Bottom’s Up for Proptech Sentiment

Investor and entrepreneur confidence ticks higher in MetaProp’s Mid-Year 2023 Confidence Index

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Proptech entrepreneurs and investors may not be fully ready to jump out of the foxholes into which they dove when lending imploded in 2022, but they’ve at least stopped digging, according to a mid-year 2023 report that finds industry sentiment slightly improved.

Though incoming macroeconomic flak may keep heads down to some extent, proptech leaders are signaling that the sector has begun to ascend from the market bottom of year-end 2022, as found in responses to MetaProp’s Mid-Year 2023 Global PropTech Confidence Index, a report from the Manhattan-based early-stage venture capital firm.

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The survey of proptech investors and startup entrepreneurs found both groups modestly more optimistic going into the second half of 2023.

On a scale of 1 to 10, investor confidence rose to 6.1 in mid-year 2023 from 5.4 at year-end 2022. Startup sentiment also rose slightly but lagged behind investor confidence at 4.8 in mid-year 2023 compared to 4.4 at year-end 2022.

The survey results, while not wildly exciting, were encouraging given the overall economy, said Aaron Block, co-founder and managing partner at MetaProp

“The jury was really out after the disastrous level of confidence the previous iteration,” Block said of the Year-End 2022 Confidence Index. “The jury was out on whether the malaise would get worse, continue, or get better. I think there’s a lot of uncertainty.

“I think the biggest surprise I’m seeing right now is that there’s light at the end of the tunnel in the confidence index. I can tell you that even subsequent to the survey results coming in, it really feels like we can see the future and we’re past at least this portion of the bottom of the market.”

Coming out of the depths of pessimism among investors and entrepreneurs at the end of 2022, MetaProp feared worse results from its most recent survey.

“At the end of 2022 things were looking really grim in the proptech investment and startup world,” said Block. “With the investor sentiment up modestly and the startup confidence index up a little bit, too, it gives me a sense to catch our breath and be excited about the go forward.”

Indeed, 43 percent of investors expect to make more proptech investments, up significantly from 26 percent at year-end 2022, and 39 percent of investors expect an uptick in deal flow, up from the all-time low of 19 percent at mid-year 2022, according to the index responses.

Such small improvements in sentiment may lag the actual momentum of an improving viewpoint among investors, said Block.

“I think moving through the cycle is a big part of it,” he said of the slightly more optimistic investor outlook. “But also there’s a lot of anticipation about the IPO markets opening up again, which happened in September, for the first time in a long, long time. You had the [mid-year 2023] surveys go out with an eye on the public tech decimation having some end in sight. Since then, over the last couple of months, you’ve seen renewed interest in the success of technology transforming life in America, across all sectors.”

However, there still may be some disruptions in the market as investors continue to anticipate a multitude of industry consolidation, with an all-time high of 77 percent of investors expecting more merger and acquisition activity, according to the report.

Meanwhile, startup sentiment is generally more tempered than that of investors due to continued headwinds stemming from heightened investor capital requirements, as well as increased competition, according to the index responses.

For instance, 45 percent of startup founders believe that it will be harder to raise capital over the next 12 months, down from 57 percent six months ago but still significantly high.

However, 60 percent of startups expressed an increased likelihood of experiencing a positive liquidity event in the next three years, an increase from 54 percent recorded at year-end 2022.

Additionally, 44 percent of startups expect the proptech space to remain competitive over the next 12 months.

Having digested the responses to its mid-year Confidence Index, MetaProp has set its current investment plan for the rest of the year.

“Money’s going out the door,” said Block. “We are investing very actively after an extended period of caution and quiet. In the broader overall market for venture capital, I can tell you that MetaProp is putting our money where our mouth is, putting more money out the door than we have been in 18 to 24 months.

“We’ll be back to a cadence of up to six new investments a quarter depending on how the cookie crumbles.”

Philip Russo can be reached at prusso@commercialobserver.com.