COMMENT No-one can deny that we are in the midst of a time of great uncertainty, but I hope to offer a green shoot of optimism by setting out the reasons why built world technologies – innovations that are transforming how we build, own, experience, live in and work in the built environment – have a bright future.
The sustained and consecutive growth trajectory of venture capital flowing into the sector over the past five years has undeniably put the category on the radar of major institutional investors globally, notwithstanding this most recent slowdown.
Data from Pitchbook shows that annual proptech and contech investment levels rose from a modest £5bn in 2016 to £18.5bn by 2021. At this stage in the market cycle, it would be unrealistic to expect 2022 figures to continue that unfettered upward trajectory, but we should take comfort from being able to attribute the expected cooling down to external macroeconomic factors, rather than on the growth potential or scalability of the sector itself long-term.
From our vantage point, after making over 70 investments since 2015, investment in this “specialist” sector is increasingly crossing international borders, while also attracting interest from an ever-broader range of investors. We are seeing more and more global generalist VCs and institutional investors moving into the space for the first time. This has been supported by a growing acceptance of the progressive digitisation of the real estate industry, as real estate owners and operators move forward on their technology adoption journey.
Ripe for outsize investment returns
As pilots and trials convert into larger-scale deployments, start-ups are turning into well-capitalised scale-ups, attracting further capital. As is customary for the tech space, there is a huge gap between those that execute and ultimately attract capital, customers and talent and those that fall by the wayside. This disparity creates an environment ripe for outsize investment returns, for those with the expertise to identify and back winners.
We have seen the emergence of a greater number of globally scalable tech companies in real estate, achieving later stage, and higher value, funding rounds. This includes property management tech platform Plentific closing a $100m (£83m) series C round last year, making this European proptech’s largest full-equity VC round to date. The round was also noteworthy insofar as it included cross-border capital from Canadian real estate group Brookfield, as well as institutional capital from Mubadala (a UAE sovereign wealth fund). The company is now active in the UK, Germany and the US.
Another high-growth platform, LandTech, raised more than £40m last year from Washington DC-based Updata Partners to expand from the UK into the US market. Other global scale-ups emerging from Europe include Office RND, a flexible workplace management tool, which last year closed a $10m funding round and is the leading flexible office platform in Europe, North America, and Asia.
Environmental and net zero goals
Growing tech companies such as Demand Logic and Qualis Flow, for example, are focused on fast-tracking towards environmental and net zero goals, using data, monitoring and analytics to ensure sustainability-driven decision-making and impact reporting. Applications range from individual construction programmes and building management to urban planning and infrastructure. Elsewhere, cleantech firms such as Airly, that are dedicated to urban air quality monitoring, are helping to create healthier, cleaner cities.
Socio-economic factors such as the rising inflationary landscape and housing shortages have helped to forge firms like Generation Home, who are trying to democratise the complexity and inaccessibility of the housing market to help bring financial security and affordability to a highly unaffordable housing sector.
Despite macroeconomic headwinds, we believe many more category-defining tech start-ups are on the way and are evolving their offer during a time of extraordinary societal shifts and a market that is hungry for solutions.
It is our view that some of the early-stage start-ups tinkering away with AI, machine learning, blockchain, and robotics will break out from the pack and emerge as the new tech super brands transforming the future of our built world. As a long-term investor finding and backing these companies, we are just as impatient and ambitious for change as our founders, and proud to be supporting them on their journey.
Faisal Butt is managing partner and founder of Pi Labs
