Proptech in Review: Investors predict slower growth in 2023

Building and owning a home has been part of human life for as long as civilization itself. But in the past few decades, the lens through which we view real estate and property development has slowly blurred.

It’s not a huge stretch to say that today, as tech increasingly permeates property development and housing, few except those operating in the sector can truly pinpoint what’s happening in the fast-developing world of proptech.

So in order to pull back that veil, towards the end of 2022, we decided to take an in-depth look into the trends and tech in property development and construction. We spoke to a diverse array of investors about finance-focused proptech and the move towards greener proptech.

But since we can’t get a full picture of the proptech space without delving into the tech driving so much of the change, we interviewed Momei Qu, managing director at PSP Growth, and AJ Malhotra, managing director at Insight Partners. They spoke extensively about the latest tech in property and housing development, where the next disruption is likely to happen, and other trends.

(Editor’s note: This interview has been edited lightly for length and clarity.)

TC: There’s a lot of overlap between construction tech and proptech. What would you say is the difference between the two? And where do they overlap?

Momei Qu: We did not coin this term, but we like to use “built world” or “built environment” to capture both categories. Traditionally, we’ve referred to construction tech as solutions that touch things as they are being built (i.e., jobsite, field-level technology targeting AEC as an end customer), and proptech as solutions that touch things after they are already built (i.e., tenant engagement for office buildings, property management for rental properties).

They overlap when there is something of value that applies to the entire lifecycle — construction data around plumbing that can be used for facility management, or outfitting a unit as a “smart home” during the construction phase.

AJ Malhotra: I think of construction tech as a subset or segment of proptech. In my definition, proptech is any technology that touches the full lifecycle of a physical structure, including land acquisition, construction planning, construction execution, financing, leasing, property management, insurance and repair.

Construction tech would fall into the buckets of planning and execution in the examples I just gave, and could also touch financing (for things like construction loans) and repair.

What is your investment thesis for proptech in 2023? What sort of growth are you expecting in the sector?

Qu: The sector has been hurt in 2022, in some ways disproportionally more than others, by the broader tech market reset. Several proptech companies were valued at over $1 billion in private financings or via SPAC, and virtually none of them have maintained a valuation above $1 billion today.

I think part of what made it worse is the double whammy of general inflated multiples in tech/software, coupled with the fact that many proptech companies have a physical component that shouldn’t have allowed them to be valued like a software company to begin with.

I think investors and companies in 2023 will exercise much more discipline, and likely won’t raise too much capital until they have really found a product and sales motion that works. As a growth-stage investor, we typically don’t get involved until we see significant traction anyway, and if they can show momentum and traction in this environment, we are more than happy to lean in in a big way.

Malhotra: I think proptech in 2023 will certainly be challenged, mainly for two reasons.

Proptech in Review: Investors predict slower growth in 2023 by Karan Bhasin originally published on TechCrunch