Where top VCs are investing in real estate and proptech (Part 2 of 2)

In part two of our survey that asked top VCs about the most exciting investment areas in real estate, we dig into responses from 10 leading real estate-focused investors at firms that span early to growth stages across real estate specific firms, corporate venture arms, and prominent generalist firms to share where they see opportunity in this sector. (See part one of our survey.)

In part two of our survey, we hear from:

Update: We have revisited our real estate and proptech survey to see how COVID-19 has impacted the market. Please see our survey update here.

Connie Chan, Andreessen Horowitz

What trends are you most excited in real estate tech from an investing perspective?

While most people think about real estate tech from the transaction perspective, I believe that every single part of the real estate value chain is ripe for disruption. On the construction and home maintenance side, we are facing an aging population of contractors, electricians and plumbers. As fewer people enter the trade, this is a great opportunity for a startup. Rentals are offline and fragmented, with the majority of renters still paying their rent with cash or check.

As low-interest rates hold, many homeowners could be refinancing their homes, but aren’t simply because of the lack of financial education. People want to live in beautiful spaces, but everyone needs help with the design and remodeling process. Younger generations in particular are shocked and lost when they learn how many vendors and contractors they need to interface with for a simple bathroom or kitchen remodel. At the end of the day, we end up having to go back and forth with service providers in person because there are major information gaps online, just like in medicine. It’s hard for homeowners to know who to listen to and who to trust.

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right? 

A third of my time is spent thinking about startups tackling real estate — this includes everything from construction to financing to rentals and home improvement. The amount of money spent in real estate is enormous, and the data and tools we use today are still based on insights from a decade ago.

When I polled colleagues on what they would do if a toilet broke, the answers ranged from: Google, YouTube, Yelp and “calling my mom.” We spend so much money on the way and place we live, and it’s nuts that there isn’t more technology to support it. Yes, we turn to Zillow or Redfin when searching for a home to buy or rent, but what about everything that happens before and after that?

The market is not over-heated in the least. However, I do believe investors are starting to treat real estate tech companies differently than tech-enabled real estate companies. In the past few years, that nuance was less clear, but recent market events have forced investors to focus more on gross margins and software’s ability to scale.

Are there startups that you wish you would see in the industry but don’t?

I’d love to see more companies foster community. Decades ago we hung out with our neighbors, but today, many of us can’t even recall their names. Technology can help connect residents in a building, or neighbors down the street — mapping out our geography-based social networks. I’d also love to find more companies that are using different kinds of signals to assess risk, whether it’s to replace the credit score for a rental screening or to help someone qualify for a mortgage. Chinese fintech companies in particular have been experimenting with using other signals besides a credit score to evaluate how responsible someone might be.

Plus any other thoughts you want to share with TechCrunch readers

If we think that the transportation industry is big, just wait until we realize the size of the real estate market!

Brendan Wallace, Fifth Wall

How has the real estate technology ecosystem changed in the last 3 years? 

When we started Fifth Wall three years ago, VCs and even prospective LPs would frequently ask us ‘What does real estate technology mean? Isn’t that very niche? How are you going to invest $212 million into real estate technology? ” At the time those felt like legitimate questions; in retrospect, they reflected that the venture ecosystem hadn’t truly appreciated the enormity of the opportunity in real estate technology. The fact that those questions felt valid only a few years ago tells the story of how the real estate technology ecosystem has evolved, expanded, and institutionalized.

In the last three years, real estate technology has arguably created more enterprise value and spawned more unicorns than any other single industry sector in venture capital. Fifth Wall was fortunate to make early investments in many of those transformative businesses, such as Blend, Hippo, Loggi, Lime, Opendoor and VTS. In the first half of 2019, $14 billion was invested into real estate technology from the VC community. Even though Fifth Wall’s newest $503M fund is the largest in the category, it nonetheless represents a very small percentage of total venture capital invested into real estate technology.

What spawned this growth in real estate tech over the last 3 years? 

