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The Real Estate Technology Landscape

Understanding the market, business models and investment opportunities in real estate tech

Thomvest Ventures Research September 12019


I. Why should we care about the real estate sector?

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

122 million $33T 1.2 million


Occupied housing units across 
 Aggregate value of existing New residential construction
the U.S.1 housing stock in the U.S.2 starts per year3

6 million $1.4T $1.6T


Annual residential real estate Aggregate value of annual U.S. Annual mortgage originations
transactions in the U.S.4 home sales5 (purchase & refinance)6

1. As of 2017; Source: American Housing Survey


2. As of 2018; Source: Zillow Research
3. As of 2018; Source: U.S. Census Bureau
4. As of 2018; Includes both existing and newly constructed home sales; Source: NAR & U.S. Census Bureau
5. As of 2018; Source: National Association of Realtors
6. As of 2018; Source: Mortgage Bankers Association 4
Intermediaries lead to slow & expensive transactions

Today’s buying process takes 90+ days and intermediaries capture 6%-12% of home value

Consumer Realtor Mortgage 
 Mortgage
 Appraisal & Title & 
 Investors


Broker Lender Inspection Insurance

Time 30-90 days to find a home 10-30 days to secure a loan 30+ days to close a transaction

Cost 6% transaction 1% transaction 2% transaction 0.5% transaction 1.5% transaction

Annual Market 

Size ($B)
$80B $15B $35B $10B $25B $20B

Market
 100 major lenders 2 GSEs


Participants
1M agents 300K brokers 4 major title cos
20K total 10 major investors

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…

Consumers prefer digital experiences Banks no longer dominate in mortgage


1 Rapid generational acceptance and use of digital devices
2 Originations have shifted to smaller, non-bank lenders

Percent of Buyers Using Internet % of Originations by Non-Bank


in Home Search Process or Small Lenders
(Source: National Association of Realtors) (Source: Inside Mortgage Finance)

95%
67%

37%
15%

‘06 ‘08 ‘10 ‘12 ‘14 ‘16 ‘18 2010 2016

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

Number of data points used 
 Case-Shiller National



for market forecast Home Price Index
(Source: Forbes) (Source: S&P CoreLogic)

212
20,000

138
200

Case-Shiller HouseCanary ‘08 ‘10 ‘12 ‘14 ‘16 ‘18

7
These macro trends create opportunities for startups

Prefer digital experiences

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

The Four Phases of Real Estate Technology

The Full Stack Era

The Tech-Enabled Era COMPANIES

The Lead Gen Era COMPANIES


Value Captured

The Point Solution Era COMPANIES DESCRIPTION


Companies manage the end-to-end
transaction process, from property search
to financing, closing and ongoing
COMPANIES DESCRIPTION management.

Companies building digital-first These companies take a more “asset


experiences that streamline many of the heavy” approach to the market than their
DESCRIPTION workflows associated with brokerage, predecessors by taking on some purchase
DESCRIPTION financing a home or property or leasing risk.
Sites aggregate real estate listings.
Solve specific problems, usually for a management.
Visitors who indicate interest in a specific
single party in the transaction flow. property are passed on to agents.
STAGES OWNED
STAGES OWNED
As the name implies, these companies
STAGES OWNED STAGES OWNED
Begin at search, but also take a seek to manage every stage of the
Single stage, such as payments Typically the upfront search process percentage of transaction revenue transaction.

