OpinionAgent

Why is real estate startup funding on the rise?

It may still feel like a recession in some markets, but venture capitalists are betting there’s growth heading our way in the future
  • All of this VC activity is a sign that the real estate market recovery is well underway.

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When the economy is humming along that’s when you’ll see more venture capitalists come out of the woodwork. In many markets, it’s been awhile since the real estate industry attracted VC attention. But times — they are a-changin’.

According to Crunchbase, between August 2016 and August 2017 a total of 111 real estate startups secured over $502 million in early stage equity funding.

So why is the real estate industry becoming a popular playing field for venture capitalists? That’s a question more industry insiders are starting to explore.

Healthier markets mean more investor interest

If you’ve taken a look at the most recent real estate stats, the increased interest is understandable. Real estate has always attracted a range of investors, especially when things are on the upswing. That’s certainly been the case in many parts of the country for the past few years.

Discovery is the first step venture capitalists take when they want to throw their money around. With the real estate market on more stable ground, more real estate-focused startups are forming.

That means venture capitalists have more companies to discover and choose from. Like the startups themselves, venture capitalist are also hedging their bets based on market stability, which seems to be sound for the foreseeable future.

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Online interruption is affecting real estate investment

Venture capitalists also see lots of room for technological innovation and products within the real estate industry. Despite the many changes and evolution that has come with the introduction of the internet, overall our industry is slow to adopt new technology.

As a result, there’s now an onslaught of tech companies looking to solve sticking points and improve the home search process for modern-day buyers and sellers.

Redfin’s success is an indicator of how strong venture capitalists’ interests are in the homebuyer and seller sectors.

SEC paperwork shows that Redfin intended to raise $100 million in capital. As of July 2017 the venture-backed Seattle-based company had raised over $167 million and sustained its market performance.

There’s also a growing number of startups that support real estate agents and other professionals within the industry.

Given that the industry employs roughly 1.6 million people, there’s plenty of opportunity for the right entrepreneurs.

Venture capitalists that see the potential for growth are staking a claim in real estate startups that provide a variety of services from mobile app continuing education to remote technology-enabled rental management.

Communal and short-term housing is creating another avenue within the industry

Car sharing has rapidly changed the transportation industry. Cyber subletting has had an equal effect on the housing and hotel industries.

The advent of Airbnb followed by formal city regulations has created a legitimate industry within the industry. Millennials in particular have been attracted to the flexibility that short-term, temporary housing offers.

Homeowners are also jumping on board to make extra cash. Some have even turned cyber subletting into a business.

Today, it’s possible for many homeowners to run a bed and breakfast with a few online tools. And more startups are catering to these homeowners.

In total seven home-sharing companies including Pillow, Bedly and StarCity have gotten VC backing in early-stage rounds within the past year.

The short-term, temp trend is also making waves in commercial real estate.

Our workforce is increasingly becoming more remote and mobile. As work environments shift toward customization and on-demand access, venture capitalists have been equally interested in real estate sharing within the commercial markets.

VCs have sunk substantial funds into office sharing startups like Industrious, which raised $62 million over the past year.

All of this VC activity is a sign that the real estate market recovery is well underway. It may still feel like a recession in some markets, but venture capitalists are betting there’s growth heading our way in the future.

Gregg Klar is a Realtor with Keller Williams Realty in Austin. Follow him on Facebook or Twitter.