Proptech Might Be Overhyped — and Overheating, One VC Says

• 2021 was the biggest year yet for property technology, with $32 billion in investment.
• Tusk Venture Partners’ Jordan Nof said that all of that money hasn’t yet created another Airbnb.
• That interest can draw in “opportunists” who don’t have original ideas or viable products, he said.

Many venture capitalists, founders, and landlords are gung ho over what they view as the endlessly lucrative future of property-technology startups.

They have reasons to be starry-eyed: Investors sank a record $32 billion into proptech last year, according to the Center for Real Estate Technology and Innovation. Home prices and rents soared, fueling interest in consumer-focused firms that help people find homes — and secure necessities like insurance — quickly, easily, and digitally.

Startups that claim to revolutionize old-school real-estate roles like property management and brokerage have raked in money, all saying they can modernize the world’s largest asset class. One top-line success story is Pacaso, a proptech firm that manages a co-ownership model for accessible second-home ownership and became the US’s fastest unicorn last year.

Despite all the optimistic signs, one venture investor told Insider that he is simply not impressed by the hundreds of proptech firms vying for capital right now.

“People are raising astronomical sums of money without ever even touching on or exploring the viability of launching their services,” said Jordan Nof, a New York-based venture capitalist who once was a director of Blackstone’s corporate venture arm. “I think that a lot of these are half-baked concepts.”

He says the likelihood of another Airbnb — the 13-year-old company that transformed hospitality by creating a tech-powered platform to book short-term rentals hosted by regular people — is low.

“I haven’t seen an Airbnb since Airbnb,” said Nof, a managing partner at Tusk Ventures Partners. “That’s what’s been really underwhelming.”

‘Opportunists’ are flooding proptech for cash

Tusk, which Nof cofounded in 2015, has invested in the smart-access firm Latch, which went public last year, as well as companies that have attracted real-estate-specific capital like the insurance company Lemonade and the scooter company Bird.

His firm invested in Latch’s Series A, which valued the smart-lock firm at roughly $26 million, according to CB Insights. The firm now has a

market cap

of almost $1 billion.

Nof told Insider that his biggest gripe is with “opportunist entrepreneur behavior.” Some founders who want a piece of the billions poured into proptech, he said, are building products that he thinks are only “marginally better.”

“I asked one company why they are different from all of these other startups,” Nof said. “What do I need to believe for this to be a billion-dollar company, and what’s the value proposition here? The answer was literally, ‘We’re not as shitty as this other company.’ Are you serious?”

Nof declined to name that company or any others that he sees as copycats with little new or original to offer.

A quick scan of the industry, though, reveals that many companies are working on similar products. On the software side, countless companies bring Salesforce-like customer-relationship-management software to tasks from how real-estate agents organize their workflow to how buildings track janitorial and maintenance staff. And in real-estate finance, a flock of firms has adopted and tweaked old models such as timeshares and rent-to-own for a modern audience.

Some firms look fancy but have little under the hood

Compared with the financial-tech sphere — where cryptocurrency, mobile-payment firms, and insurance-tech companies have fundamentally changed how people and companies transact — Nof said there’s been a dearth of truly game-changing tech in the real-estate world. 

Companies like Plaid and Stripe have had Airbnb-like impacts in financial services, but the fintech industry isn’t without its own copycat problem.

“The thing about consumer finance is that there are a lot of terrible business models for underlying consumers dressed up in a really nice website with a good-looking user interface,” Nof said. “It looks really nice, but they’re not doing anything that’s in the best interest of the customer.” 

The secret to having an actual impact, he said, is focusing on solving specific pain points for a “particular customer set,” instead of repackaging existing products with fancy graphic design. 

A slowdown might be necessary

Nof did say he’s not looking to invest in as many proptech companies these days. There’s also a difference, he said, between his needs as a generalist investor, looking for financial returns above all, and the needs of real-estate-specific funds that raise a lot of money within the industry, such as MetaProp, Fifth Wall, and RET Ventures.

“They’re underwriting these deals because that’s their mandate, and their limited partners are not only concerned with financial returns, but they also need to keep a finger on the pulse of what’s happening in the market,” Nof said. “And shame on them if another Airbnb comes along and crushes them.” 

Real-estate-specific funds act as market intelligence for the industry, so they’re able to stomach larger losses than generalists like Nof.

Nevertheless, Nof thinks that a slowdown — which would deter opportunist startup founders looking for a quick $10 million check — might be necessary for proptech to hit its stride.

Lower valuations, he added, would enable a larger financial entity to buy multiple proptechs and consolidate the industry.

“There will be an opportunity to play the bad guy and swoop in and buy a bunch of distressed assets here,” Nof said.

That firm could then combine these companies to make something transformative, he added.

“I still have high hopes that once proptech becomes the nonsexy part of the venture universe,” Nof said, “that’s when meaningful things will get built.”