It’s not surprising that technology for the real estate industry would become one of the largest and most attractive categories of venture capital. Real estate is the single largest industry in the U.S., yet historically has been one of the lowest spenders on IT. The industry was (and to a great extent still is) known as being a late adopter of technology solutions. I would characterize the last five years as being an ‘Age of Enlightenment’ for major real estate owners, operators, and developers: CIOs were hired for the first time, large IT budgets have been allocated and are growing, and almost every major real estate owner now recognizes that adoption of new technology is existentially critical to their future strategy.

In part, this realization explains the dramatic growth in the number of corporate investors in Fifth Wall: just two years ago Fifth Wall managed $212M from nine North American real estate corporates, today we manage over $1 billion invested by more than 50 corporate strategic partners from eleven countries. To put it simply, when the world’s largest industry suddenly decides to adopt technology, you can expect a lot of value to be created. And it’s only just begun.

Are generalist VCs investing more in real estate technology? 

Generalist VCs have been pouring capital into real estate technology companies, especially in the last few years. However, not all of those investments have performed well, and there’s usually one simple reason for that: distribution is absolutely everything for real estate technology startups. Getting large real estate corporates to adopt a new technology is often deterministic. In addition, generalist VC firms typically lack the deep real estate relationships and domain expertise to drive distribution and adoption of emerging technologies.

This is why Fifth Wall raised its capital from the largest partners and customers of the very technologies in which we’re investing. Fifth Wall wanted to be the connective platform to link new, emerging real estate technologies with the corporate partners that could serve as the commercial distribution lanes for them globally. A perfect example of this would be the strategic partnership and investment Fifth Wall orchestrated between homebuilder Lennar, one of Fifth Wall’s strategic investors, and Opendoor.

Are more real estate corporates forming their own venture capital arms?

There are more CVC (corporate venture capital) arms at real estate companies than there were three years ago, but they haven’t generally performed well, strategically or financially. Real estate organizations can be especially slow-moving and bureaucratic, making it difficult to attract great venture investment talent. CVC is inherently hard to execute well — in any industry — and for an ‘Old World’ industry such as real estate, CVC arms seem especially challenged.

Fifth Wall is increasingly finding that real estate owners are electing to become a part of the Fifth Wall consortium as we can now offer more distribution to any startup that any single corporate investor can offer investing on their own. Similarly, public market investors also have become critical of publicly-traded real estate corporates starting their own venture arms and have instead favored large real estate investment trusts (REITs) investing in consortium-based funds like Fifth Wall and others. I would expect this trend to continue as more real estate corporates are looking to partner with dedicated consortium-based real estate technology funds as opposed to maintaining their own CVC arm.

What trends are you most excited in Real Estate tech from an investing perspective?

We think there is a profound and exciting opportunity right now at the intersection of real estate technology and sustainability. Real estate owners are incredibly exposed to sustainability risks: the industry consumes 40% of all energy globally, emits 30% of total carbon dioxide, and uses 40% of all raw materials.

There is significant and growing regulatory pressure at both the local and federal levels to make all buildings net-zero carbon: look to Los Angeles and NYC’s recent legislation for two salient examples. Consumers and tenants of buildings are increasingly demanding heightened environmental standards for real estate assets. And finally, institutional investors are increasingly imposing sustainability requirements around their capital deployments.

Meeting the demands of stakeholders (regulators, tenants, and investors) is going to be an extraordinarily heavy lift for the real estate industry over the next decade, and effectively leveraging technology and innovation to drive solutions at scale is going to be crucial in order to meet these goals. Taken together, I believe the technologies to create more sustainable real estate assets represent a $1 trillion opportunity over the next decade.

Niki Pezeshki, Felicis Ventures

Felicis Ventures is an early-stage venture firm in the Bay Area that is currently investing out of a $300mm fund. We’ve made multiple investments in the real estate tech space over the last few years, including Opendoor (instant online home buying/selling), Juniper Square (investment management software for real estate), Modus (tech-enabled title & escrow company), Hippo Insurance (online home insurance), Quartz Robotics (construction robotics), and many more.

I led the Series A for Modus in mid-2019 and I’m on the board alongside Pete Flint from NfX, who was the founder of Trulia. We got excited about Modus because they are bringing new technology to a market where the two largest companies, Fidelity National Financial ($13bn market cap) and First American Financial ($7bn market cap), were both started in the 1800s (not a typo!). By creating a better closing experience for real estate agents, buyers and sellers, and also for the actual title and escrow officers that are doing the day-to-day work, Modus can take significant market share from these two large incumbents.

