SA国际传媒

Real estate is one of those startup investment categories where it鈥檚 easy to come up with a great-sounding business plan.

Who wouldn鈥檛 want a cool, home, a fully appointed guest that unfolds in an hour, or a building that also manages to 鈥渆nhance the lives of its residents?鈥�

Trouble is, delivering on a concept tends to be exceedingly hard 鈥� a dilemma not lost on real estate startup investors.

鈥淎 lot of stuff in construction and real estate is very relatable,鈥� said Raja Ghawi, partner at , a VC firm focused on the built environment. 鈥淎nd there鈥檚 infinite demand.鈥�

But while crafting a compelling pitch may be straightforward, Ghawi said, the operational challenges are anything but. Investors also have a history of bold bets in real estate, he noted, sometimes giving entrepreneurs 鈥渋ncentive to go from zero to 100 very fast.鈥�

This may explain why real estate and proptech are sectors with a history of famous hits and misses. On the miss side, well-known names include , a former unicorn out to disrupt the construction industry, and , the coworking pioneer that went from unicorn to penny stock. On the hit side, companies like , and have generated big returns for early backers.

What鈥檚 happening now

These days, as the broad pullback in venture investment extends into its second year, real estate-focused startups have not been spared. , funding to U.S. startups in categories tied to real estate is on track to hit its lowest level in at least five years.

To get a sense of how investment has trended over time, we charted out funding to real estate categories for 2023 to date as well as the past five calendar years:

While funding has fallen, we are still seeing large financings. Standouts include:

• , the Columbia, Missouri-based operator of a marketplace for construction contractors to rent and buy equipment, picked up $290 million in an April Series E round. To date, the 8-year-old company has raised $1.8 billion in debt financing and $600 million in equity funding.
• , a Utah-based developer of connected sensors and disinfection devices for indoor spaces, picked up $105 million in a February Series C financing. The company is particularly focused on shared spaces, such as health care facilities, schools and offices.
• , a New York-based tech platform for institutional investors in residential real estate, landed $100 million in a financing led by growth investor .

Many active investors are sitting things out this year

One element conspicuously absent from this year鈥檚 largest financings, however, is lead participation from firms that previously ranked as the most active startup investors. and didn鈥檛 do any deals in SA国际传媒鈥檚 U.S. . Nor did , which drew attention last August for its $350 million investment in WeWork founder s new rental upstart, .

Perhaps the most active investors are waiting to see how prior investments in the space scale, including those made around the market peak of 2021. In many cases, it isn鈥檛 looking good.

The real estate startup space has been impacted by swiftly changing market conditions. Rising office vacancies have gotten a lot of ink, though the most notable disruption for startups is likely the sharp rise in interest rates. Since late 2021, the typical rate on a U.S. home mortgage has soared from around 3% to 7%.

That鈥檚 hit some startups hard. Last week, , a crowdfunded tool for investing in real estate loans that had raised over $100 million from Andreessen and others, for bankruptcy protection. And , the mortgage financing platform that raised hundreds of millions in venture funding, has had multiple rounds of layoffs and recently a division.

Venture-backed real estate companies that went public also haven鈥檛 been big winners. This includes i-buying platforms and .

Yet startups still look intriguing

Still, market enthusiasm remains robust for business plans that strike a chord with the times.

Boxabl, maker of the aforementioned fold-out cottages that arrive on a flatbed, has raised over $140 million, mostly through a popular crowdfunding campaign. On the venture side, meanwhile, , a membership service for home upkeep and maintenance, raised $9 million in Series A funding just last week.

Seems if you can craft a pitch that works and get an early rendition off the ground, there鈥檚 investment to go around

Now, we鈥檒l just have to see who can deliver at scale.

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