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The PropTech Confidence Index is flying high: investors and start-ups are ready to bet on this sector

By Giuseppe Donvito, Partner of P101 | October 2nd, 2019

The PropTech industry is flying on top of the world. And it will continue to do so in the near future. At least these are the expectations of investors and start-ups about one of last year’s most innovative industrial sectors. We talked about it here, also describing the debut of P101 in this industry. The Global PropTech Confidence Index is a report by Metaprop (a New York based Venture Capital company specializing in PropTech), the Royal Institution of Chartered Surveyors (RICS – a global professional body that promotes and applies the highest international standards in the assessment, management and development of land, property, infrastructure and construction) and the Real Estate Board of New York (REBNY – the leading trade association of real estate operators). The Index has surveyed the sentiment of investors and start-ups about Proptech.  The Index is published twice a year and is based on a survey among a sample of PropTech investors and start-ups, in order to test their enthusiasm for the sector. In the latest update – which concerns the first half of 2019 – the investors’ confidence reached a record-breaking 8.8 index (on a scale to 10) driven by expectations of more M&As and by the entry of ever larger and more numerous investors. Another interesting fact that emerges from the report is that the average number of investments carried out by respondents is 4.8: it’s a further confirmation of a positive sentiment. Also the real estate technology start-up confidence index matched an all-time high of 7.3: in this case, their positive sentiment is driven by their revenues and profits, which have grown significantly in the last 12 months, increasing the prospects for these start-ups to be acquired, go public or have a major liquidity event in the next 3 years (up significantly from 28% YoY). But that’s not enough: in mid-2019, 96% of PropTech investors (compared to 87% at the end of 2018) expected that acquisitions would increase in the coming 12 months and 80% of start-ups believed that in the same period of time it would be easier to raise capital (compared to 73% at the end of 2018).

In short, it’s the golden age of PropTech. And there’s more room for growth: especially in Asia and Australia, where the market is still underdeveloped. In general, especially in North America and in developed markets, the investment space is becoming more competitive with the entry of larger funds and new investors, which should lead to increased valuations as well as to a higher number of deals. The only drawback that could hold this positive trend is the uncertainty about the upcoming US elections, which will be felt starting from the last months of 2019. However, this is the best time to enter the sector, if it is true that 64% of investors plan to invest more in the next 12 months and 27% won’t cut on their investments. The most interesting area appears to be smart buildings (36%) followed by construction & architecture (25%) and by finance & investments (23%). 68% of investors think that PropTech companies will meet their expectations in terms of customer growth and 23% of them think they will succeed expectations.

Proptech start-ups CEOs share this opinion: only 16% of them do not expect their company’s profits to grow, while 28% of them believe they will double or triple them, and 25% believe they’ll see them grow 5 times in a year. It is no coincidence that 86% of start-ups believe they will hire from 1 to 20 people over the next year.

Let’s analyse which are the start-ups of this investigation: almost half of them have been operating for 1 to 3 years; 28% of them for 3 to 5 years. Only 11% of them are in their first year of life. Most of them employ from 6 to 20 people (32%); 27% of them employ less than 6 people; and 15% of them only consist in their founders. The annual revenue of half of the interviewed start-ups ranges from 100.000 to 3 million dollars; 23% of them have a lower revenue than 100.000 dollars and 14% of them have no profits. 56% of them are based in the US and 26% in Europe.

As mentioned, P101 debuted in the PropTech sector at the end of 2018 through its second fund Programma 102, with an investment of 2 million Euros in HABYT, a housing-as-a-service start-up. HABYT was founded in Germany in 2017 by Luca Bovone, one of the first Dropbox managers in Europe. It started in Berlin from just one accommodation and today it manages a co-living network that aims to expand beyond Germany and in particular into the Italian, Portuguese and Spanish markets. The start-up’s core business is a platform that provides housing solutions for young professionals and that simplifies the process of choosing and using accommodations.