Deciding between Venture Capital vs. Strategic Real Estate Capital (from someone in the middle)

Safi Aziz
Safi Aziz
Jun 26 · 4 min read

My role at MetaProp, an early-stage PropTech VC, revolves around supporting our fund investors (mainly large real estate organizations), with their innovation efforts. By spending time nudged between VCs and real estate executives, I have learned that each party has fundamentally different motivations, strengths and time sensitivities when getting involved with PropTech. It is important to understand what each party is looking for when you are pitching to the Sand Hill Road crew or the 5th Avenue folks. I put together some of my high level observations below. If you’re interested in discussing more, tweet me @s_afiaziz.

In this post I go into:

  1. What each group (mostly) cares about
  2. What each group brings to the table
  3. When you should receive investment from each

1. What each group (mostly) cares about:

Venture Capital

a. Financial Return: A venture capital firm’s mandate is to provide their own investors a return, in the tune of the coveted “10X”.

Strategic Real Estate Capital

a. Financial Return: Who doesn’t like money? Real estate organizations’ return expectations are generally (there are exceptions) more modest and patient than VCs because paper returns are not always the primary concern. It certainly depends on if the organization is investing in you from its balance sheet or through a venture vehicle.

b. NOI: Real estate companies more often care about a return at the asset level through increasing net operating income. This happens generally by cutting expenses, boosting revenue, or creating entirely new sources of revenue.

c. Brand Capital: There is an element of bragging rights involved, being able to tell the market “we are the most innovative!” or “this may not be the perfect technology but we are trying!”

d. Access to & Insight on innovative technologies that can be a competitive differentiator or even a future threat to their business.

e. Expressing Commitment: Showing they really believe in a certain product and that they aren’t just a customer.

Select PropTech VCs. Just a sampling! There are many more on both sides.

2. What each group (mostly) brings to the table:

Venture Capital

a. Network: generally outside of real estate (unless its a real estate specific fund like MetaProp) of: investors for future rounds, non-real estate subject matter experts, and a talent pool of engineering, operations, and marketing folks.

b. Company building advice on what strategic moves to make, tactical steps to get there, milestones, and just generally how to run your business

c. Credibility: signal to other investors if invested in by a reputable firm

Strategic Real Estate Capital

a. Network of mainly real estate relationships, subject matter experts (real estate legal, development, construction), talent pool of real estate salespeople, business development professionals, developers etc. — those closer to the pain point the technology is solving for.

b. Pilot sandbox to refine your product

c. Square footage, units, users to sell your product

d. Credibility: signal to other real estate companies that you are vetted. HOWEVER, this can also potentially block other customers (their competitors) from wanting to engage.

e. They may be your competitor: strategics may be trying to simultaneously build something to compete with you. With VCs, this is less of a risk.

3. When should you receive investment from each?

Venture Capital

If it is the right VC partner, get money from them at any stage. I do not think there is necessarily any reason to not access traditional VC dollars across your company’s life.

Strategic Real Estate Capital

While VCs can be futuristic to a fault, strategics can be too much in the past. Entrepreneurs need to find the balance between staying slightly ahead of the market but remain commercially viable to strategics in the near term. That being said, I generally recommend receiving strategic capital at two stages:

  1. Seed round: it is best to have a combination of both VC and SREC. Strategics can give you that early and crucial customer feedback.
  2. Post (or some) product market fit:. Roughly Series B/C is when the product is ready to scale across portfolios.

That’s it for now! I tried to keep it brief. Drop a comment or a tweet @s_afiaziz and let me know what you learned or something I may have missed.

Thanks to Iurij Cussianovich.

Safi Aziz

Written by

Safi Aziz

Working to build the world imagined | @MetaPropNYC investing in early stage PropTech