Proptech Founders and VCs Cautiously Optimistic About 2024: Survey

MetaProp’s confidence index — the most watched such gauge in proptech — finds entrepreneurs’ outlook grew brighter at a greater rate than that of investors

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A leading confidence index for the proptech industry indicates a gradually growing if cautious optimism among startup founders and investors trying to find some light in the investment market’s post-COVID economic darkness.

The startup founders who responded to venture capital firm MetaProp’s year-end 2023 confidence index expressed more confidence than in the last survey in the middle of last year. Founders’ confidence clocked in at 6.1 on a 10-point scale, up from 4.8 in the semiannual survey. That marked both the third consecutive increase in that cohort’s confidence and a rebound from the all-time low of 4.2 recorded in mid-year 2022.

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Proptech investor confidence didn’t jump as dramatically as that of founders. It registered 6.5 out of 10, up from 6.1 at midyear 2023, indicating a gradual eagerness to re-engage with a market that expects an improved macroeconomic horizon that will in turn make for a more stable investment climate.

“I think everybody was a little on edge,” said Aaron Block, co-founder and managing partner at Manhattan-based MetaProp. “Things were really tough a year ago. When we got the [2023] midyear confidence index there was a bit of a rebound. That settled the troops a little bit in that folks were really concerned that the market was bouncing around the bottom, rather than what potential looks like at the beginning of a sustained recovery.

“As can be seen by the results, although the overall confidence index for investors and startups didn’t move tremendously, there does seem to be some greater confidence amongst the startup people versus the investors.”

Founders and investors have reset their expectations, with entrepreneurs not overjoyed about the current investment market, but more sanguine due to deal comps that give a better indication of where investors will deploy capital, said Block.

“Again, that gives a very settling feeling and inspires confidence in the entrepreneurs, because even if it’s bad news, at least it’s understandable,” said Block. “That’s a real positive, because the markets don’t like uncertainty.”

Among the responding investors, 43 percent expect to make more proptech investments in the next 12 months, echoing sentiment from midyear 2023 and up significantly from 26 percent at year-end 2022.

In addition, 48 percent of investors expect an uptick in deal flow over the next 12 months, up from 39 percent six months ago and a significant increase from the all-time low of 19 percent at midyear 2022.

In mergers and acquisitions, 71 percent of investors expect to see more M&As in 2024, maintaining a sentiment above 70 percent for the seventh consecutive Index.

From an innovation perspective, 41 percent of investors said they are most interested in proptech solutions for multifamily, the highest of any asset type. Notably, investor interest in office solutions dropped to 8 percent, a low not seen since midyear 2022.

Additionally, 31 percent of investors are most interested in investing in architecture, engineering and construction (AEC) technology, while 25 percent are most interested in sustainability startups, down from the all-time high of 41 percent at year-end 2022.

“I think there’s still substantial blowback to the ESG hype cycle in the U.S.,” said Block. “There’s still a lot of bullishness and rightfully so, but there’s also a heavy dose of reality from investors who are first and foremost focused on making smart investments, not just throwing money at buzzwords like ‘ESG’ or ‘decarbonization.’

“AEC is part of where you’re seeing real value being created, and that’s reflected in our portfolio,” Block said of his own firm and the industry at large. “There is real adoption from industry, because real efficiencies are being created. In particular you’re seeing AI start to make a difference on the job site, and even more prevalently, in the back office.”

Among responding startup founders, 35 percent believe it will be easier to raise capital going forward, up from 22 percent in midyear 2023, and a notable shift away from the all-time low of 5 percent at midyear 2022.

Further, 41 percent of startup founders expect the proptech space to continue to grow over the next 12 months, while 29 percent are setting a 100 percent to 200 percent sales growth target over the next year, in line with 27 percent who set such a target at midyear 2023 and 22 percent at year-end 2022.

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