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Understanding the market, business models and investment opportunities in real estate tech
2
Things to like about real estate
Real estate is the largest asset class in the U.S. — the current value of the U.S. housing
1 stock exceeds $33 trillion, and more than 6 million transactions occur annually
Transactions are inefficient, expensive and involve multiple parties — thus creating an
2 opportunity for new buying models
There has been a historical lack of investment in technology in the real estate sector —
3 creating opportunities for new software-enabled businesses
Real estate is one the few industries where brokers have not been dis-intermediated —
4 commissions exceed $80 billion annually
3
Sizing the residential real estate market in the U.S. — our largest asset class
Today’s buying process takes 90+ days and intermediaries capture 6%-12% of home value
Time 30-90 days to find a home 10-30 days to secure a loan 30+ days to close a transaction
Annual Market
Size ($B)
$80B $15B $35B $10B $25B $20B
Source: National Association of Realtors, Mortgage Banking Association, Zillow Research, and Thomvest Research 5
Why is now the right time to enter the space? A few macro tailwinds…
95%
67%
37%
15%
6
Why is now the right time to enter the space? A few macro tailwinds…
Property & buyer data has been digitized Rising prices require new financing models
3 Startups can access & analyze rich real estate data
4 Home affordability inhibits growth in first-time buyers
212
20,000
138
200
7
These macro trends create opportunities for startups
Rise of non-banks
There are tremendous opportunities
for new entrants in real estate
Data drives efficiency
Affordability crisis
8
II. Defining the technology landscape
9
We’ve seen a proliferation of technology companies across every aspect of real estate Click here for high-res version
10
We’ve seen a proliferation of technology companies across every aspect of real estate Click here for high-res version
11
Real estate technology companies have evolved to “own” more aspects of the transaction process
Complexity of Offering
12
Multiple transformative business models are seeing success in the real estate sector
SaaS Supply
Demand
Product
Tech-Enabled
Demand Marketplace Supply Demand Marketplace Supply Demand
Marketplace Supply Service Provider
SaaS Product
Enables Transactions
Supply
Examples: BuildingConnected, Examples: Blend, CompStak, Examples: Airbnb, LiquidSpace, Examples: Compass, LoanSnap,
Eden, PeerStreet, Zumper Procore, SnapDocs, VTS Porch, RadPad, Roofr Mynd, Hippo
13
Venture activity in the category has increased dramatically…
$6B
$5.2B
$5B
$3B $2.9B
$2.02B
$2B
$1.65B
Through first 6
months of 2019
$1B
$489M $395M
$244M
$78M $60M $56M
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
Deal Count
100%
29%
80% 41%
46% 49% 49%
60%
67%
60% 19% 81% 81%
100% 100% 100% 12%
29% 14%
40% 17%
9%
12% 8%
6% 52% 7% 10%
20% 42% 3% 3% 12%
24% 25% 6% 5% 25%
23%
11% 10% 13%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
$1.8M $1.2M $900K $1.0M $1.1M $1.0M $1.2M $1.5M $1.2M $1.6M $2.3M $4.4M
$400M
$300M
$250M
$229M
$217M
$200M
$180M
$160M $161M
$145M $150M
$137M $142M
$131M $133M
Source: Pitchbook, as of 6/30/2019; Note: this analysis is inclusive of debt capital raised 16
18 companies have raised more than $250M in cumulative financing
$10B
$8.39B
$8B
$6B
$4.35B $4.4B
$4B
$2.42B
$2B
Source: Pitchbook, as of 6/30/2019; Note: this analysis is inclusive of debt capital raised 17
Median valuations for real estate tech companies are also on the rise
$19M $150M
$20M $18M $18M $19M
$126M
$113M
$12M $89M
$11M
$10M $75M $69M
$10M $8M $58M $57M
$7M $48M
$5M
'14 '15 '16 '17 '18 '19 '14 '15 '16 '17 '18 '19 '14 '15 '16 '17 '18 '19 '14 '15 '16 '17 '18 '19
100% 3% 4%
6% 8% 8% 10% 9% 8%
7% 19%
8% 11% 6%
14%
80% 17%
31% 27%
27% 30% 23%
27%
60% 22% 34%
21%
40%
Deal Count
Investments in
Firm HQ Stage AUM Notable Real Estate Technology Investments
Last 24 Months *
Metaprop New York Seed $40M BetterView, Bowery Valuation, Morty, Reside, Spruce, WhyHotel 17
Revolution Washington DC Late $1.9B Convene, Habito, HomeSnap, IdealSpot, Quilt, WhyHotel 8
Khosla Ventures Menlo Park Early-Mid $3.1B Bungalow, Cape Analytics, Opendoor, Roofstock, WanderJaunt 6
Founders Fund San Francisco Early-Mid $3.2B Bungalow, Cadre, Compound, Home61, Notarize 6
Andreessen Horowitz Menlo Park Early-Mid $7.1B Airbnb, Cadre, Divvy, FlyHomes, Opendoor, PeerStreet, Point 6
Greylock Partners Menlo Park Early-Mid $5.6B Blend, REZI, Ribbon, Sonder 5
Ribbit Capital Palo Alto Early-Mid $710M Figure, Goodlord, Habito, Juniper Square, LendingHome 5
Source: Pitchbook, as of 6/30/2019 * Only includes investments in real estate technology companies 20
III. Where do we see compelling opportunities?
21
In which categories will the next unicorns be formed?
22
Certainty as a Pain Point — The buying and selling experience is expensive, time consuming & stressful
Why Now?
