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Venture Capitalists Piled Record $4B Into Proptech in Q1

Investors undeterred by rising interest rates and lackluster public debuts

Rising interest rates and market volatility have whipped up headwinds for real estate technology in recent months, but venture capitalists didn’t get the memo.

A record $4 billion of VC equity funding flooded into the proptech field in the first quarter as “investor confidence” in the sector hit an all-time high, the investment bank Keefe, Bruyette & Woods said in a report.

That’s an increase of 41 percent compared to the fourth quarter, and a gain of 31 percent compared to the same time last year. The high-water mark comes after a record year for proptech fundraising, when VC investment in the sector hit $11.7 billion, according to the report.

Investors’ appetite for risk seems to be on the rise, too. Seed and early-stage investment was up a whopping 122 percent year-over-year, while mid- and late-stage rounds saw a 14 percent decline in dollars committed.

The elevated first-quarter funding — buoyed, according to KBW, by investors’ positive long-term outlook for proptech adoption and growth — belies the sector’s recent weakness in the public sphere. Proptech stocks significantly underperformed the broader market in the first quarter as investors rotated to value names from growth ones amid rising inflation and the Federal Reserve’s “more hawkish” interest rate outlook, the firm said.

Proptech stocks fell 20 percent in the first quarter, on average, while the S&P 500 and Nasdaq Composite logged declines of 6 percent and 11 percent, respectively.

Proptechs that went public through mergers with special purpose acquisition companies, or SPACs, have generally fared the worst, down an average of 47 percent in the first quarter. The majority were trading below their $10-per-share buy-in prices at the end of March.

KBW’s Ryan Tomasello (LinkedIn)

“We’ve kind of been washing out the sector over the last several months,” said Ryan Tomasello, KBW’s research director.

Market conditions are ideal for M&A, the firm said, citing a broad “reset” of company valuations and performance expectations in recent weeks.

Globally, 57 proptech M&A deals were announced in the first quarter, a 16 percent increase from the fourth quarter but consistent with last year’s quarterly average. First-quarter transactions included SmartRent’s $135 million purchase of the maintenance and resident service software SightPlan in March and its $13 million acquisition of rival smart-home startup iQuue in January.

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