can be attributed to a market normalization following a period of intense growth and bullish investment behavior driven by digital acceleration during the pandemic years.
The decrease in venture capital investment in 2023 is not indicative of a decline in the importance of proptech within the real estate sector. Instead, it reflects a broader market correction and a return to pre-pandemic investment levels. The sector continues to attract attention for its potential to revolutionize an industry that has historically been slow to embrace technological change. Moreover, as the real estate market continues to grapple with the implications of the pandemic, including the shift towards remote work and the increased importance of residential space, proptech solutions are more relevant than ever.
Median Funding
In 2023, the median venture capital funding in proptech displayed a pattern that diverged from the high investment values seen in the previous years. This shift suggests a more cautious approach by investors, possibly due to market corrections or a reassessment of the long-term viability and impact of proptech ventures. This trend is indicative of a maturing market, where investors are becoming more selective, favoring ventures with proven business models and clear pathways to profitability over earlier-stage, higher-risk ventures.
The gradual increase in median funding through the latter quarters of 2023, especially the noticeable uptick in Q4, implies a renewed confidence in the sector. This could be attributed to a variety of factors such as advancements in technology, regulatory changes, or shifts in the real estate market that have made certain proptech solutions more relevant or viable.
Investment Stages
The investment landscape in proptech is diverse, with a significant portion of funding concentrated in the early stages of startup development. In 2023, Seed-stage investments dominate the scene, comprising 33.50% of all investments. This high percentage underscores the sector's focus on nurturing new ideas and technologies at their inception. Early investments in proptech are crucial for setting the foundation of innovative solutions in real estate, which is a capital-intensive industry. The high proportion of Seed funding indicates strong investor confidence in the potential of emerging proptech startups to disrupt the traditional real estate market.
Meanwhile, Venture Rounds and Pre-Seed stages follow closely, with 19.96% and 19.76%, respectively, suggesting that investors are willing to take risks on less established ventures with promising ideas. Series A funding, accounting for 14.24%, signals a transition phase where startups begin scaling their operations and market presence. The gradual decrease in percentages from Series B (6.42%) onwards reflects the natural narrowing of the investment funnel as companies mature and require larger but less frequent rounds of funding. The data also reveals a smaller focus on later-stage investments like Series C, D, and beyond, indicating a proptech market that is still in a relatively nascent stage of growth and development.
Real Estate Sector Trends
The real estate sector in 2024 is expected to be shaped by a blend of societal shifts, technological advancements, and evolving consumer preferences. Key trends in this sector are poised to redefine the landscape, focusing on sustainability, adaptability, and inclusivity. Investments are increasingly channeled into projects that not only offer financial returns but also contribute to social and environmental objectives. This paradigm shift is seeing the real estate sector move beyond traditional boundaries, embracing innovative approaches to meet the challenges of urbanization, environmental sustainability, and changing lifestyles.
This sector's evolution is also reflective of a more profound societal transformation. As urban populations grow and environmental concerns become more pressing, there is a rising demand for real estate solutions that are sustainable, flexible, and accessible. Proptech innovations are at the forefront of meeting these demands, offering new ways to build, manage, and interact with physical spaces. The trends identified in this sector are indicative of a larger movement towards a more integrated, sustainable, and human-centric approach to real estate development and management.
Expert Insights
Travis Connors, Co-Founder & General Partner, Building Ventures
"Broadly speaking, private market investment interest in any sector is cyclical and quickly becomes over-inflated. 2021 witnessed the peak of irrational exuberance from the underinformed into Proptech startups. Rather than view the recent decrease in overall funding amounts as a negative signal, one need only look at the level of Pre-Seed and Seed investment to realize that the entrepreneurial energy unlocking real value in the sector is strengthening. A better, more sustainable, more resilient future requires reimaging how we design, build, and operate the built world, and the founders who will make that difference are only getting started."
