Proptech Industry Confidence a Mixed Bag, Per MetaProp’s Midyear Index

Investors and startups are “cautiously active,” according to MetaProp’s midyear 2024 Global Proptech Confidence Index, which was released Tuesday and first shared exclusively with Commercial Observer.

The Manhattan-based proptech venture capital firm conducted its midyear survey prior to the Federal Reserve’s Sept. 18 interest rate cut.

Given that timing, the survey’s results reflect a more tempered view of the proptech market than entrepreneurs and investors might have now, said Aaron Block, co-founder and managing partner at MetaProp.

“You’ve seen several things happen since the end of the second quarter that have both a lifting effect and detrimental effect to the overall perspective and confidence,” Block said. “The downside being the election uncertainty and the geopolitical stuff that continues without abatement. And, then, on the good side, the rate cut and the strong jobs report from last week. So I think it’ll be an interesting third and fourth quarter on the back of a relatively uncertain first and second quarter.”

Ranked on a scale of 1 to 10, the midyear 2024 proptech investor Confidence Index was 6.3, contrasting against a less positive confidence score for startups of only 4.3. Startup confidence was down from 6.1 at year-end 2023. 

Taken on its own, the midyear 2024 Confidence Index for investors alone was 6.3 out of 10, consistent with the 6.5 year-end 2023 score.

Among the investor insights in the survey, 48 percent expect to maintain their investment pace over the next 12 months, while 55 percent of investors anticipate deal flow from investment will remain steady. In addition, 70 percent of investors anticipate more mergers and acquisitions in the coming year, indicating a continued expectation of industry consolidation, while 48 percent are most interested in investing in solutions for property management, the highest of all categories, followed by 19 percent in construction and development.

Significant startup insights included that 48 percent of startup founders expect venture capital fundraising to remain difficult in the year ahead, while 35 percent of founders reported that a pre-seed round was their most recent financing stage, up from 18 percent six months ago, reflecting significant recycling of talent and new company formation throughout 2024, according to the midyear Confidence Index.

Macroeconomic and global uncertainties continue in a somewhat static proptech marketplace, Block said.

“There’s a lot of watchful waiting from the investment community that is neither super-bullish nor super-pent-up,” he said. “In fact, it can act a bit more rosy than one might expect if you’re an outside non-venture observer, and certainly if you’re a real estate observer, proving again that the tech market and the real estate market don’t necessarily act in lockstep in the same cycles.

“This indicates that there’s probably more optimism in the proptech market than there is in the general real estate market, but I think [existing] startups are still struggling. Unless your business is successfully positioned as an artificial intelligence or decarbonization company, it can still be really tricky to raise Series A and beyond money right now. The seed market continues to be fairly strong and I think it will continue to be so.”

There is more action on the startup side of the equation, said Block.

“There’s a lot of action in seed right now,” he said. “Valuations are holding up relatively well, from what we can see, and there’s a lot of exciting new companies being built. At the later stages, you’re still seeing the inevitable work-throughs and workouts of companies that were growth-oriented, transitioning to profit-oriented and then running to the end of their legacy remaining cash positions.

“So, I think there will be more down-rounds, more consolidation amongst the tech community, and more follow-on investments from insiders with preferential deal mechanics, including liquidation preferences. We haven’t seen the end by any means of the challenges and distress in the series A, B and C markets, which creates a great buying opportunity for those who can move quickly and who know their spaces very well within the proptech world.”

Having seen startup activity pick up over the last 12 months, Block said he expects proptech’s entrepreneurial sector to leap forward in the fourth quarter.

“I expect it to be robust,” he said. “From a new startup creation perspective, we’re seeing folks who are technologists jumping in and building companies. We’re also seeing real estate folks peel off their legacy roles and create tech-driven solutions to problems that they know better than anybody else in the vertical software as a service space. I think that pattern continues at the earliest stages. We’ll see what happens at the later stages as rates continue to evolve, geopolitical uncertainty hopefully clears up a bit, and the U.S. economy becomes more clear, including mortgage rates tied to the Fed.”

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