While the major real estate industry players have been making headlines with a new SPAC announcement seemingly every other day, you may have missed that some of them have their own internal venture capital firms to invest in early-stage proptech companies.
What does that mean, and why are real estate firms launching their own corporate venture capital arms to invest in proptech?
What is corporate venture capital?
Broadly defined, corporate venture capital is the investment of corporate balance-sheet money directly into start-ups. A good venture capital fund is able to source and identify solid companies from the sea of tech start-ups out there while also being able to support them and add value outside of check-writing.
The logic behind corporate venture capital is generally threefold:
- The corporate venture capital team can leverage its knowledge, industry expertise, and know-how to identify the market viability of a start-up.
- After investing, the firm can support a start-up by either becoming a customer, introducing the team to other potential customers, or providing an expert-level knowledge of the industry.
- Firms can use their corporate venture team to keep an eye on emerging industry trends.
This works great in theory, and the best corporate venture capital arms can be very successful. That said, it's difficult to execute successfully. For example, while it’s nice to have industry experts to give feedback on the market viability of a startup, new tech companies are inherently disruptive and industry-altering. At the same time, if you’re a really early-stage investor, you’re generally betting on the team that's building the startup.
Property technology (or proptech) is the use of technology to drive efficiencies in real estate, ultimately leading to improved asset returns, reduced friction, and greater transparency.
Over $30 billion in venture capital was invested into proptech in 2019. Technology is used by every kind of real estate investor, from institutional investor to homebuyer to property manager.
Examples of proptech companies you’ve likely heard of include Airbnb (NASDAQ: ABNB), a vacation rental listing site; Zillow (NASDAQ: Z) (NASDAQ: ZG), a home-sale listing site; and Opendoor, an iBuying platform.
How the real estate industry is using corporate venture capital
Going back to the logic behind corporate venture capital in general, it’s pretty clear why it makes sense in the real estate industry:
- Real estate firms have a plethora of industry knowledge and connections that can move the needle for an early-stage start-up looking to scale.
- Those real estate firms have available square footage for the start-ups to pilot their technology and scale.
- The industry is generally slow to move, so this becomes a way to see what’s coming.
Corporate venture capital strategies are being used both by real estate firms and large construction industry players.
Traditional real estate firms
JLL (NYSE: JLL) has its own $100 million fund, JLL Spark. Since launching in 2017, JLL spark has made over 20 investments, and co-CEO Yishai Lerner says the company "believe(s) proptech will be the next wave of innovation, and we’re committed to leading this transformation." Lincoln Property Company has a dedicated corporate venture capital fund it calls LPC Ventures. RXR Realty also has its own venture fund as well.
Two of the more active construction industry players with their own dedicated venture arms are Suffolk Construction and CEMEX. Boston-based general contractor Suffolk Construction is investing in “solutions across the building lifecycle, including real estate investment and development, architecture engineering & construction, as well as property management.” CEMEX is a Mexican multinational building materials company investing “in innovative construction start-ups to drive the construction industry revolution.”
The Millionacres bottom line
Real estate industry players are dedicating money, resources, and time to proptech. Not only can these firms share in the upside of the industry’s future through an investment in start-up companies, but they can also keep a keen eye on what trends are emerging. For real estate investors, it’s important to understand and keep an eye on how the large players are thinking about proptech.