The proptech investment boom that began amid the COVID pandemic has slowed, with start-up companies facing a tougher environment to raise money.
The fundraising slowdown spells trouble for fledgling start-ups, which are working on ways to innovate the real estate experience and the wider property industry.
Square Peg Capital’s Jethro Cohen (pictured, left) said investments into start-ups had fallen back to pre-COVID levels after a heady period of venture capital activity in Australia.
“I think what we’re seeing is that rates have fallen in investment back to levels that are kind of more in line with historical trends,” Cohen said.
“So when we look at the amount of capital committed this year relative to 2018-19, it’s sort of on that steady upward trend, with 2021 and parts of 2020 just being these incredible outliers.
“You know, rounds were getting done in days, not weeks. You would meet an investor and three or four days later you’d have a term sheet. And the amount of capital committed to start-ups in Australia was at an astronomically high level.
“That was, in many respects, amazing for the community, but was also really challenging for the community because investors and founders were forced to make decisions much faster than perhaps they historically had been.”
Innovation Bay’s Graeme Caplen (pictured, centre) said there was still a lot of interest in proptech start-ups.
“The money is there – if you look at the three big funds and how much they’ve all raised just in the last 12 months, it’s billions,” Caplen said.
“It’s the most that’s ever been. Across the different industries and sectors, the money is there, it’s just about getting it.
“The way that investors are looking at businesses now has changed, so it’s gone back to where it used to be.
“A lot of people have started businesses in the last three years, so they don’t really know how it used to be, but it’s sort of just gone back to what I’m more comfortable with.”
Cohen said some founders became more conservative in their storytelling amid tumultuous economic periods.
“They go back to early exit opportunities, and they’ll spend a lot of time outlining the very detailed market sizing analysis that they’ve done,” Cohen said.
“If you ask what gets investors very excited, it’s amazing people solving huge problems with a tremendous amount of excitement.
“So tell the story with the most amount of ambition and excitement and energy and insight as possible.”
Cohen said proptech start-ups should be thoughtful about the investor that they want to partner with as well.
“Not every investor is right for every business and there are lots of businesses that make sense for certain investors that don’t make sense for others,” he said.
“In this environment, just be really conscious that you want a partner who you work with for 10 years that understands you, your business, your ambition and the sort of problem that you’re solving.”
Cohen also advised proptech start-ups to keep in mind that core parts of the property experience were still really hard for consumers and businesses.
“When you’re telling the story, bring it back to what the really large problem that you are trying to connect to is,” he said.
“If the change that you are making is really fundamental to the way that people will live their lives or engage with property, sell that version of the story, don’t sell the sort of today version of the story.”
Cohen and Caplen spoke at Proptech Association Australia’s 2022 Proptech Forum held in Sydney.
More stories from Proptech Forum 2022
“I haven’t seen a spring selling season like it”: CoreLogic’s Owen
Proptech investment returns to pre-COVID levels in Australia
