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A lot of venture capital has been invested in real estate in the last few years.
But now the market has shifted and many burgeoning new proptechs are at an inflection point, as well as the venture capital firms that invested in them.
Clelia Peters | Era Ventures
Where does this leave VC firms now as innovation seems to have dried up amid a high-interest rate environment, Clelia Peters wondered to a panel of VC investors during a session at Inman Connect Las Vegas on Tuesday called, “Innovation is Dead! Long Live Innovation!”
“The business models we invested in over the last 10 years were solutions when we were at a 10-year bull cycle in real estate,” Paul Hurst, of First American, pointed out to the group. Now is the time instead for very different solutions to address a starkly changed market, he noted.
Liza Benson, of Moderne, said that many up-and-coming startups in recent years depended on models that revolved around unprecedentedly low-interest rates, and now those models must change.
Dan Wenhold | Fifth Wall
Higher rates, which have significantly impacted affordability in tandem with tight supply in the market have all affected how businesses react to the current market, Dan Wenhold, of Fifth Wall, added.
Peters also wondered if VC companies had potentially caused the struggles many businesses are facing now with producing a profit because of the influx of funding they gave to these shiny new industry startups.
But the panel of VC execs agreed that although funding may have allowed some unsustainable business models to sustain for a time, “our capital going in hasn’t necessarily been the cause,” said Wenhold.
Paul Hurst | First American
“Did we create it? No. But did we help fuel it? Clearly,” Hurst added, questioning how much diligence actually went into some funding rounds.
The current turn in the market will likely lead to “more innovation in things like SaaS and less on the fintech side of investment,” Benson said.
In general, VCs will need to adopt “a more prudent investment style going forward,” she added.
The shift will also likely lead more companies to look for solutions that include consolidating with other businesses that offer adjacent services, Wenhold pointed out. Fewer dollars will also go toward putting more money in the pockets of agents, panelists agreed.
Liza Benson | Moderne
“Venture capital dollars fundamentally shouldn’t have ever been used for something like that,” Benson said.
Hurst said he expects incumbents, or existing startups with a lot of cash behind them, that can make it through the next roughly two years will come out much stronger on the other side.
To Peters’ closing question of whether or not investment can still deliver “transformational innovation” to the proptech sector, Hurst said it’s not a question of “can.”
“I think we kind of have to,” he said.
