PropTech Pitches That Are Past Their Expiration Date

A version of this article was previously published on CREtech in Sept 2018

I recently got back from Dreamit’s Innovation Summit in Tampa and a lot of people asked me what hot PropTech startups I was seeing.

This is not about those startups.

This is about the other ones, the startups that, like milk past its expiration date, ruin our coffee and (in some cases) threaten to make us throw up a little in our mouths. So, after canvassing a few of my colleagues, I’ve compiled this list of startup pitches that, absent extenuating circumstances, we’d just as soon not see again.

It’s a community portal for tenants

I live in Manhattan. I don’t even want to talk to my neighbors in the elevator so why would I want this? In virtually all the buildings I’ve lived in, there has invariably been “that guy” (or woman) who has tried to rally the other tenants to be more social. Often, we like “that guy” a lot — he’s nice, he takes our mail in, signs for our packages, etc. We just have no interest in what he’s trying to do.

Kidding aside, there’s nothing about this idea that couldn’t have been done as far back as the late 90s which should be a huge red flag to any entrepreneur considering a startup like this. With so many hungry and talented entrepreneurs out there, good ideas don’t just sit around waiting. In fact, established companies like BuildingLink have community sections that are invariably ghost towns. If you have a burning conviction that the world needs a tenant community portal, you should consider the possibility that you are “that guy.”

It’s a real estate crowdfunding site… but with blockchain!

The most charitable thing I can say about these pitches is that they (or most of them, at least) were not ICOs.

We started seeing pitches for real estate crowdfunding sites as far back as 2014, if not earlier, and there are already a number of players in the space with significant head starts (RealtyShares, Fundrise, RealtyMogul, Patch of Land, etc.) so if you are a pre Series A startup in the space, you are pretty late to this party. Since these are basically marketplace plays, first-mover matters.

But wait!” you say, “we use blockchain!

So what? It’s not that hard to keep track of fractional shares in a building using an old-school, centralized ledger. If you standardize the legal documents and purchase process, you’ve already removed the friction on this process. The hard part here isn’t transactional friction but marketplace liquidity: you need enough buyers on the platform so that when someone wants to sell their shares (or tokens) in a property, there is someone willing to buy it. If you don’t have a deep pool of potential buyers, you end up with an asset like small cap stocks: easy enough to buy but hard to sell (especially in a down market!)

The possible exception to this rule are companies like Harbour who focus on tokenizing high-end trophy properties. These are the blue-chip stocks of the real estate world. There will likely always be smaller investors willing to own a piece of the Empire State Building. So giving its owner the ability to sell part of it to a mass market rather than to the current small circle of big players who can afford to invest at that scale both greatly increases marketplace liquidity and reduces transactional friction, unlocking (at least in theory) significant value for the building owner.

It’s a lead gen site for commercial real estate

I have the utmost respect for lead gen and, given the size of these transactions, there is potentially a lot of money to be made selling leads to landlords and their brokers. The trick is getting the tenant to start their search on your site… and you need to do it in a way that your competitors cannot immediately copy or else your cost of customer acquisition will be bid up until your margin is gone. Put another way, if you are using Google AdWords to drive traffic to your site, so can your competitors.

Zillow, for instance, succeeded in creating a site that residential buyers know to go to at the very startup of their home or apartment search by aggregating and cleaning up messy, fragmented public data and presenting it to the public in an easy to use interface. In theory, anyone could have done this but they moved first and fast, creating brand equity that’s hard for a potential competitor to displace without either creating something a quantum level better or spending a lot of money on advertising to launch a competing brand.

Our app helps community residents get in touch with their representative and get more active in local politics

If they wanted to do that, wouldn’t they start by at least voting? This is an example of civic tech backwards think: instead of creating an app to fill demand, they want to create demand with their app. And since here too, people have been banging their heads against this wall for nearly two decades, if you still think the public is just dying for an app like this, it’s very possible that you are “that (other) guy.”

We are a chatbot for residential brokers

It is telling that these startups rarely include successful real estate agents on the founding team. Converting a productive buyer into a client is mission critical, especially in an industry with little competitive differentiation. Agents convert products with personalized service and emotional rapport. A chatbot is the exact opposite of this and, as a result, agents are extremely reluctant to rely on them for this stage in the conversion funnel.

The rental side of real estate, especially on the lower end of the market, can be a brutal, time-consuming slog. Most agents transition from representing renters to other parts of the market as soon as they possibly can, leaving this segment to newbie agents or high volume / low service shops so it’s conceivable that a chatbot for renters’ agents might have legs….

We make 3D models from 2D floor plans

There’s value here if you can pull it off but there’s just not enough data in a 2D model to get to something buyer-ready automatically. So either the landlord has to customize the raw results a lot (too much effort for them) or the startup does a lot of post production (and becomes a service industry selling man hours rather than a scalable tech startup).

(Dis)Honorable mentions:

While not full-fledged startups, these phrases were often enough to make us gag all by themselves

Blah blah blah… drones!

Yes, drones are pretty cool and they do have the potential to change a lot of things, both in construction and real estate and the world in general. But if your startup is basically a glorified drone piloting service, you are selling man hours (not a model that VCs like to back), have no competitive advantage and no barrier to entry. To us, you are basically a taxicab company.

Blah blah blah… AI

So what exactly makes it AI (or Machine Learning for that matter) as opposed, for instance, to a simple database query? As the famous quote goes, “I do not think that word means what you think it means.

… and the user gets a dashboard…

My car has one dashboard. Why would you expect a property manager to want 6 or 7? I’ve head the phrase “dashboard fatigue” a lot lately…

Instead of covering them another dashboard, integrate with their existing dashboard or, better yet, automate the responses to the data you collect so they don’t have to check a dashboard at all… or even think about it. Just. Make. It. Happen.

We’re Houzz meets Uber meets Robinhood

WTF?

Here’s a hint: the Hollywood style analogy should get you an instant “Ah, I get it.” If the investor has to think about it to understand what you mean, it’s a #fail. I don’t care how cool you think it sounds, skip it and cut to simple description.

Acknowledgments: I’d like to thank Aaron Block, John Gilbert, May Samali… and all my other less brave colleagues who opted to contribute to this piece anonymously :-)