The U.S. real estate technology market saw an investment of $1.85 billion in equity capital and roughly $140 million in debt financing for iBuyer and real estate financing companies in the third quarter of 2019, according to a new study released Monday by GCA Advisors.
The $1.85 billion is the biggest quarterly equity raise since GCA Advisors – and second biggest when factoring in debt financing – began tracking the sector in the fourth quarter of 2017, and there’s no sign that the pipeline of capital flowing into the space is drying up, according to Marcus Anthony, a vice president at GCA Advisors.
“October was the second largest month in terms of private financing volume in the proptech category in 2019, and there are no signs of a proptech market slowdown given the activity we’ve seen to start November,” Anthony said. “What we’re seeing is continued growth investment into category leaders (e.g. Reonomy, HomeLight, Vacasa, etc.), and scale [merger and acquisition] players continue to be active to drive growth and synergies, for example Ellie Mae’s acquisition of Capsilon, CoStar’s acquisition of STR and RealPage’s announced acquisition of Buildium.”
The biggest financing round of the quarter belonged to flexible workspace provider Knotel, which raised $400 million, to reach a $1 billion valuation. Although that round was before The We Company filed its S-1 with the U.S Securities and Exchange Commission, announcing its intent to go public.
One of the biggest stories of the third quarter in the proptech sector was WeWork’s failed initial public offering, plummeting valuation and eventual ouster of its CEO and a takeover at the hands of SoftBank, its biggest backer. SoftBank has been active in the space – it led a $370 million funding round for Compass, one of the biggest equity raises of the quarter.
Anthony said he doesn’t believe that WeWork’s struggles will impact the overall proptech market, but it could impact the shared workspace segment.
“I think that the We Company’s IPO process will obviously cast a valuation shadow over the shared workspace category, but I think that the market is able to differentiate between business models and companies, and we’ve already seen companies raise very significant growth financing rounds in the proptech category since the failed IPO,” Anthony said.
He continued, “In many ways, WeWork was in a category of its own in terms of valuation hype cycle and funding, so while the story attracts a lot of media attention given the scale and pace of their valuation reset, there are many other companies in the proptech category that are using capital efficiently to build growth businesses with sustainable unit economics.”