News

Real estate tech funding’s monumental growth: What you should know

The results might surprise you

Funding within the real estate tech industry has boomed tenfold since 2011.

Funding in 2016 is going primarily toward fintech and property management tools.

Data seem to indicate that real estate tech companies designed to support the traditional model tend to have more immediate success.

If it seems like real estate tech companies are raising money almost on a daily basis, it’s because they are.

According to CB Insights, funding within the real estate tech industry has boomed tenfold since 2011, amassing $6 billion in funding globally with roughly half of investments going toward U.S. companies.

Funding at a historic rate — and accompanying concerns

The real estate tech industry is continuing to acquire funding at a historic rate: U.S. companies have already raised more in the first three quarters of 2016 than all of last year, which was a record-breaking year.

So far this year, investors have poured $821.3 million into real estate tech, setting the industry on pace to raise more than $1 billion for the first time in history.

 

The success of companies such as Zillow, SmartZip and Placester continues to attract entrepreneurs from inside and outside of real estate who are attempting to modernize an industry known for being slow to move on tech.

Data suggest that not only is the accessibility to funding at an all-time high for the industry, but new entrants are experiencing swift success. Companies such as Zumper, Matterport and Realty Mogul are gaining considerable traction in the U.S. despite only being in the industry for a few years.

One concern for this year’s growth is that while funding is reaching an all-time high, the number of deals is on pace to decline by more than 70 percent.

This could be an indicator that investments into early-stage companies are drying up and investors are focusing more on later-stage rounds; however, it’s too early to tell, as funding activity can fluctuate for various reasons.

Where is the funding going?

So where exactly is all this funding going? I plunged further into the data and segmented the money flow into the following categories:

  • Search: for-sale and rental portals
  • Fintech: financial technology such as lending marketplaces, crowdsourcing platforms and real estate investor tools
  • Disrupters:FSBO tools, discount brokerages and new brokerage models
  • Property management: solutions for landlords, renters, agency brokers and tenant reps
  • Big data: tools providing real estate analytics
  • Other: aggregation of miscellaneous real estate tech tools mostly focused on agent-facing marketing, showing or listing tools

Fintech and property management

If we look at all of the capital raised in 2016 thus far, the data indicate that almost half of funding is going into real estate fintech — $380 million through the first three quarters.

The main drivers for this vertical include companies such as LoanDepot, RealtyShares, Cadre and Blend, which have raised $190 million, $50 million, $50 million and $40 million respectively in 2016.

These companies comprise models that not only make borrowing from lenders easier and more consumer-friendly, but also fragment the origination source of lending.

Fintech was also the leading category of funding in 2015, accounting for 35.5 percent of investments, and has grown 11 percentage points since 2015, indicating increasing competition in the space.

The second-most-active sector within real estate tech was property management solutions, which raised over $230 million so far this year.

This market is heavily driven by SMS Assist and VTS (View The Space), which have raised a combined $195 million and $79.3 million in the last two years. Both companies compete in the property management software space.

Big data and search

Funding activity in big data and search has slowed over the last couple of years as a result of saturation because both markets contain players with strong market share and healthy revenue streams.

New entrants in search are mostly focused on feature-rich products, such as matching buyers/renters to neighborhoods rather than competing directly against search giants like Zillow or realtor.com.

The strongest trend in big data is the growth of predictive analytics companies competing against SmartZipand Offrs.com.

Disrupters

The industry is experiencing a healthy amount of investment into the category I call “disrupters.”

This category includes companies whose goals are to transform the traditional home transaction process, usually by circumventing agents/brokers out of the process, as well as companies that are creating new models within the industry for either consumers (Opendoor) or agents (Compass).

Although the market isn’t short of new entrants and business models attempting to “disrupt” the status quo, the data suggest they have gained very little traction over the years.

According to the National Association of Realtors, 87 percent of buyers used areal estate agent or broker in 2015. This number has been steadily consistent over the last decade despite the number of new entrants self-identifying as market disrupters.

Which companies are here for the long haul?

Companies that seem to be more focused on supporting or enhancing the traditional real estate model tend to have more immediate success.

Over the last 10 years, the industry has experienced a 10-percent increase in buyers using agents, while FSBOs (for-sale-by-owners) have decreased by half; however, the percentage of buyers using agents seems to have reached a peak.

Even though consumers are still using agents to help them buy and sell homes, it doesn’t mean the industry is not going through a period of innovation.

It’s a fascinating time to be in the industry as technologies such as predictive analytics, online transactions and artificial intelligence are becoming more and more commoditized within real estate tech.

Looking at the funding activity in the industry alone, it is safe to say that real estate is experiencing a period of unprecedented innovation and competition.

 

Adi Pavlovic is a Sr. Technology Researcher at Keller Williams Realty International, focused on keeping a pulse on the real estate tech industry as well as studying the behavior between agents and technology.

 

Read the Full Story