Broadly speaking, real estate tech feels over-heated given where we are in the economic cycle. I see multiple companies whose business models work great when real estate prices are going up, but will almost certainly get squeezed in a weak pricing environment. If I feel like a real estate business model has a limited margin of safety in a downturn, it’s typically a quick pass for me. The tech needs to be addressing an area within real estate that I think will see secular growth (ie less variability based on housing/rental prices).

I’ve also been surprised to see how many copycat companies continue to get funded at high valuations. It’s tough for me to envision a world where the 4th or 5th version of Opendoor or the 4th or 5th version of Sonder can return significant returns to investors. As a result, I’m really focusing on fresh ideas where there is a clear ‘why now’ or there is a unique business model innovation that I think may lead to a category-defining company. If my investment will have 4 to 5 clones in 2-3 years, I’ll know I was onto something (hopefully it’s defensible enough that it can fend off the competition though!).

My dad owned a restaurant for 30+ years and so I’ve always been partial to startups working on problems for small businesses with physical locations. It especially hits me hard when one of my favorite shops and/or restaurants in my neighborhood in SF closes down due to rent increases (even though the business was loved by the community and was quite busy). If there are startups out there with a unique business model that are helping small businesses stay open longer, I’d love to chat.

Hans Morris, Nyca Partners

There is still so much that technology can do to improve the experiences and performance for real estate lenders, borrowers, and investors. Our first investments in 2014-15 focused on digitizing archaic processes within the legacy financial world, leading us to early investments in Blend and Built, and enabling efficient investment into single-family rental housing through the Roofstock platform. It’s now clear that everyone’s expectations have been raised, and we expect accelerating digital process adoption throughout the value chain. No one says I prefer the old paper process!

There is considerable investor attention on shared ownership structures to enable more efficient home purchasing and unlocking home equity. Ribbon provides home buyers, sellers, and agents a guaranteed close, with software to help guide the process. And it’s very clear to us that new data tools can enable more efficient underwriting/investing in commercial real estate, like Skyline.ai, or more efficient underwriting of single-family risk, like Polly-ex.

Mihir Shah, JLL Spark & JLL Technologies 

I joined JLL to lead its strategic venture fund JLL Spark in 2017. Over the course of the last two-plus years, I’ve seen commercial real estate go from treating technology as a curiosity to a business imperative. Adoption is soaring, in fact, more than 60 percent of JLL’s top investor clients use at least one of JLL Spark’s portfolio company technologies. With that context, it’s no surprise that JLL decided to double down on its approach to proptech, forming JLL Technologies, the newly aligned division to build and expand our technology products and services for our clients and ourselves. At JLL Technologies, our mission is to enhance the liquidity of the world’s buildings while improving the happiness and productivity of those who occupy them.

A best-of-breed software stack is emerging for commercial real estate investors and property managers, and it’s impacting virtually every aspect of commercial real estate – from transactions and construction management, to facilities management and tenant experiences, to space utilization and building efficiency.

One trend we’re seeing is a strong push to digitize building operational data to gain insights and learnings from institutional knowledge in the commercial real estate lifecycle. Buildings produce a ton of data, and people are beginning to ask themselves, “how do we use it?” As a result, we’re interested in companies with a data-driven approach. For example, Dealpath provides real estate investors and development teams deeper visibility into their acquisition pipeline with the data analysis to maximize value at scale . Skyline AI is another great example of a company using machine learning and AI to help real estate investors leverage data to make more informed decisions. It uses a mix of proprietary and public data sources to create incredibly accurate valuation models and even acts as an investor itself.

As tenants demand more from building owners and property managers, tenant experience is another area ripe for opportunity. The modern workforce wants the technology-enabled experience they are accustomed to at work. This is putting more pressure on employers and property managers to deliver premium digital experiences tied to building amenities. Understanding how tenants are engaging with their space can lead to improved tenant retention and higher net operating income. While JLL’s virtual workplace assistant Jill aims to improve daily workflows, HqO and Livly are great examples of companies delivering value to tenants with on-demand app experiences, with HqO seeing 60 percent of tenants engage with its app in the first 12 months with zero landlord turnover to date.

