In Proptech, Overpricing Is Now an Issue

Venture capitalists and other investors spend much of their time attempting to price proptech companies. Results vary, but whether pricing an investment into a startup or a more mature company, concerns about overpricing may be more relevant than ever these days.

The Federal Reserve’s decision last week to hold the line on interest rates, which ended a string of three consecutive quarter-point rate cuts, was a reminder that the era of cheap money has not returned — and may never return — adding additional weight to such investment plays. The Fed’s vote, combined with some mispricings of proptech companies in recent years, are making investors more cautious and scrupulous in assessing values.

“Broadly within venture, there were a number of companies over the last three or four years that were overpriced,” said Jake Fingert, a managing partner at proptech venture capital firm Camber Creek, declining to name the firms. “What we’re seeing right now is increased discipline. Some of those companies that were overpriced are going to have a moment in 2026, where pricing will need to come back down to a more reasonable level. Otherwise, the companies might face extinction.”

Such mispricing is not specific to proptech, Fingert said. “It applies to venture more broadly. But certainly proptech was not shielded from some of that overpricing.”

Anecdotally, Fingert estimated that at least a quarter of the deals Camber Creek has seen are overpriced relative to their value.

While a number of companies have gone out of business due to overpricing, a founder’s decision to move forward or close down is a tough one to make.

“For any company, if you create something of value, there should in theory be a price where people are willing to pay for it,” Fingert said. “And I think some companies have created things of value, but there’s just a disconnect in pricing. The options are potentially to either take a big down round and effectively start over, or go out of business. In some cases, founders pick the go-out-of-business route, as opposed to going back to square one.”

To avoid mispricings on its proptech investments, Camber Creek follows a rigorous and multistage, hypothesis-driven approach to valuation and pricing, said Fingert.

“We’ll come up with an investment thesis or hypothesis about why we think a company should be valued in a certain way, and then we’ll go out and actually prove or disprove that based on a very long list, including customer references, founder references and financials,” he explained.

In addition, like many investment firms, Camber Creek also analyzes a company’s market size, and whether it has the necessary customer base.

“Sometimes they can have a great product, but if they’re attacking a relatively small market, it can be very difficult to build a really big business,” said Fingert. “We’ll also look at the founders’ track record. Are they strong on execution? How fast have they been growing? We’ll also look at things like margin and customer concentration, because, if a company has one really big customer, that’s a lot less valuable, typically, than a company that has many strong customers where you see good diversification of the customer base and less industry concentration risk.”

Ajey Kaushal, a Los Angeles-based principal at JLL Spark Global Ventures, who leads the company’s U.S. investment activity, said that challenges surrounding pricing proptech firms have become more pronounced in the past couple of years.

“I think it’s been, especially over the past two or three years, a little bit of a moving target,” said Kaushal about how JLL Spark prices companies for investment. “I think that in private markets, oftentimes it’s market driven.”

JLL Spark is often a secondary investor in a proptech company, Kaushal added.

“More often than not, we’re the second-biggest check, going alongside other leads solely in the proptech space, or a generalist investing in our space,” he explained. “So we get a flavor for all different kinds of terms that get tendered for companies in our space, and we’re able to track that. We have a pretty good pulse on where the market is, so to speak, for companies performing at different levels. Part of it is the science of just aggregating a lot of that and saying, ‘OK, for a company growing at Y percent, we generally know the market is in this multiple range based on that revenue number.’ That’s the heuristic on the science aspect, right? But a lot of this ends up being art.”

Kaushal said that given how nascent a lot of the startup and innovation activity has been in proptech, the space does not have as long a history of material exits as most other vertical spaces.

“In our space, we don’t see companies getting acquired for billions of dollars,” he said. “We might see the one-off that gets acquired for maybe $1 billion, but oftentimes the company that does really well is acquired in the $3 million to $500 million range. So we kind of work backward from what we expect the exit to be — temper the risk now to actually be able to get to that exit with your performance. We’re really conscious about not wanting to give companies a valuation that they have to grow into, because we want companies to be rewarded by the progress that they’re able to generate and for a lot of the value that we can bring them as well.”

The overpricing of proptech companies by investors depends to some extent on who is doing the investing, Kaushal said.

“I think it really depends on who the lead investor is,” he said. “I find a lot more pricing discipline by lead investors that are solely focused on our space. So just to name a few funds, we’re pretty close with Navitas Capital and Camber Creek — folks that are conventionally leading a lot of these rounds.”

That changes with generalist investors.

“If you think about the Andreessens of the world, we see a little bit more of a premium on valuation,” Kaushal said. “I think it’s just because of the fund size and what they have to do to be able to win the deal. In some cases, I also find that they’re backing founders who don’t come from our space and are technologists that see your pain point in real estate, and end up giving a little bit of a premium to an ex-Google founder or something like that. So I see that there is good discipline if you are aware of, and have been investing in, this space for a while. I see that maybe you get strayed by more of what the market is doing generally, if you’re a more generalist investor.”

Kaushal pointed to over-fundraising as a key danger in over-valuing a company.

“I often find high valuations are attributed to maybe larger than necessary fundraise amounts, and that’s where I get more concerned,” he said. “If you are a startup that has raised an inordinate amount of capital, your pref stack — the amount of equity that’s tied to preferred investors — needs to have an outcome for yourself as founders that becomes so high you’re chasing an exit that doesn’t exist or is not palatable in our space. I think it’s a lot tougher for everybody to be marching in the same direction when you do that.”

In the proptech investing space, JLL Spark and other sector-specific investors don’t need to have large raises, because they are more strategic in making introductions into the marketplace, Kaushal said. “A lot of the capital that’s getting tied up in distribution or access to the market, maybe our expertise or our brand or our relationships, helps us price you a little bit more effectively, and, as a result, there’s more upside for the operators of the business, because there’s less of a preferred stack that they need to cross.”

Pricing in proptech became more disciplined following a post-pandemic hype cycle,  especially when compared to generalist artificial intelligence companies that are raising at extraordinarily high valuations, Kaushal said.

Camber Creek’s Fingert suggests keeping an eye on how early-stage startups are priced.

“It is certainly more prevalent in early-stage startups,” said Fingert. “That’s where we see the most variation in pricing. In the seed or Series A rounds there can be pretty large disconnects in how different groups value a company when you get more mature. This makes sense for a lot of reasons. There’s more historical data. You typically have better financials and the company is more mature, so you can look at things like customer churn, and you can look at different metrics for the company profitability, and really have a sense of where it’s heading.

“Taken to the extreme, an even more mature company that’s, for example, pre-IPO, oftentimes will get priced similar to a public company, where you have enough sophisticated investors looking at investing meaningful amounts of money into the business, and they underwrite them in a similar way.”

Aside from the hard numbers involved, investors can become overly emotional about their prospective investments.

“What we see most often is just competition,” Fingert said. “It’s a bit of human nature, but people see a company and they get really excited. They do a lot of work and they think the company is worth $50 million. Then, it gets competitive and they don’t want to lose the deal. They end up losing discipline in order to try to effectively win the deal.”

Then there are the times that the founders get in their own way.

“There are some founders that view the markets and say, ‘The markets are going to tell me what the right price is for this company,’” Fingert explained. “There are other founders that just say, ‘The price has to be X, otherwise I’m not taking it.’ In situations like that, as a firm our policy is not to move forward with those types of deals. But there are some investors that want to be a part of a given company, or want to partner with a founder so much that they’re willing to loosen some of their potential controls around price discipline.”

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