Complexity of Offering

12
Multiple transformative business models are seeing success in the real estate sector

SaaS-Enabled 
 Networked
 Pure
 Asset-Light,



Marketplaces SaaS Marketplaces Tech-Enabled

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

The real estate sector requires collaboration amongst multiple stakeholders,


which enables network-driven business models

13
Venture activity in the category has increased dramatically…

U.S. Real Estate Technology VC Investment by Year



(in Billions, USD)

$6B

$5.2B
$5B

$5.8B run rate for


$4.03B full year 2019
$4B
$3.58B

$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

19 21 30 48 84 136 212 217 243 267 292 125

Source: Pitchbook; as of 6/30/2019 14


And round sizes are trending upward

VC Investment Distribution by Financing Amount



(% of Total Capital Raised)
WeWork & Airbnb
raised $3B and $1B in
$0 - $25M >$25M - $50M >$50M - $100M $100M+ 2017, respectively

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

Median Deal Size

$1.8M $1.2M $900K $1.0M $1.1M $1.0M $1.2M $1.5M $1.2M $1.6M $2.3M $4.4M

Source: Pitchbook; as of 6/30/2019 15


17 companies have raised between $100M and $250M in cumulative financing

Cumulative Financing of U.S. Real Estate Technology Companies



(in Millions, USD)

$400M

$300M

$250M
$229M
$217M

$200M
$180M
$160M $161M
$145M $150M
$137M $142M
$131M $133M

$103M $104M $104M $106M


$100M
$100M

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

Cumulative Financing of U.S. Real Estate Technology Companies



(in Millions, USD)

$10B

$8.39B

$8B

$6B

$4.35B $4.4B

$4B

$2.42B

$2B

$1.09B $1.11B $1.14B


$837M
$433M $573M
$270M $305M $306M $307M $314M $326M $335M $410M

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

Median Post-Money Valuation by Company Stage



(in Millions, USD)

Seed Series A Series B Series C


$40M $300M
$280M

$30M $30M $227M


$30M $225M $215M
$200M
$179M

$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

Source: Pitchbook, as of 6/30/2019 18


Venture deals in the category are trending later stage

VC Investment Distribution by Stage



(% of Deals)

Seed Series A Series B Series C or later

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%

60% 62% 57% 55% 50% 55%


20% 44%
37%

2012 2013 2014 2015 2016 2017 2018 H1 2019

Deal Count

84 136 212 217 243 267 292 125

Source: Pitchbook, as of 6/30/2019 19


There are several active real estate technology investors

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

AlphaFlow, Disclosure.io, Openland, RealtyBits, REZI, Riley,


Y Combinator Mountain View Seed $770M 17
SmartAlto, Starcity,

Blend, Convene, Eden, Enertiv, Industrious, Lyric, Notarize,


Fifth Wall Ventures Los Angeles Early-Mid $377M 11
Opendoor, VTS, WiredScore

Agentology, Envoy, GeoCV, Homebot, HomeSnap, LeaseLock,


Moderne Ventures Chicago Early $42M 10
Preclose

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?

Certainty 
 “House of Debt” 
 Space
 Better with 



as a Service Alternatives Arbitrage Software

Companies improving the Companies developing Companies utilizing Companies leveraging


home buying & selling novel housing finance space in novel ways to technology to improve
experience models meet changing demand the transaction process

22
Certainty as a Pain Point — The buying and selling experience is expensive, time consuming & stressful

Service - The buying process takes 90+ days


- Intermediaries capture 6%-12% of home value
- There average consumer takes 4.3 months to buy and 2.8 months to sell a home
Companies improving the
home buying & selling - The average transaction cost is $20K
experience

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

Source: National Association of Realtors Source: GeoPhy and MSCI


Certainty as a Companies of Note

Service All-cash offers to ensure successful transactions Founded: 2017


Employees: 48
Ribbon enables home buyers to bid with cash backing, earn
Total Funding: $229M
discounts, guarantee a move-in date and secure financing before
or after the closing. Last Financing: Series A, 10/18
Companies improving the
home buying & selling Brokerage combined with all-cash offers Founded: 2015

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?