Every day billions of people show up to work, live, or shop at commercial real estate assets. The impact of this technology is almost immeasurable, and I believe adoption will only continue to accelerate as investors and occupiers start to realize the ROI and benefits of proptech.

Casey Berman, Camber Creek

What trends are you most excited in Real Estate tech from an investing perspective?

One of the most dynamic areas for proptech investing right now is the multifamily space. Multifamily owners and operators are looking for new tools to increase tenant engagement, improve the tenant experience, streamline operations, and identify new revenue streams. For example, we are seeing a dynamic group of new concierge services, package delivery companies, tenant engagement apps, and the like. Camber Creek is proud of our work with WhyHotel, an alternative lodging service that operates pop-up hotels in newly built, luxury apartment buildings. Similarly, we are excited about our portfolio company Nestio, a multifamily marketing platform which offers an automated leasing experience.

We are also seeing a trend of companies that are combining technology with business process innovations to offer new services to business and consumers. For example, Camber Creek portfolio company Curbio is a tech-enabled ‘one-stop-shop’ for pre-sale home renovation. Curbio’s technology stack provides design, scoping, pricing, communication and scheduling tools to dramatically streamline the renovation process. Curbio also finances the remodel for the customer. Curbio’s model gives homeowners who lack the cash or wherewithal the opportunity to renovate and maximize the value of their homes, often their largest asset. Curbio is expanding rapidly around the U.S. and is already among the 550 largest home renovators in the country.

How much time are you spending on Real Estate tech right now? Is the market under-heated, over-heated, or just right?

Camber Creek is the premier proptech venture capital firm in the U.S. We were founded in 2011 and all we do is real estate technology. Our portfolio includes companies like VTS, Latch, Compstak, Rabbet, TaskEasy, Building Engines, Measurabl, Bowery Valuations, and others.

Real estate is the largest asset class in the world and the real estate industry has historically lagged other industries in adopting technology. There is a long runway for technology innovation and adoption in the real estate industry and we think the market for proptech is just beginning to hit its stride. For example, going back to the trend of tenant engagement, a recent Deloitte survey of 750 real estate executives found that 92% of respondents plan to maintain or increase their tenant experience-related technology investments.

Are there startups that you wish you would see in the industry but don’t?

That’s not really how we think about it, but there are some areas in which we are excited to see new energy and growth. For example, there is a cohort of companies finding creative ways to make housing more affordable, like PadSplit and Nesterly, which help homeowners rent out spare bedrooms or split up their homes into apartment units, in the process creating new low-cost rental inventory.

We think there is a lot of opportunity to bring new technology into the retail experience, from in-store augmented reality to systems that automatically check a consumer out (rather than waiting in a check-out line). Finally, the ‘smart home’ and ‘smart apartment’ landscape is changing rapidly and we believe the winners will be companies that can control the platform – i.e. how a homeowner or tenant accesses and controls the full range of smart home products.

John Helm, RET (Real Estate Technology) Ventures

What trends are you most excited in real estate tech from an investing perspective?

Proptech investment has skyrocketed over the past two years as the $3.5 trillion commercial real estate market undergoes its much-needed digital transformation. If you look at the data, however, most of the money is being funneled into three primary buckets: construction (e.g. Katerra), residential real estate (e.g. Compass), and co-working (e.g. WeWork). Rental property owners representing more than 40 million units just in the US are largely being ignored by the investment community. This is why we’re excited about rent tech, which we define as any technology used to power multifamily or single-family rentals.

Large multifamily and single-family rental owners and operators are increasingly adopting technologies that streamline operations and improve resident experience to differentiate themselves in an ultra-competitive environment. Residents’ tech-enabled lifestyles are pushing rental owners to modernize their buildings and offer new amenities that simplify their residents’ lives. This includes everything from basic infrastructure needs like enabling Internet access throughout buildings, to smart home automation and customizable fully furnished units.

