Exits pave the way for the next chapter in PropTech
As the first and most active specialist PropTech VC in Europe, we’re proud to contribute to the sector’s growth. We’ve been there at ground zero helping to drive the exponential growth that has characterised PropTech 2.0 — a digital transformation taking place across the property industry. Our first investments in this space can be traced all the way back to 2015, well before PropTech was even a term. More recently, we’ve been at the centre of the shift in mentality as the pandemic shone a brighter light on the technological opportunities for real estate and the wider built environment. In 2020, we published COVID: Real Estate’s Great Reset, in which we compared the effect of the GFC on the growth of the FinTech sector to how the pandemic will be a similar catalyst for PropTech. This has been validated by the information we’ve gathered from our portfolio companies, with a number of start-ups experiencing impressive monthly and annual growth rates as a result of the changing landscape.
Real estate’s embrace of tech
There are other hints of real estate’s embrace of technology. First, there has been a noticeable upswing of innovation teams in major real estate groups. Second, many of our portfolio companies are undergoing successful trials and deployments with them. Third, there has been a noticeable upswing in PropTech M&A activity over recent years — on the part of legacy real estate firms, as well as more established PropTech firms (see chart below). To help mature and institutionalise the sector, we also need to listen to what the pension funds and endowments (who are currently sitting largely on the sidelines) are saying. The Hollywood catchphrase ‘show me the money!’ seems to be the resounding message being heard from institutional investors. This is a message worth reflecting on, because if institutions were to invest into the sector at scale, we could unlock a new era of scale and growth in PropTech investment and adoption. What is needed for the sector to cross the chasm from ‘emerging category’ to an institutional one? Exits. We need to demonstrate that there is real and repeatable evidence that capital invested can be realised with returns commensurate with the risk involved in venture investing. Seven years into our journey as a VC, we’re in the fortunate position to be seeing several opportunities for exits among our more mature portfolio companies and hope to lead the industry forward on this front.
Our OfficeRnD (partial) exit
Back in 2015, we had just launched Pi Labs and were scouting for companies to join our first accelerator cohort. We came across a really interesting team based out of Sofia, Bulgaria: OfficeRnD. Up until then we had focused our efforts on UK-based companies but were so impressed with their business and team that we went ahead anyway, evaluating them over Skype — yep, that’s how long ago this was! We ran our due diligence remotely and sought investment committee approval to move forward, leading the entire end-to-end investment process online. This probably doesn’t seem like a big deal today, but it certainly was back in 2015!
Why we invested
We had strong conviction in the team’s ability to build and scale, backing a founding team that was 100% technical. It was a team of engineers building software to digitalise the operations of the global co-working sector. With tech in-house, they were able to build product fast and were super agile in responding to customer needs. While 2015 was early days for the co-working and flexible working sector, at Pi Labs, we had conviction that this was a growth segment, and that the future of offices was going to tilt toward flexibility. We understood that running flexible and serviced office space was operationally intensive, and the only way to do this efficiently at scale was through software. We also had conviction that the OfficeRnD management team had a real opportunity to establish themselves as the category leader, not only in Europe but globally.
Where are they now?
Fast forward to today and the company has built a global business serving clients across the world, with a headcount of over a hundred people. We are super proud of what the co-founders Miro Miroslavov and Miro Nedyalkov have achieved. We also remain excited about the growth prospects of the company in the coming years, particularly as the office sector evolves and prioritises flexibility over antiquated long leases. You’ll hear more about this in our upcoming white paper on PropTech deployment.
Why a partial exit?
We sold part of our stake because we saw the opportunity to deliver a strong return to some of our earliest investors. However, we believe in the business’ long-term potential, so decided to hold on to some shares as we continue to back the founders and management team. The business is perfectly placed to take advantage of the global transition to flexible offices, and we’re excited to remain on this journey with them.
What’s next on this front?
We are proud to be paving the way forward as the first European PropTech VC to be delivering significant exits. With a track record that now spans over 6 years, we have a number of portfolio companies that are maturing and reaching a stage where we, as the first VC investor in those start-ups, will have opportunities to exit and create returns for our LPs — so watch this space. Last year I spoke to Forbes and shared some thoughts on what’s ahead, dropping a hint as to what we’ll be up to:
“There are a number of new funds emerging either wholly or partially focused on PropTech, so this is likely to help mature the ecosystem. The ideal is that there is cradle-to-grave availability of capital — where start-ups have capital pools to tap into at every step of the start-up journey from start-up, to scale-up, to exit. New funds will help the industry take a step in this direction.”