Brendan Wallace, Co-Founder & Managing Partner, Fifth Wall
“2023 proved to be a significant pendulum swing from the record-high investment days of 2021. In 2024, I anticipate that we will continue to see a flight to quality, as investors & entrepreneurs turn more cautious — focused on stable, lower-risk investment opportunities."
Ashkán Zandieh, Co-Chair and Founder, CRETI
"In 2023, we've entered a discerning chapter in proptech's evolution, which demands a more keen eye from investors and founders. The U.S. maintains its lead as the epicenter of proptech innovation, echoed globally, with the U.K., India, and other nations contributing to a diverse landscape of opportunity and innovation."
Daniel Fetner, General Partner, Alpaca VC
"While 2023 was obviously a difficult year for proptech companies seeking capital, it was also a forcing function for companies to get their financial houses in order. I personally take pride in witnessing our companies make resilient and strategic decisions, prioritizing capital preservation amid challenges. While often difficult, I think these decisions have made for more sound business models, more attractive margins, and more sustainabe real estate sector in 2024 is expected to be shaped by a blend of societal shifts, technological advancements, and evolving consumer preferences. Key trends in this sector are poised to redefine the landscape, focusing on sustainability, adaptability, and inclusivity. Investments are increasingly channeled into projects that not only offer financial returns but also contribute to social and environmental objectives. This paradigm shift is seeing the real estate sector move beyond traditional boundaries, embracing innovative approaches to meet the challenges of urbanization, environmental sustainability, and changing lifestyles.”Shahriar Shams-Ansari, Co-Chair, CRETI
“Market activity has been relatively muted at the growth stage, with a persistent but narrowing bid/ask spread as companies re-set their value expectations or grew into exuberant valuations from 2021/22. However, we continue to see promising adoption of technology solutions at all stages by the real estate ecosystem, as well as strength and momentum in earlier-stage fundraising. Accelerating venture interest in climate and AI, both of which have significant use cases in and adjacencies to Proptech, suggest the sector should be well-positioned for capital inflows in the years to come.”
Nish Patel, Managing Partner, Inertia Ventures
”Tightening credit markets have created headwinds for not only real assets, but also PropTech companies - especially business models that rely on balance sheet origination or transaction velocity for scaling revenue. As we see better price discovery and rate stabilization going into 2024, the players resilient enough to survive will be the beneficiaries.”
Alex Shtarkman, Vice President, Revolution
”Proptech is not immune, and in some instances, more acutely impacted by the VC market correction. Many companies have “kicked the can” by raising bridge rounds to avoid repricing, but that capital is due to dissipate in the coming quarters. Some will achieve breakeven and ride out the venture market storm, but many startups will have no choice but to shut down or fundamentally recapitalize and restructure. Net, net this dynamic should result in a brighter future for proptech – less “noise,” fewer features and more platforms, clearer buying/implementation decisions, and greater demand for tech spurring opportunities to innovate against evolving real estate pain points.”
Methodology
The Center for Real Estate Technology & Innovation (“CRETI”) defines venture capital investing in real estate technology (“proptech”) companies and adjacent companies and/or industries as a form of private equity financing that is provided by venture capital firms, funds, and/or organizations to startups, early-stage, late stage, and emerging companies. CRETI defines venture capital funds as a collection of capital raised to invest in a company for a current and/or future equity position. CRETI also includes funds raised by any organization, including but not limited to real estate organizations, with the primary intent stated above.
CRETI indexes and analyzes investments made in proptech startups primarily by sourcing (1) media announcements, including but not limited to press releases, media announcements, media mentions, news aggregators, and social media, (2) publicly available, paid, and/or open third party data sources, and (3) investors including but not limited to investments submitted to CRETI, surveys, and others. CRETI information, including but not limited to research, insights, and reports, aim to be directionally accurate.
Disclaimer
Investing in startups, including but not limited to proptech startups, is risky. The information provided by CRETI should not be used to make investments in startups. Please consult an investment professional before making any investment.