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

We are focused solely on helping build cutting-edge real estate technology companies for the multifamily and single-family rental industries. Our view is that rent tech represents a substantial sub-category within proptech that hasn’t received a lot of attention, and thus we are aggressively pursuing it with the help of our limited partners that include more than 20 major multifamily organizations such as Essex, UDR, Starwood, Progress Residential, MidAmerica, Aimco, and BH Management, which collectively own and operate more than 1 million rental units in North America.

We think the market for proptech and rent tech is just about right. Valuations for prop-tech companies are generally high right now, but mainstream investors have cooled slightly because of some high-profile misses, namely WeWork. Deals will likely become more competitive when successful exits by proptech and rent tech companies take place more regularly.

Are there startups that you wish you would see in the industry but don’t?

We work closely with our LPs to identify pain points and evaluate the top technologies in the market. By working directly with rent tech companies’ customer base, we can reduce the risk of our investments and deliver better returns.

Specifically, rental property owners are focused on the following areas:

  • Smart Home Automation: There’s been a lot of talk about a potential recession in 2020 which is why we’re bullish on smart apartment technology. Rental property owners can use the technology to streamline maintenance operations, improve resident experience, and create new revenue streams. Multifamily and single-family organizations cannot utilize consumer products off the shelf as they need a secure enterprise layer to control these devices from an operations perspective. The best companies, such as Smart Rent, provide a back end system that the property owner can leverage to realize operating efficiencies from access control and vacant unit utility management, as well as improve asset protection through leak detection. They also integrate with leading property management systems to the new resident is automatically provisioned and can take over the system when they move in. Once the resident is in control of the system, the best systems then only keep resident data for the resident and purge it from the system regularly.
  • Furniture-as-a-Service: Millennials are delaying home-buying and resistant to continually purchasing and moving furniture, so furniture-as-a-service companies are offering short-term solutions to help save consumers money while offering access to beautiful pieces from major brands like CB2/Crate&Barrel, Floyd, Campaign and more. Rental property owners are incorporating these services into the onboarding process so people can move into a fully furnished apartment, or just pick up a couple of nice pieces for their new home.
  • Tech-enabled Amenities: As people have become used to high-end experiences from hotels and short-term rentals, a thriving marketplace of tech-enabled services has popped up to deliver those amenities safely and securely for renters. For example, many multifamily organizations now offer apartment cleaning, dog walking, and dry cleaning services to all of their residents. It’s no longer enough to have a beautiful building in a prime location – rental property owners have to create value for their residents if they want to hold onto them.
  • Digital Management Tools: We’ve seen an increasing number of online tools pop up that help digitize previously paper-based forms and processes. We expect to see consolidation in this market comprised primarily of point solutions so this market will be exciting to watch.

Nima Wedlake, Thomvest Ventures

What trends are you most excited in real estate tech from an investing perspective?

We’ve witnessed a flood of startups developing new approaches to financing homes. These can take many flavors: rent-to-own (Divvy Homes, ZeroDown), co-ownership (Unison, Point), debt-free buying (Haus), or equity release (Figure, Patch Homes, EasyKnock). These models are designed around a few core tenants:

Increase access to homeownership: Following the Great Recession, availability of credit to homebuyers 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. This has resulted in a home ownership rate that is particularly low among millennials — only one-third of Americans under 35 own a home. Startups in this space have the potential to lower the barriers to entry without overburdening home buyers with debt.

Better distribution of risk: Incorporating equity partners into the home finance ecosystem means better risk-sharing for the entire economy. This means that when house prices rise or fall, both would share the benefits or the burden. Financial contracts incorporate better sharing of risk will ultimately help avoid housing bubbles and make market crashes less severe.

Provide more flexibility to homeowners: 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. New home buying models can achieve the right balance of delivering the benefits of ownership while providing buyers with a degree of flexibility not present in traditional debt contracts (mortgages).

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

We’ve historically been active financial technology investors, and over the last 18 months we’ve been spending meaningful time in the real estate tech vertical. There are many overlapping qualities between these two sectors: large market opportunities, slow-moving incumbents, growing consumer demand for technology products, and better data with which to price risk.

We’ve also been impressed by the quality of entrepreneurs building companies in the real estate category. Many are technologists who may not have spent their careers in real estate, but have personally experienced its inefficiencies as buyers or sellers of homes.

