Proptech venture capital firm Zigg Capital just closed its second fund. Its first fund was $100 million; this one will be $225 million. The new fund will allow Zigg to write larger checks in more mature companies than the first fund.
More on Zigg
Zigg is based in New York and focuses on investing in proptech start-ups. To date, Zigg has invested in 25 companies, which includes one public exit.
In a statement, Zigg explained, "The pandemic and current housing crisis both expose how we must reimagine our built environment," which is the foundation of the firm’s investment thesis.
Zigg’s investment thesis is built upon two main themes:
- Near term: The combination of COVID-19 and a new tax regime are forcing real estate owners to recognize how important a lever technology can be in their strategy.
- Long term: Social inequality, shifting demographics, and changing preferences are leading to evolution in the home, office, and places people consume goods or how they experience the communities they live in.
The firm invests in businesses touching real estate, construction, and retail. While Zigg backs businesses serving the real estate industry, the firm also invests in companies competing against the real estate industry.
A ripe industry for investment
Zigg estimates that $17.7 billion was invested into proptech in 2020, which is close in line with 2019 levels. Softbank (OTCMKTS: SFTBY) investment activity was removed from these figures to avoid distortion. For context, Zigg said that the five-year compound annual growth rate (CAGR) for proptech investment mirrored that of fintech over the same period.
The firm expects this trend to continue. The Zigg team says it is already engaging with many early employees from Airbnb (NASDAQ: ABNB) and Opendoor (OTCMKTS: OPNDF), two notable real estate disruptors that went public recently. With the recent IPOs, Zigg expects talented employees from those firms to "splinter off to start new concepts in the vertical."
Plans for the second fund
Zigg expects to maintain its track record of investing in the top 1-2 percent of prospects. For reference, Zigg screened 2,000 companies before investing in its first 25. This much larger second fund will also enable Zigg to lead larger Series A and Series B funding rounds moving forward.
Zigg’s second fund includes leading universities, sovereign wealth funds, and philanthropic organizations. Interestingly enough, Zigg has not taken any capital from real estate industry incumbents because the firm “is approaching the category with an unbiased eye.”
This is a really intriguing strategy that should pay off. While many proptech venture funds are either funded by the real estate industry or are corporate venture capital funds, Zigg is taking a unique approach. The company is investing in big problems and a system that's due for big structural changes. It’s probably a good idea to approach it with fresh eyes.
The Millionacres bottom line
Capital continues to flow into proptech, so expect to see Zigg’s name next to some upcoming proptech start-up funding news. And if you’re a real estate investor, take note of Zigg’s investment thesis as you assess your portfolio today and build for the future.