Direct or specific property management:
Companies that focus primarily on direct property management (Representing 43% of companies)
Furthermore, in this fiscal year alone, these companies raised about five times their total annual average fundraising rate between 2000 and 2019. To better understand this growth, we continue to classify these companies into our four foundational categories: “Investing,” “Building,” “Managing,” and “Living.”
The growth in investments, to a remarkable $20.41 billion invested in PropTech during the 2021-2022 fiscal year was in part thanks to the simple growth in the raw numbers of investors in the industry. While there were around three thousand total investors between 2000 and 2019 when we composed the 2020 Barometer, the number of investors remained remarkably high when we narrowed the focus to a single year for the 2021 Barometer. Indeed, there were some one thousand eight hundred investors from 2020 through 2021, who raised $12.05 billion.
The current trend is: while total investments have nearly doubled, the number of investors in PropTech has more than doubled, reaching a record high of 4,693 investors in a single fiscal year. Thus, this year we will be telling the story of remarkable growth of investments, while also considering how the field of the marketplace has shifted. Does the remarkable increase in the raw number of investors represent a leveling of the playing field? Or, does it represent an awakening of major players to the realization that they, too, should be involved in PropTech?
Most of the entrepreneurs [in PropTech] do not come from Real Estate. So, it’s important to make sure their business model can fit into the Real Estate world. Our team combining real estate and venture experiences does this.
While it is true that the PropTech industry did expand to three new countries over the course of the past few fiscal years (from 64 countries in 2020, to 66 in 2021, to 67 in 2022), the growth of PropTech across borders alone does not explain the growth in investments. Furthermore, with the advances in technologies and the ever-changing nature of the global economy, the PropTech industry has experienced some restructuring in terms of mergers and acquisitions.
Figure 9 shows the distribution of M&A activity by company category, and like last year, we see most of the activity in the Living category with 45% of acquisitions, followed by the Managing category at 28%. Acquisitions in Living fell around -4%, while managing also slightly declined, falling by around -2%. Furthermore, Building acquisitions, although they represent a much smaller percentage of the share, also fell by around -3%. Only investing acquisitions increased. And, they indeed increased substantially as a proportion of the total, rising from 9% of total acquisitions last year to about 19% of total acquisitions this year.
A Special Purpose Acquisition Company (SPAC) is sometimes known as a “blank check” company. These companies are a tool that investors use in acquisitions. For one of our case studies, our team examined elements of SPACs and how SPACs help companies through the Mergers & Acquisitions process. Very importantly: a SPAC can be listed on the public stock exchange without going through the typical public offering process. Thus, they are a tool to allow investors to pool funds and finance a merger or acquisition within a given time frame. Stock exchanges such as the NASDAQ or NYSE often see SPACs in their listing. An example of a well-known PropTech company that went public via SPAC is OpenDoor, in December 2020. However, SPACs have also appeared in recent years on the Euronext Amsterdam, Singapore Exchange, and the Hong Kong Stock Exchange. In addition to the above data, SPACs continued to increase in 2019 and 2020, as there were 59 SPAC transactions in 2019 and 248 in 2020, with over 300 in 2021.
In 2007, the Pan-European Hotel Acquisition Company N.V. became one of the first, if not the first SPAC listed on a European stock exchange. Since 2007, signatures of SPACs have proven to be relatively efficient and inexpensive, compared to other means of raising capital and the process of IPOs. SPACs often provide higher valuation, less dilution, increased certainty, increased transparency, less regulation, and fewer fees than IPOs. Nevertheless, as figure 8c shows, we are seeing that SPAC IPOs were quite high up until 2008. Also, around 2006, SPACs proved to be a valuable means of acquisitions.
With the increasing trends of acquisitions in coming years, we would expect to see increasing numbers of SPACs as well. Perhaps most famously, WeWork announced it would go public via SPAC in March of 2020. However, other famous companies, such as OpenDoor, Offerpad, and Matterport also announced or completed SPAC mergers in 2020. SPACs in PropTech are attractive because the capital needs in PropTech companies tend to be higher than other industries, such as software.