While we are excited about the market opportunity and the flood of talent moving into the sector, we also are keeping a close eye on how technology companies manage the inherently offline aspects of real estate. This asset class is operationally and capitally intensive — scaling businesses require building large teams and lots of venture capital. And in many cases, companies have struggled to prove that software can drive meaningful efficiencies in a business (see WeWork). Finally, we are spending a lot of time thinking about how “recession-proof” these tech-enabled businesses are, given that many of them were founded following the Great Recession and have yet to experience a negative housing cycle.

Travis Connors, Building Ventures

There is no greater challenge, and therefore opportunity, than successfully supporting the additional 2.5 billion people who will inhabit our world over the next 30 years (90% of them in cities). Accommodating this growth will require completely rethinking how we design, build and operate our physical world, the built environment, to provide an optimal experience for everyone. To put this in perspective we need to build the equivalent of a new New York City every single month. Meanwhile, our existing built environment consumes too much energy, produces too much pollution and is inefficiently utilized.

Our mission – and litmus test – is to invest in entrepreneurs leveraging technological innovation to deliver “A Better Built World”. We invest exclusively in opportunities across the continuum of the built environment, inclusive of what traditionally has been considered ConTech and PropTech. It’s no secret that the construction and real estate industries have historically been plagued by tremendous inefficiencies and lagging in innovation. The way we reinvent the design, construction, and operation of our buildings has major implications on our world’s most critical challenges including productivity, sustainability, resiliency, affordability and more. Clearly, we believe there are more than enough exciting and rewarding opportunities in this space to dedicate 100% of our time and capital here.

We are at the vanguard of a generational shift driven by three meta trends that will define the future of the built environment, “constructuring”, “autonomous building(s)”, and “space as a service”. All three are critical components to thinking of the Built Environment as a System for Living. Constructuring is the process by which we transform construction into something more akin to manufacturing. Portfolio companies such as Hypar, Join and Smartvid.io are indicative of this paradigm shift.

Another pillar of our thesis is autonomy of building and buildings. It’s pretty simple to understand how autonomy plays a significant role in the construction of buildings (think: Built Robotics’ autonomous excavators), but how do we think about the autonomy of the buildings themselves? Buildings like Dock 72 in Brooklyn’s Navy Yard and The EDGE buildings are already making advances in building intelligence with new construction. Retrofitting existing “dumb” buildings is an even greater challenge with the opportunity for outsized impact. Autonomous Buildings leverage the vast power in IoT, ML, and AI to help buildings manage and configure themselves to deliver optimal utilization and experience. Our investments in Blokable, Dandelion Energy and 75F are examples of this trend in action.

And “Space as a Service” will enable greater flexibility, utilization and use options to deliver what occupants want and need. We see ample opportunities for technology to be a critical driver to create and enable vastly better experiences for occupiers of commercial and residential real estate. We expect the digital transformation driven by construction and real estate technologies to continue through and beyond 2020, especially as more and more stakeholders across the value chain realize the mutual benefit of early and continuous collaboration throughout a building’s complete lifecycle.

David Bates, Tamarisc Ventures

The first wave of innovation in the real estate technology sector was around business models. After the recession, a confluence of factors opened up a new field of disruptive possibilities: the push for more sustainable buildings; the spread of the Internet of Things (IoT) technology related to smart homes and offices; the rise of Millenials and the proliferation of the sharing economy and social media; the increased prevalence of smartphone use and the resulting plummet of sensor costs; and the advent of Big Data.

Many early movers in real estate tech-focused too heavily on topline growth without adequately emphasizing unit economics and market fluctuations; the outcome of this imbalance will no doubt be seen in the next recession. Early financing came relatively easily, with little scrutiny, and often at unjustified valuations. Flush with funds, many first-wave companies used expensive venture capital dollars to subsidize customer purchases and took on high fixed costs that resulted in poor or negative unit economics. While this may have worked for a few, the majority of companies have ended up — or will end up — compromised.