- Abstract the complexity associated
with real estate transactions by acting
as a single platform for buying or The majority of homes purchased are Availability of data to accurately price
selling
found online homes
- These platforms revolve around a few
core concepts: search, inspection
pricing, financing & closing, which Percent of home buyers that found Median absolute percentage error
make up the ecosystem of certainty as their property online (MdAPE) of home valuation
a service
50%
13%
50% Lower Error
11% 6%
‘04 ‘06 ‘08 ‘10 ‘12 ‘14 ‘16 ‘18 Traditional Appraisal GeoPhy AVM
experience The company operates a brokerage that offers home buyers the
Employees: 129
Total Funding: $158M
ability to advance payment in cash to a seller, increasing the
likelihood of successfully closing a transaction. Last Financing: Series B, 8/19
Founded: 2013
Receive an instant offer to sell your home
Employees: 1,000
Opendoor offers an online home-selling service that aims to
Total Funding: $2.8B
streamline the sales process down to a few days by presenting
home sellers with an instant, all-cash offer for their property. Last Financing: Series E2, 3/19
Potential Challenges
- These models have not been tested in a negative housing environment; for instance, if home-buying demand
falters due to higher interest rates and stock-market volatility, the trend toward instant offers from institutional
homebuyers could face a serious test
“House of Debt”
Pain Point — Current housing finance models don’t meet the needs of many homebuyers
Alternatives - Availability of credit has tightened: the average FICO score for conventional loans in July 2018 was 751,
more than 100 points higher than average scores from 2004 to 2006
- Following the housing crisis, the home ownership rate fell to 62% in 2015, down from 69% in 2005
Companies developing novel
- The home ownership rate is particularly low among millennials — only one-third of Americans under
housing finance models 35 own a home
Why Now?
Founded: 2018
A debt-free home buying solution
Employees: 13
Instead of taking on a mortgage and debt, homeowners and
Total Funding: $12M
aspiring buyers can partner with Haus to buy what they can afford.
With this co-investing model, payments are 30% lower on average. Last Financing: Seed, 7/19
Founded: 2017
Smart loans designed with borrowers in mind*
Employees: 53
The company's mortgage services help consumers in buying or
Total Funding: $18M
refinancing a house by analyzing financial situations in seconds and
providing simple, tailored financing options. Last Financing: Series A1, 1/19
Potential Challenges
- These new financing models require significant consumer education, which may impact adoption
- There is a less robust universe of institutional investors for novel financing products, especially in a negative
housing environment
Arbitrage - Limited housing alternatives often tie individuals to a location and a job, which limits geographic
mobility — adults in the U.S. are moving at an annual rate (10%) that is at its lowest since the US
Census Bureau began collecting the data in 1946
Companies utilizing space in - Cap rates are decreasing amidst rising asset prices, driving landlords to identify opportunities to
novel ways to meet changing increase revenue per square foot
consumer demand
Why Now?
- The rise of home-sharing models
enabled property owners to better
utilize their asset and provide renters Consumers spend more time renting Consumers are facing a growing rent
with more flexible living options
prior to purchasing a home burden
- This is true of both short-term stays
and long-term living arrangements
Median years renting prior to home
ownership - In 2015, nearly 43 million American
households lived in rental units, an
increase of 9.3 million since 2004
6.0
- Since 2001, gross rent has
2.6 increased 3% a year, on average,
while income has declined by an
average of 0.1% annually
1975 2015
consumer demand Furnished homes for business travelers in urban areas. The
Employees: 406
Total Funding: $66M
company leases properties from homeowners, and makes them
available to corporate accounts. Last Financing: Series A, 3/19
Founded: 2016
Carefully curated living communities
Employees: 99
Designer of community homes intended to provide an optimized
Total Funding: $29M
layout, fully-furnished private rooms, shared living spaces and
included utilities. Last Financing: Series B, 3/19
Potential Challenges
- Many startups in this category take on master lease risk; while this limits their exposure relative to total property
value, there are still some concerns around the “inventory” requirements for scaling these businesses
- There are untested questions around long-term sustainability of companies in this space — is there existential
risk if market conditions change rapidly?
Better with
Pain Point — Legacy vendors waste home buyers valuable time and money
Software - Despite many technology advancements, closing costs still represent a meaningful share of total
transaction expenses in residential real estate
- Much of that cost directly enriches incumbents; for instance, title insurers only pay around 3 or 4
Traditional real estate percent of their premium dollars on claims, compared to upwards of 80 percent across other
offerings utilizing technology insurance products
for product & distribution
improvements over
incumbents Why Now?
for product & distribution Spruce integrates with lenders to provide title insurance and
Employees: 85
Total Funding: $19M
escrow services that radically simplify and enhance the closing
improvements over process for borrowers. Last Financing: Series A1, 7/18
incumbents
Founded: 2017
A better way to complete disclosures*
Employees: 13
Glide has developed a simple and streamlined process for
Total Funding: $4M
completing seller disclosures online and preparing a home listing
for sale. Last Financing: Seed, 5/18
Founded: 2012
Enabling banks to offer digital mortgage tools*
Employees: 406
Blend has developed a digital lending platform enabling financial
Total Funding: $314M
institutions to process loans faster, increase productivity and
deliver exceptional customer experiences. Last Financing: Series E, 6/19
Potential Challenges
- In many cases, incumbents have lock-in to the agency channel which has historically been the primary source
of referrals for services like title, escrow, insurance, etc.
- State-by-state (or even county-by-county) regulatory hurdles may impede growth
Real estate is inherently cyclical — most technology companies have not been
1 through a negative housing cycle
Real estate is a capitally intensive asset class — scaling businesses requires lots
3 of venture capital (see WeWork)
31
Thank You!
For more information, visit our website or contact the ‣ Why FinTech?
report’s author, Nima Wedlake.