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Venture capital investment in proptech continued its downward trend as the dollar volume of funding dropped 77 percent annually in the first quarter of 2023. At the same time, though, the number of investment deals appears to be holding steady compared with 2022.
VC investment in the sector reached $1.69 billion during the first quarter of 2023, significantly lower than the $7.44 billion and $6.97 billion recorded during the same periods in 2022 and 2021, respectively, according to a new report from the Center for Real Estate Technology & Innovation (CRETI).
VC-backed proptech companies raised $19.8 billion overall in 2022, down 38 percent from 2021, as 2022 was the second-lowest investment year since at least 2018.
The total deal volume in the first quarter of 2023 also registered a drop, albeit a much slighter one. In 2023’s first quarter, 179 deals closed — nearly 14 a week. That’s roughly the same pace as 2022’s weekly average of 14, which produced an annual total of 728 last year.
The decline in dollar volume indicates a cautious approach by investors as they grapple with uncertainty in the real estate market and the broader startup ecosystem. Still, proptech remains an attractive investment opportunity due to the increasing adoption of technology in property, particularly in the construction sector, said Ashkán Zandieh, chair at CRETI.
“As we navigate the present proptech landscape, we are witnessing a shift in investor sentiment, with a focus on prudence in light of broader market uncertainties,” said Zandieh. “Nonetheless, the proptech industry has showcased its resilience, as investors remain committed to supporting strong companies, resulting in investments surpassing the $1 billion mark.”
Other industry experts expressed a “What, me worry?” view despite the report’s findings.
“We observed a slowdown in investment activity during the first quarter relative to the same period last year, but we continue to see capital available for outperforming companies in our space,” said Matthew Boras, senior vice president of Manhattan-based RXR Digital Ventures. “Despite expected near-term macro headwinds impacting startups across all industries, we are more excited now than ever by the investment opportunity presented by the trends driving technology adoption across the real estate and construction industries.”
Vince Cicciarelli agreed that investors have adopted a more cautious stance in the current market environment. He’s a partner at LPC Ventures, the strategic venture and innovation arm of Dallas-based Lincoln Property Company. But Cicciarelli sees a twist. “Startups are struggling to find the right capital partners. Good startups are still finding funding, but at much more reasonable terms than prior,” Cicciarelli said. “The others rarely can, unless it comes at a significant cost.”
However, it’s not only VC investors who are being cautious about proptech startups, as commercial real estate owners and operators are becoming increasingly resistant to piloting and deploying newer concepts, said Cicciarelli. He believes the current environment will separate the truly innovative proptech companies from the rest.
“I think now is where the category makers and true gems of proptech will be made, setting the foundation for what the future of proptech and innovation looks like for years to come,” he said.
Philip Russo can be reached at prusso@commercialobserver.com.
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