The State of Proptech Funding - Proptech Weekly #28

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Friends, Feudal Landlords and Commoners, 

I've made no attempt to hide my contempt for the paltry investment levels in UK Proptech.

Real Estate is the biggest asset class in the UK.

Even if you strip out commercial (800bn), buy-to-let (1.2tn) and industrial, residential property in the UK is worth more than 2x the market value of all equities in the UK.

That's over 4 trillion pounds sterling!

And what about revenue: estate agents in the UK made an estimated 5 billion in fees last year (my back of a fag packet calculation. And that doesn't include income from lettings and management).

I've been waiting to write the post-mortems for Rentify and Movebubble, two of the better funded start-ups trying to get a piece of that agency revenue pie.

Neither have anything close to product/market fit, regardless of the millions spent.

However, it's a testament to the exceptional entrepreneurs that George Spencer and Aidan Rushby are that both continue to push back the obituary writers by successfully raising additional funds to chase the disruption dream.

That is, after all, the primary role of a CEO: keep the company capitalised.

And this is why the raft of seed funding we've seen in the last year has been so encouraging.

Seedcamp, Episode1 and LocalGlobe have all made a clear statement of intent by funding the likes of Realla, Landtech, Splittable, Trussle, Homeshift and Property Partner.

What's interesting is the real breadth these companies cover across the industry: Commercial real estate marketing, sourcing land, renters managing household expenses, applying for a mortgage, (I have no idea what Homeshift does; I'm sure it's useful) and investing in property from as little as 50 quid.

But apart from Dan Gandesha of Property Partner, none of these (capable) start-up founders has raised enough money to move the needle.

There is currently a massive gap between seed funding and growth/scale-up capital (A rounds in investor parlance).

There's an argument that most of these companies aren't raising enough seed capital to deliver sufficient proof to seal A round financing.

Of the VC funded Proptech in the UK, only Realla has a viably scalable business model and (currently) only LandTech is building technology you could claim will 'change the world'.

Beyond these two, where will the revenue or sexiness come from to seduce investors into drinking the cool aid and following on with substantially more capital?

US investors do drink the cool aid by doing this funding innovation/disruption thing so much better.

Commercial real estate marketing start-ups in the US like VTS and Hightower have raised 10s of millions of dollars. Each.

Crowdfunding start-ups have raised an aggregate of well over $100m.

Robo-mortgage advisors are being built by the massive incumbents, to prevent start-ups from getting in on the act.

Even tech-enabled estate agents in the US, like Compass and Redfin, have massive $100m+ war chests to lure the very best staff away from the 'traditional' industry.

It's easy to blame UK VCs for being so small minded in their ambitions. And there should absolutely be some blame laid at their feet.

Episode1 have taken a more serious view than the undercapitalised Spire Ventures, which has been spending more time advising than funding.

Robin Klein, Partner at LocalGlobe, made himself a lightening rod for Proptech Start-ups with this widely shared editorial in CityAM (my favourite newspaper - they actually print news!).

Even Seedcamp, spurred on by former Emoover Taylor Wescoatt, is taking a 'view' on Proptech and making lots of investments across the 'value chain'.

But they're investing such tiny sums of money. It's embarrassingly small.

You have to feel sorry for the investors though. 

Which start-ups would you really back with a significant amount of capital?

The few that are dominating their niches, Fixflo and Openrent, didn't raise from traditional VC.

Both struck commercial partnerships that helped skyrocket their businesses. 

Yet neither would have fit the $100m revenue profile required by VC funding.

I'd posture investors missed a trick by not backing arguably the most intelligent founders in Proptech today.

But where else should investors look?

You could do some private equity type consolidation with the old guard CRM providers like REAPIT and Property Software Group. They make money, are in little danger of being displaced but have zero growth. 

The real answer comes from asking the question: are there any Proptech start-ups or start-up founders in the UK that make you go "woah"?

And before you stick up your hand Kenny, "woah" means as ambitious as Opendoor in the US.

What makes Opendoor special?

Instead of putting a pretty UX on the existing processes, they're re-inventing the entire process of selling a home.

It's obvious when shown the potential, to see the difference between innovators like Opendoor and everyone else (people with piddly amounts of cash to hire devs and designers aimlessly).

But this article really sums up the 'why': Mondo will blow Atom out of the water

To save you clicking, the author talks about two of the new 'mobile banks'.

On the one hand you have Atom. Massively funded, run by an ex-banker and already in receipt of their banking license.

Then you have Mondo. Founded by one of the GoCardless Mafia, they are re-writing the whole banking tech stack to serve customers differently.

There was another company that famously coined the term 'Think Differently'.

They are currently the biggest company in the world. They changed computing, music, phones and then went back to changing computing again.

What does it mean to think differently?

It's no coincidence that Fintech could be the saviour of Proptech.

Traditional mortgage finance lends over 3 billion pounds a month in the UK.

Property crowdfunding is pointing the way to alternative finance for buying property.

Right now companies like Property Partner (equity) and Lendinvest and Landbay (debt) serve those looking to invest.

But there's no reason why owner occupiers couldn't give banks the finger and tap the crowd as co-owners in their home.

The draw of helping someone realise their dream coupled with the safety perception of property investing could be the next big thing.

And there's no shortage of companies looking at this space.

Passion Capital funded Homefund which is renaming itself to Native. 

Housing Associations and private property funds are looking to tap pension fund money to supercharge shared ownership and build-to-rent.

And I'll be shortly launching The Unmortgage, to help people buy a home without a mortgage and open up the 4 trillion pounds of owner-occupied real estate in the UK as an asset class suitable for institutional investors.

What does this have to do with the state of Proptech funding in the UK?

I'll be raising from my customers, not from VC.

And I think you should be doing the same.

Please feel free to relay news, tips and comments @RayhanRESI 


Rayhan's PropTech Weekly XXVIII

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Digital mortgage broker Habito raises from Mosaic (Telegraph)

This goes to the core of the re-inventing vs sticking UX on top of existing infrastructure. Trussle aims to change the way you manage your home finance - remortgaging automatically when you're not on the best rate - whereas Habito just wants to turn your mortgage broker into software: Link
It amuses me no small amount when VCs overvalue their investments by saying "bringing into the 21st century": Link
Aviva Ventures backs home improvement site Opun (TechCityNews)

Good raise, bewilderingly niche product. Certainly not as sexy as DAD. Here's the release on Opun's raise: Link

WeArePopup closes its doors

Nick Russell and Dr. Alastair Moore had a grand vision for the future of commercial real estate. Here's hoping that vision crops up in the future, after they've had time to mourn WAPs passing: Link

Estates Gazette Proptech news portal

An impressive collection of Proptech news and commentary, with more promised in the near future: Link

How Airbnb lost its soul (

It's no small irony that the newspaper for the financial industry bemoans Airbnb for caring more about making money than sticking true to its social roots. But a thought-provoking piece of writing none-the-less: Link

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