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

This imbalance also led to a growing chasm between early-stage financing and more established venture rounds (Series A and beyond). Because so many companies were able to obtain abundant funds at early rounds, Series A financings today are exceedingly competitive and highly scrutinized. At the Series A stage, VC firms are now expecting around $2 million in annual recurring revenue (ARR), greater than 100% annual growth, and strong SaaS metrics to consider a company a real contender. The upside for those companies that meet these tough standards is that valuations are favorable, as are check sizes. But the downside, for those who don’t, is the dilution, distraction, and cap table complexity that accompanies companies’ efforts to retool their business along the arduous road to Series A.

In addition to unit economics, entrepreneurs in real estate tech must also focus on capital efficiency as they dial in product-market fit; otherwise they risk raising multiple, highly-dilutive seed rounds. Rather than merely tracking customer acquisition cost (CAC) — which taken alone can hide inefficiencies — we are constantly watching how much it costs to acquire one dollar of ARR. We encourage companies to do the same. It pains us to see hardworking founders holding only single-digit equity by the close of Series A.

What trends are you most excited in real estate tech from an investing perspective?

For the most part, the first wave seems to have run its course — with the exception perhaps of Construction Tech, whose first wave still seems a ways from its crescendo. But the sector generally has matured; gone are the days when a single feature could grab immense market share and turn itself into a solution. Real estate professionals are bought in; larger firms are even hiring Chief Technology Officers. In today’s marketplace, platforms prevail, and startups designing features are little more than R&D laboratories for dominant players. Innovations must now build on the digital foundation laid by the first wave to deliver valuable analytics and business intelligence to more informed and demanding customers.

The second and more sustainable wave is on the horizon and it’s as much about technical as business model innovation. Weaning practitioners from spreadsheets, clipboards and as-builts and transitioning them into the cloud is no longer enough. And customers are no longer satisfied with sensor technology that merely tells them how many people are occupying a space; they now want to know what those people are doing, how they are feeling, and how they are interacting with each other and with their environment.

Ultimately, customers are looking for information that does one of three things: (1) helps their business to increase access to or utilization of an asset to boost topline revenue; (2) increases efficiency of resources (e.g., people, energy, space) to boost their net operating income; and (3) uplifts the user experience in a way that allows the customer to carve out a competitive advantage and support pricing premiums. Companies that satisfy all three of these criteria — like Bode, Bevi, and Getaway from our inaugural fund — have been able to really stand out and thrive. This trifecta is becoming more the norm and nowadays real intellectual property should also be part of a company’s value proposition.

Companies riding the second wave of real estate technology use the latest advances in machine learning and artificial intelligence (AI) technology to analyze data that is collected either passively from the built environment or through the course of business, to deliver deeper, actionable insights that can be both predictive and prescriptive. An example of such a company in our current fund is Northspyre. Northspyre’s cloud-based intelligence platform is a full-fledged solution that allows its customers to efficiently and effectively track the progress of a wide variety of capital projects and anticipate issues before they occur — resulting in significant cost savings and more informed decision making.

Its advanced data architecture enables a platform for the creation of seemingly endless value-adding products and features, ultimately providing customers with ever-increasing, long-term value. Another example is Bite, whose AI-powered food & beverage digital ordering platform (which can be incorporated, for example, into automated ordering kiosks in stores) has resulted in greater customer access, a higher average order value, lower staffing costs, and improved user experience. Bite’s analytical engine can optimize market understanding for quick-service restaurants and provide guests with recommendations based on their unique food preferences and dietary restrictions.

Are there startups that you wish you would see in the industry but don’t?

At Tamarisc we are looking to work with companies that are part of this second wave of real estate technology. We are particularly excited about the convergence of healthcare with the built environment through technology and business model innovations; we have a vision of the built environment as an extension of the healthcare professional. We anticipate that the best digital health models; those like Huckleberry Labs that use AI to drive efficiency factors related to expensive and geographically constrained healthcare professionals to increase patient access, lower per-patient costs, and improve the standard of care – will begin to merge into the built environment.

Technology platforms that work seamlessly through ambient computing in the built environment have the potential to bring the healthcare professional into the daily lives of individuals to optimize the healthspan of the population, reduce overreliance on medications, and drastically reduce the cost of healthcare in general. The built environment is already collecting scores of longitudinal, in situ data on its occupants; now is the time to translate that data into higher value, actionable intelligence for the betterment of society.