After killing more than 150,000 Americans and sending the economy into free fall, the coronavirus pandemic has also now sapped investors’ confidence in the real estate technology ecosystem, according to a new report from venture capital firm MetaProp.
The report is based on a startup founder and investor survey, the results of which were compiled into an “Investor Confidence Index” and a “Startup Confidence Index.” This time around, the Investor Confidence Index was just 5.9 out of 10. That represents a 33 percent drop in confidence compared to last year.
That’s also the lowest Investor Confidence Index finding the survey has come up with in nearly five years.
A graph showing MetaProp’s confidence indexes since 2016. Credit: MetaProp
The Startup Confidence Index was just 4.7 out of 10, the report also reveals, which is a drop of 35 percent compared to six months ago.
In both indexes, any result above five indicates confidence in the sector, and anything below five indicates a lack of confidence. This is the first time the Startup Confidence Index dropped into “not confident” territory.
When it comes to investors, the report states “that decreasing deal flow, extreme market volatility, and a momentous presidential election brings added uncertainty to the space.” Among startups, WeWork’s failed initial public offering has also apparently “tempered expectations.”
The coronavirus is additionally to blame for falling confidence.
“The global pandemic has negatively impacted founders’ expectations to raise capital, as well as scaled back sales growth targets across most of the industry,” the report states.
Aaron Block, MetaProp’s co-founder and managing partner, also pointed to the pandemic in a statement.
Aaron Block
“Over the past six months, the proptech ecosystem’s strong tailwinds suddenly turned into gale-force headwinds thanks to a combination of the COVID-19 health crisis and the stress it placed on the world’s supply chain, a broad real estate market downturn and a severe global economic slowdown,” Block said.
Other data points that hint at a generally tougher landscape include the finding that 56 percent of startups believe it will be harder to raise venture capital over the next year, compared to only 19 percent who thought the same thing at the end of 2019; that only 33 percent of investors expect to make more real estate technology investments over the next year, compared to 64 percent last year; and that 46 percent of investors think they’ll see more pitches over the next year from real property tech companies, compared to 64 percent who expected more pitches last year.
But the report isn’t all doom and gloom, and there are some positive signs as well. Perhaps most notably, 89 percent of investors and 84 percent of startup founders believe the pandemic is accelerating the adoption of real estate technology. If they’re right — and anecdotal evidence from the field suggests they are — that would likely mean the trend toward greater investment in the space will continue, a speed bump during the pandemic notwithstanding.
Block was also overall upbeat, saying in the report that “there is cause for optimism” and “we are still early in the real estate industry’s technology adoption evolution.”
“Some have coined it….’The Great Disruption’ with longer term views around PropTech adoption and acceleration stronger than ever,” Block added.
The survey on which the report is based was sent to 2,500 investors and startup founders. The firm told Inman it received a record number of responses, though it declined to say exactly how many.
MetaProp compiled the report in partnership with the Real Estate Board of New York (REBNY) and The Royal Institution of Chartered Surveyors.
The report also breaks down some of the strategy plays investors and startup founders think they’ll make in the near future. Among other things, the findings reveal that investors are most interested in companies focused on smart buildings. Investors are also primarily interested in seeing innovation in office real estate, followed by multi-family housing and senior housing.
Most investors further indicated an interest in investing in startups at the seed funding stage.
Among startups, half of the respondents said that between 67 percent and 100 percent of their teams will continue working from home over the next year.
That last finding suggests the impacts of the pandemic will, to some extent, linger. But Block at least envisions a stronger industry emerging on the other side of the crisis.
“I’m confident that these unusual and trying times,” he said in the report, “will lead to even more new technologies, new investment successes and new business models for our industry.”
Read the full report here.
