What PropTech start-ups can learn from Clayton Christensen
Last week I wrote a post discussing Esho Ventures. We’ve started accepting applications for investment in #PropTech start-up businesses. These are different to fintech category businesses in that we are specifically targeting the property (real estate) asset class.
Over the next few weeks, I’ll be writing different pieces on our investment methodology, strategy and our core understanding of disruption. It’s not just a fancy word, not every innovation that hits the market is disruptive.
The reason why many fintech start/scale-ups are finding it difficult to execute a Series B raise is because, frankly, they haven’t built real businesses. Many fintech businesses also start by trying to compete directly with larger financial institutions, not knowing that they stand a much better chance at investment success if they view themselves as a complimentary service.
I’ve been a longtime listener and student of Professor Clayton Christensen from Harvard Business School.
In this chat with Barclays, he explains the following principals:
- Disruption occurs when an innovative company creates a product which is (a) simpler and (b) more affordable than the prior products or services in the marketplace. This opens up to a new population and market opportunity.
- When this occurs, the incumbent leaders find it unattractive. They want to stay in their current market, not chase the new one. When they look down, it doesn’t make sense.
- Innovation can’t occur rapidly in an integrated environment. Financial services generally have higher barriers to entry, capital requirements, regulation etc. It’s important to seperate the modular (tech interface) from the backend/interdependent interface (banks, balance sheet).
- New companies offering services interact with the bank-end by buying a bank. Google, WebBank, The Bank Corporation. All building API’s (modular component) so the service provider can plug into their own back end. This makes their technology a lot more proprietary.
- Large companies cannot disrupt themselves internally. It’s much better through an external process. They’re too focused on the core business and if they wait until the disruption progresses, “the game” will be over.
There’s a lot more content, but this is just a quick summary. It’s definitely worthwhile giving it a full watch — only takes 15 minutes.
Christensen says disruptive strategy and investment needs to be done in parallel and not in series. This is critical to understand and one of the reasons we set up Esho Ventures as a PropTech specific venture program.
In the second half of this year, we’ll start inviting real estate companies (developers, agencies, commercial asset managers and owners) into our corporate partnership program where they will get access to our startup investments and team members.
In the meantime, start/scale-ups can Apply for investment by visiting http://esho.com.au We’re targeting PropTech investments at the $1–5m post-money valuation range.