Proptech Cool This Hot Summer as M&A Activity, Funding Ebb

Principals and VCs cite slow adoption by older real estate companies for the cooling off


When Simon & Garfunkel sang “The Sound of Silence” back in the 1960s, they could have been singing about a proptech ecosystem that currently finds itself in the depths of summer doldrums.

A combination of macro-economic factors have slowed proptech investment considerably, while mergers, acquisitions and industry adoption have been fitful at best.

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And perhaps you have heard about the state of the commercial real estate office market.

One major obstacle to proptech progressing apace is the failure of incumbents such as office landlords to adopt technology fast enough, said Jeremy Kaner, a former venture investor with office giant Tishman Speyer and currently a partner at Olive Tree Ventures, a Manhattan-based proptech venture firm.

“The current slowdown in proptech adoption can be attributed to various factors,” said Kaner. “One of the more interesting factors centers around the current state of the real estate market and the general macroeconomic uncertainty.

“Many firms across the real estate industry are facing declining occupancy and NOI, leading to decreased asset values coupled with lower transaction volume and increased interest rates. As a result, many real estate operators are experiencing compressed profit margins, making them less likely to increase budget allocation for expanding the use of technology solutions.”

The bad news has trickled down to the proptech market, which has seen a dearth of funding in 2023, said Ashkán Zandieh, founder and co-chair at the Center for Real Estate Technology and Innovation (CRETI), a proptech think tank and research firm.

“The amount of funding raised by proptech startups in Q1 2023 was down 30 percent from the same period in 2022,” said Zandieh. “This is likely due to a number of factors, including rising interest rates, inflation and general market conditions.”

Proptech startup creation similarly has been a downer as the number of startups founded in Q1 2023 dropped 20 percent from the same period in 2022, likely due to the factors that are causing a drop in funding, as well as overall economic uncertainty, he added.

Even as inflation has begun to ease, high interest rates especially continue to constrict real estate and proptech growth.

“A lot of the companies that raised funding during ZIRP [zero interest rate period] ended up not really innovating or coming up with new technologies that solve actual problems for the real estate industry,” said Edward Cohen, chief content and growth officer at Traded, a Manhattan-based online platform that tracks CRE transactions and personnel.

“The disruption that many promised to improve people’s experience interacting with, living in, or working from buildings hasn’t materialized,” Cohen said. “Instead, a lot of VC-backed companies simply came up with a nicer website or wrapper for an older solution to provide the exact same services or products that their founders promised investors they would reinvent and disrupt.’’

In part, proptech has been a victim of its own exponential growth over the last few years, said Kyle Waldrep, CEO at Dottid, Dallas-based CRE workflow online platform.

“Proptech is going through a retraction period following years of incredible growth and investment similar to how commercial real estate as a whole is experiencing retraction,” said Waldrep. “Both have sectors that are growing, but on the whole, as CRE goes, proptech is going to follow. And this is actually the larger problem.

“Proptech has yet to truly differentiate itself from the business it serves because so many tools and products have been solely vertical specific. Very few companies have taken an industry-wide approach toward solving multiple problems and actually driving CRE to innovate. It’s one thing to make manual processes digital, but a completely different task to optimize or automate the process. Thus, many proptech companies are less compelling than their valuations and don’t deliver on promised outcomes, leading to fewer high performers in the space.”

In a downturn, less money will go toward companies that are solving only specific parts of a larger problem, he added.

Predicting what will cause the proptech ecosystem to “fire up” again is difficult, Waldrep said, “but every downturn provides opportunity. That’s how free markets work.”

Looking at the current proptech landscape from the demand side, Vidur Gupta, founder and CEO at Beekin, a data analytics online platform for multi- and single-family investors with offices in Houston and London, noted that incumbent real estate companies “have an unassailable advantage” compared to startups. That’s due to their existing clients that provide them with a more solid economic base.

The incumbents’ “natural aversion” to trying new technologies “implies that VCs have to finance the double whammy of an expensive adoption curve and poor economics, such as discounted early users, and dilution via stock or warrants to early users,” said Gupta. In turn, that scenario “makes $50 to $100 million exits de rigueur, limiting the amount of VC capital that can be raised, deployed or returned.”

In the current market, “incumbents will step up their M&A game on the back of lower multiple, long-drawn sales cycles and the advent of bundled software,” he added. “What Microsoft did successfully with the browser and Windows may be replicated across CRE. Hence, platform companies will continue to emerge, thrive and grow.”

Even as some proptech experts lamented the industry slowdown, a couple offered the “Do you believe me or your lying eyes?” viewpoint on the market.

“I don’t view the proptech industry as frozen, although it’s cooler than anticipated,” said John Ensign, president and executive managing director of North America for MRI Software. “Many of us predicted that M&A and funding activity would increase in the second half of the year, but rising interest rates have slowed things down.

“Consequently, investors are being more thoughtful and purposeful in their deployment of capital, and companies that don’t have to sell are holding off on going to market. The companies that are in the market are more likely to be those that need cash or are facing time pressures.”

The first half of 2023 saw little for sale among proptech companies, and valuations had gotten very high, even for subscale companies, Ensign said. “Now I’m seeing more potential deals on the horizon, but what’s not yet clear is whether there’s a pool of buyers and whether buyers and sellers can agree on valuations.”

Until the credit markets loosen, most startups will have to bootstrap it or raise money from friends and family rather than depend on angel or VC investment, he added.

“I’m not worried,” said Ensign. “Markets are always cyclical. Most of us are in proptech for the long haul, so a near-term dropoff in activity is no cause for major concern. The value of software hasn’t changed for people who operate, own, and invest in property. The asset class remains strong.”

Raja Ghawi, partner at Era Ventures, a Manhattan-based proptech VC, took a similarly bullish market view.

“What ‘silent summer’?” Ghawi said. “Airbnb is profitable and valued north of $80 billion, Procore is trading at over 12 times enterprise value-to-revenue multiple and nearly $10 billion in valuation, and Opendoor is up about 300 percent on the year. Private markets are slow, yes, but it’s not a ‘silent summer.’”

Of course, it can be argued that pointing to such non-startup proptech giants skews the curve when looking at the overall ecosystem.

However, adding to his positive outlook, Ghawi said that, “much like the broader venture ecosystem, proptech has a problem of too much capital and not enough good opportunities to invest in, against a backdrop of an improving economy and a potential soft landing.

“Proptech funds are sitting on historic amounts of dry powder, with Suffolk Technologies raising a $110 million fresh pool of capital.”

M&A is starting to pick up, said Ghawi, noting a recent spate of proptech-to-proptech acquisitions in and beyond the U.S. such as Access Hospitality and Guestline, Belgium’s Amavi and Sweden’s SF Ventures, BrainBox AI and ABB’s EMS Retail Division, as well as Entrata acquiring Rent Dynamics.

OTV’s Kaner also saw some positive smoke, if not fire, on proptech’s horizon in the expanding artificial intelligence segment of the market.

“We anticipate that AI is going to have a transformative impact by automating repetitive tasks and making employees more efficient, thus empowering stakeholders to acquire, manage, construct and operate real estate with greater efficiency than ever before.”

Perhaps AI will learn how to fire up a cooled-off proptech market before we experience another Simon & Garfunkel song: “A Hazy Shade of Winter.”

Philip Russo can be reached at

CORRECTION: This article was updated with the correct headquarters, name and purview of olive tree ventures