Calculations and Considerations for PropTech Investments
There is currently no shortage of investment opportunities in the property technology space. But determining which products to back and which fledgling companies to fund requires a calculated approach.
During the 2021 AIM roundtable, Entrepreneurship and Personal Finance, industry leaders discussed investment strategies for early-stage innovations.
Matt Knight, founder of PropTech Angel Group, said angel investing forces investors with real estate backgrounds to discard the pace, scale and margins they’re accustomed to.
“There are a couple of things that were important for me to learn, coming over from real estate, and the first one is asymmetry,” said Knight, whose membership club for industry principals shares information about tech investment opportunities, as well as strategies for success with tech startups. “If I’m in real estate, most of the time I’m grinding out percentages. But with asymmetric returns, you may have one company that can return you thousands and thousands of percentages on your capital.”
Case in point, seed investors in SmartRent have seen 12,000% returns. Airbnb went from a $3 million company to a $106 billion goliath.
“The second thing is speed,” Knight said. “In real estate, it can take years to get fully staffed and build that back office. Tech companies build new products in weeks, sometimes days. That can be jarring when you have to make a decision by next Friday on a tech investment. But you have to be ready for that.”
Knight’s third key: don’t participate when the playing field is level.
“If you’re going to invest, invest where you can affect the outcome,” Knight said. “Don’t just guess or get swayed by some new product or concept. If you’re doing it to make money, only fight where you have an unfair advantage.”
While the vetting process for proptech is fairly similar to due diligence in real estate, technology investors aren’t seeking subtle improvements.
“You want to look at the financials, the relationships – everything you would normally look at if you were considering a real estate investment – it’s the same type of process,” said Nick Zamonis, Chief Architect at Unit Leader, a venture capital and private equity firm. “Since we’re in proptech and software service companies, you want to have somebody who can audit the technology and make sure the technology is good. But for us, disruption is really big. We don’t want something that’s a little bit better than what is already out there, we want it to be game changing.”
Dana Zeff, Chief Disrupter at Unit Leader, said unfortunately it’s not as simple as identifying innovative tech. The proptech must be valid, the development company needs to have the right team in place, and the product has to deliver a benefit capable of pushing past the industry’s reluctance to change.
- Matt Knight, Founder of PropTech Angel Group
- Dana Zeff, Chief Disrupter at Unit Leader
- Nick Zamonis, Chief Architect at Unit Leader
- Richard Friedman, Managing Director, Client Service, Greystar
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