Proptech Outlook at Midyear 2023

Scarce funding, fewer new startups, and greater competitive demands — these and other trends are shaping the real estate tech landscape


As summer begins, the weather may be getting warmer, but proptech’s prospects for funding and growth are not exactly burning up the landscape.

An uncertain economy and a decrease in proptech funding might tempt some proptech entrepreneurs, users and venture capitalists to throw up their hands and head to the beach for an early summer vacation. However, that is not generally the case, according to experts who provided written responses to questions about the current state of the industry.

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In fact, some see opportunity amid the macroeconomic turmoil caused by inflation, high interest rates and fears — until last week — of a U.S. default on the federal debt limit, but proptech companies will have to be on their best game to take advantage.

“Given the economic environment, as well as customers pushing more for consolidation in tech, we’re beginning to see a greater shift to more proptech M&A,” said Ryan Masiello, chief strategy officer and co-founder at leasing management platform VTS. “This is due to capital being harder to come by than it was a few years ago, and because customers are looking for solutions to solve more than one problem in the industry.”

Such macroeconomic pressures have trickled down to proptech funding.

The weekly average proptech funding near mid-year 2023 is $198 million, significantly lower than the $545 million in 2022 and $512 million in 2021, according to a report by the Center for Real Estate Technology and Innovation (CRETI).

The total funding is $4.16 billion through mid-year 2023, compared to $11.4 billion by mid-year 2022, and $10.8 billion in 2021.

Further, median funding in the month of May was at $312.5 million, a decrease of 36.4 percent compared to the median funding of $492 million in May 2022. When contrasted with May 2021’s median funding of $308.5 million, this year’s figure presents a marginal increase of approximately 1.3 percent, according to the CRETI report.

Where proptech funding is going these days has shifted, said Dave Garland, managing partner at Second Century Ventures, a Chicago-based venture firm that helps portfolio companies grow across industries, including real estate, financial services, banking, home services and insurance.

“Over the past couple years there has been a shift in focus from tech that serves the residential segment (over 50 percent in 2021) to tech that serves commercial real estate asset classes,” said Garland. “The majority of tech financing rounds that have taken place year to date in the U.S. have been in the CRE space. We also see a trend in round sizes shrinking. The larger $15 million-plus rounds we witnessed in 2021 and 2022 are far less common.

“Instead, VCs are laser focused on the path to profitability and the burn rates of earlier-stage organizations. This largely is a result of the poor performance over the past 12 months in the public proptech markets and lax number of liquidity events, prompting a higher degree of risk aversion than we have seen in the last 36 months.”

That might be an understatement. 

Economic volatility runs the show for proptech,” said Rowland Hobbs, co-founder and CEO at Manhattan-based Stake, which enables renters to receive cash-back rewards for paying their rent. “Startups that add operational costs and don’t improve net operating income (NOI) won’t be in high demand.”

Thus, there will be fewer new solutions entering the market and existing proptech companies will need to deliver more, Hobbs said. “Those that succeed will be the ones that improve NOI and rental affordability.

Perhaps fearing a higher bar to clear to obtain funding and please clients, the flow of new proptech startups year over year has been more or less stagnant.

“Today we have a very similar ecosystem of startups that we had a year ago or two years ago,” said Clelia Warburg Peters, managing partner at Era Ventures, a Manhattan-based venture capital firm that invests in proptech. “But I think the more interesting question may be, ‘What does that ecosystem look like two years from now?’

“We still haven’t seen what I think we will see, which is some companies merging, acquisitions, even some companies going out of business at a greater scale than I think we’ve seen at any point in the last seven or eight years. That hasn’t started to really happen yet at scale.”

While proptech is seeing fewer new startups, the quality of the founders and their companies is higher, said Peters. “I think that is exactly the same as most other sectors of venture right now.”

The proptech market is fraught with challenges, agreed Mike Sroka, CEO and co-founder at San Francisco-based Dealpath, a deal management platform for real estate investors.

