Proptech was a party last year. ‘2022 is the hangover,’ investor says

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Venture capitalists who are focused on investing in companies that are revolutionizing all aspects of real estate are playing the long game when it comes to the widespread sell-off of high-growth yet oftentimes unprofitable companies leading the way.

Dave Eisenberg, co-founder and managing partner at Zigg Capital, a firm that focuses on companies at the intersection of real estate and technology, put it another way.

“If 2021 was the party,” Eisenberg said, “2022 is the hangover.”

A year ago, Zillow’s stock was trading for $131 per share. It’s plunged 66 percent since then. Redfin’s stock followed a steeper downward trend, falling 76 percent from about $62 a share a year ago to $14.52 per share at midday on Wednesday.

But there are reasons for agents, investors and brokerages to be optimistic about the mid- and long-term future, according to a panel of investors speaking at Inman Connect in New York on Wednesday.

With the likelihood that sales volume declines this year, it will push companies and brokerages to become more profitable.

“What technology is best at delivering is the reduction of manual processes, the reduction of excess time, really an efficiency driver,” Eisenberg said. “In a year where transactions are likely to be down versus where they were in 2021, we’re going to actually see technology deliver on its promise.”

“Through the use of automation driving costs down which increase profitability both of individual agents’ business and brokers and just the industry generally,” he said. “That’s going to be good for technology companies.”

What went unsaid were the many ways that same technology and ensuing efficiencies would impact the people currently filling those roles manually.

Paul Levine, managing director of Sapphire Ventures, and Liza Benson, a partner at Moderne Ventures, both agreed that the existing challenges in the market will push for more innovation led by technology companies. 

Benson said she was particularly watching for the various companies that can address the widespread housing affordability issue with new products and services that can get people into homes.

“I see 2022 as sort of the year of affordability,” Benson said. “How does technology address the affordability crisis? How does technology address the ability to access capital or equity in your home? I think there’s going to be a lot of thematic things going on in that area this year.”

In the past few years, companies that help buyers make cash offers or buy a new house before selling an existing home have grown quickly.

“In interesting markets like this where inventory is super tight and it’s very hard on the buyer, I think those types of solutions become even more important,” Levine said. “I think we’ll get much more traction going forward.”

The investors expected more venture capital firms to step in to back up those types of companies offering Power Buying, buy-before-you-sell and even fractional ownership.

And while technology, automation and efficiency were the primary focus of the panel, the investors recognized that many new companies are putting agents near the center of their business models.

“I feel like years ago a lot of the VC-backed proptech models were sort of betting against the agent,” Levine said. “To paraphrase Mark Twain, I’d say the reports of the death of the agent have been wildly exaggerated.”

“I think most investors and the tech community generally realizes the central role the agent plays,” he added. “The agent continues to be in a very strong position to be that source of education, the sounding board, the educator to the consumer in the transaction.”

So while investors and shareholders might be feeling the hangover of widespread stock sell-off from some of these companies, the long-term looks bright.

“While there’s some short-term pain in our world,” Eisenberg said, “this is actually quite good for the long-term.”

Email Taylor Anderson