SPACs managers are also attractive because they can spend a significant amount of time with PropTech practitioners and company leadership, learning deeply about the business models, and therefore educating the broader market more easily than other means of attracting investors. The robust environment of Mergers and Acquisitions (M&A) in PropTech also makes this particular sector attractive for SPAC players. Finally, there have been some changes in the PropTech market recently that have coincided with the SPAC boom. In short, the pandemic forced innovation, while SPACs were out searching for fast-growing companies, and PropTech businesses were growing at unforseen rates, creating a need to access new capital more quickly than before in order to continue to scale. These factors have grown to stimulate SPACs as a feature of the PropTech world.
“Property Management” refers to one of the five sub-categories that belong to the Management category in “PropTech Global Trends 2021 – Annual Barometer.” The Management category includes all companies and startups that provide services related to rental search and property sales in the real estate sector. The Property Management subcategory in Technology corresponds to technologies that help monitor, preserve and improve the management and value of rental income properties, such as tenant and payment management, as well as cutting-edge communication, design and service tools.
From the data provided by Venture Scanner, we have data on 2345 Real Estate Technology companies. Of these, 242 correspond to the Property Management category, or about 10%.
For the subsequent analysis, 4 sub-categories are constructed within the Property Management category, which are assigned according to the description provided by the company itself.
Companies that focus primarily on direct property management (Representing 43% of companies)
Companies that manage payment between tenants, landlords, financial services or asset managers (Representing 30% of companies)
Companies that facilitate communication between tenants, owners, managers, occupants, neighbors and service providers (Representing 16% of companies)
Companies with a specific focus on delivering a technological product (Representing 11% of companies).
A geographical analysis of the same companies revealed that most companies are concentrated in the United States, followed by the United Kingdom. Then significant concentrations of companies exist in Western Europe, with just a few companies sprinkled in Eastern Europe, Saudi Arabia, Israel, Brazil, Mexico, Nigeria, India, China, Japan, Indonesia, the Philippines, Australia, and New Zealand. Through eliminating the United States from the geographical analysis, we can get a better sense of the geographical distribution in Figure 11, which shows Management companies worldwide, excluding those based in the United States.
Management company acquisitions were a relatively minor feature of total M&A in PropTech between 2010 and 2017, as there was an average of just one acquisition per year. Suddenly, in 2018, there were five total acquisitions, followed by four in 2019, and three in 2020. Again in 2021, we saw a large jump in acquisitions, totally eight in the fiscal year. Following these trends, we would expect acquisitions to decline in the short term, but for overall market consolidation to prove to be the long term trend.
Figure 12 shows the top 10 business management companies that have received investments since 2021, as well as the amount invested in millions of dollars for each company. The company with the largest investment is Clikalia, whose investments totaled US$595 million between 2021 and 2022.
Figure 13 shows the top 10 companies that have invested in companies belonging to the business management category with the respective amount in millions of dollars in the years 2021-2022. We see major cross-industry market players, such as Jaws Ventures and Deutsche Bank right at the top of the list.
Figure 14 shows the total investments in millions of dollars for the years 2003 to 2021. During 2019 there was a significant increase in investments in the category of business administration, although we see this trend decline in subsequent years. We can assume that this is because the economic downturn of the Covid-19 pandemic was actually locked in during the 2020 fiscal year. The major jump in the following year is likely, similarly, a sign of the economic recovery.
We can conclude the Management category shows positive performance over the years in this case study. Specifically, a significant boom is observed in companies focused on Digitization at their core. Although the category of Direct Management is seen as one of the most relevant to growth, it is important to mention that it is the broadest category and includes those companies where there is no particular focus on any of the other three categories. Thus, this consideration may have weighted the results of the data in favor of the Direct Management category in contrast with the more narrowly tailored definitions of Communication, Digitization and Financing.