Acquisitions, IPOs, and the evolution of PropTech
Last week the Pi Labs team had the privilege of attending the UK’s first face-to-face CRETech event since the pandemic. It was great to catch up with some familiar faces, spending time with our existing founders, as well as meeting some of the new founders we’ve recently backed in person for the first time. Founders from the Pi Labs ecosystem gathered from all parts of the UK, elsewhere in Europe, as well as several from as far as Israel. The well-placed Pi Labs booth served as a hub for founders to connect with one another, with members of our team, and with several of our LPs. It also allowed our team to meet with potential future portfolio company founders, as well as others in the wider world of PropTech.
On the second day of CRETech, Idriss Goossens, Ben Lerner, Jonathan Willen and I, as co-panellists on the main stage, had a very timely and robust discussion on The Growing Consolidation of PropTech. The topics covered are very close to Pi Labs and our ecosystem. Being Europe’s earliest investor in PropTech, our portfolio companies have experienced various forms of capital raising and M&A events over the past 6 years.
The surge in growth capital in European PropTech
When it comes to the evolution of PropTech, my first thought relates to the recent surge in growth capital available to the best-performing European PropTech start-ups. The case in point worth citing here is Plentific, a portfolio company from our second fund. In 2016, Pi Labs invested in Plentific’s £2 million seed round, followed by a follow-on investment in their 2017 Series A. This year, they closed their $100 million Series C round. This is European PropTech’s largest full-equity VC round to date, rivalled only by debt financing, IPO, and post-IPO activity in the sector. Aside from the funding amount, Plentific’s latest round is also noteworthy insofar as it included cross-border capital from Canadian real estate group Brookfield, as well as institutional capital from Mubadala (a UAE sovereign wealth fund).
In 2021, we also saw cross-border investment in LandTech’s £42 million Series A round — led by Washington DC based venture firm Updata Partners. Pi Labs is proud to have invested follow-on capital during this round. It has been a pleasure to work closely with Jonny Britton and the amazing LandTech team since our seed round investment back in 2015. Cross-border capital flow is providing the growth capital that European PropTech start-ups need to scale up their operations into multiple global markets.
M&A on the rise
M&A activity has been another hot topic in PropTech this year. It also speaks directly to the CRETech panel discussion. When conducting a search of M&A activity of companies which classify themselves as both real estate and technology, 2021 clearly emerged as a record year (see chart below). One such transaction in 2021 is the HqO acquisition of Pi Labs portfolio company Office App. This story involves the dominant US-based workplace experience platform acquiring the dominant Europe-based platform to create a truly intercontinental product. This type of acquisition (one technology company acquiring another) represents more than half of 2021’s acquisitions, but we are also seeing corporates get involved in the action. JLL, for example, have made two noteworthy PropTech acquisitions this year (Building Engines for $300 million and Skyline AI for an undisclosed figure).
In the near-term future, we expect more and more companies to undergo later-stage funding rounds and M&A activity to join the likes of AirBNB, Zoopla, Causeway, and Purple Bricks as PropTech unicorns and/or listed companies. To illustrate this, let’s do a quick back-of-envelope projection on Plentific based on recent valuations. With data drawn from Pitchbook, we can calculate that in the 693 days between their Series B and Series C announcements, Plentific’s valuation increased at an average daily rate of 0.175%. By applying this same growth rate to a hypothetical Series D round at some point in the future, Plentific could reach unicorn status (£1 billion) in late 2023. Now we all know that valuations are never as linear as this, but, without being too imaginative, there is a clear direction of travel here.
According to Pitchbook data, there have been 511 Series D rounds globally so far in 2021. 193 of them have been software companies and six of those were PropTech. These six companies have a few things in common. Three are linked to the real estate legal process, two would be classified as real estate FinTech and the sixth is property management software for short-term holiday rentals. Although all of them are based in the US, we can expect to see a number of late-stage European rounds in the next couple of years. This new ‘growth capital’, which is beginning to trickle its way into the European PropTech landscape–as illustrated by the Plentific and LandTech examples above — is going to act as the fuel that will help European PropTech cross the chasm from toddler to adolescent. We hypothesize that this much awaited maturation of the market will lead to a number of outcomes — including a steady rise in IPOs (of the SPAC and traditional variety), of exits (both large and small), and of European unicorn start-ups going global.
Being at the frontier of PropTech investing, often as the first VC into early stage PropTech start-ups across Europe, we are nothing short of excited for our 60 portfolio companies that could be potential recipients of this surge in growth capital. And, with a capital tailwind behind them, this is the time for European start-ups to think big and be bold. As the Latin saying goes, audentes fortuna iuvat.