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Recent investors in proptech companies have taken heavy losses over the past year, but that hasn’t stopped new money from flowing into these companies angling to provide new solutions to real estate problems.
Publicly traded real estate tech companies have lost 27 percent of their value in the markets over the last 12 months, according to an index of proptech stocks presented Thursday, by Chris Gough of GCA Advisors at Inman CEO Connect in Las Vegas.
The category fared much worse than the S&P 500, which has lost roughly 6 percent of its value in that time.
But while these losses have hammered investors who bought in at the height of the proptech boom, earlier investors have still seen gains over a longer timeline, said Gough, the firm’s managing director.
“If you have a long-term oriented view in the market and if you’re entering at the right entry point, you’re still doing pretty well on a relative basis,” Gough said.
Meanwhile, venture capital has continued to flow into younger proptech companies. In the first half of 2022 money raised by proptech firms held strong at $8.2 billion, Gough said. That’s down from $8.5 billion in the first half of 2021 but nearly double what these companies raised in each of the two previous years.
Still, Gough said he expects some softening in these capital markets in the months to come. And the amount these companies will be worth to investors remains an open question.
Paul Hurst, chief innovation officer for First American Financial Corp., said it’s particularly unclear how investors will value companies in future fundraising rounds — especially those that have already received top dollar in the past. These companies may be loath to raise additional money at the cost of a lower valuation, he said.
“I think investors are sort of pricing low, and at some companies they are sort of indexing on 2021 prices,” Hurst said. “So I think there’s a sort of [question] like, what’s the clearing price for Series B through E companies in the proptech space?”
Krishna Srinivasan, an investor and founding partner of LiveOak Venture Partners, said that despite the recent crash in prices for proptech stocks he believes the long-term outlook is still promising.
Public investors appear to have adjusted their philosophy on this category, with a heavier emphasis on profitability instead of loss-driven rapid growth, Srinivasan said.
“You see companies getting punished in terms of valuations because of that — which, by the way, I think is healthy,” Srinivasan said. “You think about building sustainable businesses for the long run. … I think of it as, it’s painful, but it’s ultimately long-term healthy.”