”There will be two key themes we will see in 2023, consolidation and sustainable growth. If they have all of that, then they face a final hurdle that is my third and final key trend for 2023: recalibration of expectations on valuation.” spend, have high growth rates, and low burns to gain investor interest. Founders in 2023 will need to show clear outcomes vs. Achieving a high investment hurdle rate requires high margins, which in turn require efficient uses of capital. ”I think that cutting burn (rate) and driving operational excellence will be mandatory requirements going forward in 2023. Mike McAra, Second Century Ventures, NAR REACH Canada: Across all sectors of the real estate industry, owner-operators, owner-developers, occupiers, and managers are exploring Climate Tech as companies address climate change, develop differentiated energy sources, and differentiate their assets.” An area that continues to gain tremendous interest is climate-related real estate technology. While some investors and entrepreneurs have experienced economic headwinds, many have not, which will drive proptech companies toward consolidation or insolvency.”
As long as monetary policies remain in flux, the macro real estate industry, proptech investors, and the greater real estate technology industry will deal with some rough and choppy seas. ”The theme entering 2023 will be cautious capitalism. “Spending in companies will be scrutinized much more heavily than in prior years, and there will be more attention paid to the quality of revenue. “There will be a key emphasis on burn ratios, unit economics, and runway,” said Nish Patel, Managing Partner at Inertia Ventures. Founder-entrepreneurs capable of putting together compelling business and revenue models will continue to raise money, even in a tightening market, with a focus on scale, retention, and customer acquisition. On a positive note, deals are getting executed more diligently, leaving plenty of capital available. On a risk-adjusted basis, the hurdle rate for investment is much higher now than just 6 months ago, and thus capital is being allocated much more diligently and much slower.” “While this has broad sweeping impacts for the economy at large, for venture, this has dramatically increased the opportunity cost of capital for GPs. “We have just lived through a decade of historically low-interest rates, which has now all but come to a stop,” said Mike McAra, Director at Second Century Ventures & NAR REACH Canada. Market volatility continues to persist due to monetary policy, rising interest rates, and recessionary fears.
Real estate organizations have adopted a more defensive position as entrepreneur-founders and investors navigate through a cautiously conservative landscape. The narrative in the proptech industry continues to change along with the macro real estate environment. The significant drop-off in funding is the second-lowest investment year since 2018. Globally, capital allocation in proptech companies declined by 38% from $32.0 billion in 2021 to $19.8 billion in 2022. Venture capital (VC) investments in real estate technology (proptech) companies dramatically weakened from the record-setting levels of 2021. To weather economic headwinds, entrepreneurs should focus on operations, customer retention, and unit economics. Monetary policy has dramatically increased the opportunity cost of capital and the hurdle rate for investment. VC-backed proptech companies raised $19.8 billion in 2022, down 38% from 2021.
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