“Year to date 2023 has seen higher barriers to access capital and liquidity, particularly in proptech,” said Sroka. “The cost and value of capital has gone up significantly compared to recent years. We’re in the midst of a healthy culling of the herd and consolidation, with a focus on efficiency over growth at any cost.

“We’re observing a lower volume and slower velocity of deals being consummated, but several interested participants on each side of investment transactions are trying to lock arms on pricing and terms.”

However, there are reasons for optimism, such as consistent demand for data, workflow automation, and collaboration, he added. “Machine learning and artificial intelligence are white hot, but business efficiency, predictability, and resiliency are paving the path forward.”

Sroka was also quite sunny about proptech adoption.

“Hands down, it’s improving and accelerating quickly,” he said. “We’ve gone from early adopters utilizing new purpose-built proptech in the pre-pandemic era, to early majority through the pandemic and reopening, and are crossing the chasm to mass market adoption now.

“What professional real estate organization today doesn’t have a data warehouse and digital workflow tools? Not ones that will be successful or around for much longer.”

If proptech is in the doldrums, it is perhaps easier to look beyond 2023.

“I think we’ll see more evolution in the next 24 months than we have in the last five years,” said VTS’s Masiello. “Everyone is re-evaluating the way business is done and becoming more open-minded in the process. There’s no doubt we’re in the early innings of transformational change that will have substantive impacts on the industry for years to come.”

Short or long term, proptech needs to focus on a number of specific challenges facing real estate, a number of experts said.

“Startups should aim to build solutions that are applicable across a broad swath of real estate sectors as possible,” said Travis Connors, co-founder and general partner at Building Ventures, a Boston-based venture capital firm. “Our perspective is that startups should start with the appropriate stakeholder experience and work backward to the technology solutions that best meet those requirements.

“Across all sectors of real estate, we see that the most compelling solutions for owners and operators today deliver three key value propositions simultaneously: increasing NOI, decreasing greenhouse gasses (GHG), and improving occupant experience. These are, and for the foreseeable future will remain, the cornerstones of delivering better buildings that will maintain an increase in value for owners and operators, while delivering on the promises real estate should be committing to for all stakeholders.”

Less sanguine are the opinions of Michael Broder, CEO at RCKRBX, a Washington D.C.-based, tenant-focused SaaS platform.

Anyone could argue that the sector in the worst shape may be the one in need of the most innovation, which is office,” said Broder. “But one of the real estate industry’s problems is that it has historically been slow to adopt technology at any level. Now, with more than enough solutions at its disposal, the adoption is slower because the industry doesn’t have the internal competencies to put them to work and optimize.”

In somewhat of a mini-jeremiad, Broder warned against further tech-adoption dereliction.

“The real estate industry has neglected to understand and serve the needs of the people occupying it for too long,” he said. “If the industry had better connected and understood its end users across all sectors, this move to hybrid work would not have been such a massive surprise. Unfortunately, it took the COVID-19 pandemic to be the catalyst to accelerate this shift, which is a direct reflection of the lack of understanding of who the industry’s customers are and how to truly serve them.

“Proptech companies that are focused on addressing the need of end-users rather than prioritizing landlords and buildings alone will solve the gap and succeed in the current economic climate.”

Proptech companies that deal in real estate software, such as data giant MRI Software, see strong product demand this year and going forward, said John Ensign, president and executive managing director for North America, for the Solon, Ohio-based company.

“Historically, macroeconomic pressures lead to increases in software adoption,” said Ensign. “In these periods, companies aim for greater efficiency in business operations as they look to automation and technology to help the bottom line. As we face near-term market pressure, we can expect adoption of proptech to accelerate.

“More specifically, if the next six months follow historic patterns, while all technology that creates efficiencies will see higher demand, we will certainly see a higher demand for software that serves core systems of record, such as accounting, financial solutions and investment management. These are the technologies that companies value most highly in times of turbulence.”

Philip Russo can be reached at