Record home prices prevent many For existing homeowners, wealth is


potentials buyers from transacting concentrated in their home value

Housing wealth by loan-to-value ratio


- 58% of U.S. adults say they would
have trouble finding a home they Over 60% LTV
$3.1T
could afford in their city or county. 28%
- Authors Atif Mian and Amir Sufi argue
that the financial system must move - An average wage earner would not
away from its reliance on inflexible qualify to buy a median-priced home 72%
debt contracts in 368 of 440 counties analyzed * Below 60% LTV
$7.9T

Source: ATTOM Data Solutions Source: Housing Finance Policy Center

* Based on a 3% down payment and a maximum debt-to-income ratio of 28%


“House of Debt” 
 Companies of Note

Alternatives Sell a fraction of your home Founded: 2005


Employees: 151
Unison opens the door for more people to buy and own the home
Total Funding: $90M
they want with less debt through its HomeBuyer and HomeOwner
programs. Last Financing: Series B, 7/18
Companies developing novel
housing finance models Lease-to-own home buying platform Founded: 2017
Employees: 40
Provider of a home ownership platform intended to allow renters to
Total Funding: $37M
build equity credits as they rent, enabling clients to close the
housing affordability gap. Last Financing: Series A, 10/18

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

* Note: LoanSnap is a Thomvest portfolio company


Space 
 Pain Point — Consumer preferences have changed, and traditional rentals are insufficient

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

Source: Zillow 2015 Home Buyers Survey Source: Pew Research


Space 
 Companies of Note

Arbitrage Flexible term co-living units in large complexes Founded: 2015


Employees: 154
The company rent out rooms in furnished and shared apartments
Total Funding: $65M
on flexible lease terms for a members-only community without any
broker fee. Last Financing: Series C, 12/17
Companies utilizing space in
novel ways to meet changing Residential units converted to corporate housing Founded: 2011

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?

Consumers have expressed a willingness The cost of producing loans has


- Several companies have emerged that
manage one or more aspects of the to use digital mortgage tools increased, impacting profitability
transaction process, including: data
collection, appraisal, inspection, title,
escrow, insurance, & notary Per-loan production expense amongst
- 79% of homeowners say they would U.S. mortgage originators
consider completing the entire loan
application process online
$8,082
- 81% of borrowers prefer online loan
$5,137
solutions, and 87% believe that those
online solutions are faster than
traditional processes
2012 2017

Source: Boston Consulting Group Source: Mortgage Bankers Association


Better with 
 Companies of Note

Software Shared platform for managing closings Founded: 2015


Employees: 226
Qualia develops cloud-based real estate transaction management
Total Funding: $40M
software designed to simplify the real estate closing process.
Last Financing: Series B, 10/18
Traditional real estate
offerings utilizing technology A digital-native title company Founded: 2016

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

* Note: Glide and Blend are Thomvest portfolio companies


What are some of the risks associated with investing in real estate technology?

Real estate is inherently cyclical — most technology companies have not been 

1 through a negative housing cycle

Real estate is operationally intensive asset class — yet to be seen if software 



2 can drive meaningful efficiencies & automated labor-intensive processes

Real estate is a capitally intensive asset class — scaling businesses requires lots 

3 of venture capital (see WeWork)

The transaction process is inherently complex relative to other asset classes — 



4 not all purchases can be brought online due to asset heterogeneity

31
Thank You!

About Thomvest Ventures Additional Research from Thomvest


Thomvest is a cross-stage venture capital with offices in ‣ Market Map: 140+ Real Estate Tech Companies Transforming
San Francisco and Toronto. Our firm has invested more than the $32 Trillion Housing Market
$500M since its founding, and we primarily focus on
opportunities in the fields of real estate technology, ‣ Market Map, Part Two: 170+ Technology Companies
financial technology, cybersecurity and cloud Reshaping Commercial Real Estate
infrastructure. The capital we invest is our own, enabling us
to be more creative, flexible and patient with our ‣ The Evolution of Crypto and Blockchain — a VC Perspective
entrepreneurial partners.

For more information, visit our website or contact the ‣ Why FinTech?
report’s author, Nima Wedlake.