In the early days of the COVID-19 pandemic, mortgage interest rates fell to historic lows. Unsurprisingly, homebuyers made hay and took full advantage of the favorable financial environment to raise new homes and refinance mortgages on their existing homes. Startups operating in the financial side of the real estate technology market suddenly experienced a surge in demand, with many looking for staff to keep up.
But when those interest rates, house prices and inflation started to rise again, demand slowed dramatically. This meant that the once high-flying startups suddenly faced the opposite problem: too many employees and not enough transactions to make money.
Layoffs became widespread. Shutdowns were a thing again. When interest rates soared even higher, the once frothy market turned into an environment where only the fittest could survive.
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To get an idea of how investors who have supported proptech startups with a financial focus are coping with the market shift, we reached out to three active investors. The trio shared their thoughts on everything from what types of home buying and lending startups have the best chance of survival to the advice they give startups in their portfolios.
Pete Flint, general partner of NFX, noted that survivability is higher for proptech startups that allow consumers to invest fractionally in real estate and increase access for those seeking a rent-to-own approach. “The best thing founders can do during a recession is to act quickly and efficiently and adapt their offerings to the new needs of the market. This will help them gain more market share, which will give them the greatest chance of survival,” he said.
Nima Wedlake, director of Thomvest Ventures, agreed, noting that agility is a critical quality. “Startups that survive this period will adapt their product offerings to the needs of today’s homeowners and buyers,” he said.
In such a climate, there seems to be a special demand for companies that help others navigate difficult times. “Companies selling software that enable cost savings or additional lead generation opportunities are seeing accelerated adoption as existing mortgage companies realize they need an edge to drive demand,” emphasizes Zach Aarons, co-founder and general partner of MetaProp.
“If a startup can prove that its users are seeing significant savings, then it shouldn’t be difficult to be successful in this market,” he said.
We spoke with:
Editor’s Note: For a more complete picture, let’s look at the proptech industry from three different angles. This survey covers proptech startups with a financial focus, and we will soon be publishing a survey looking at emerging technology in space, and another exploring the environmental impact of proptech and what startups are doing to minimize their footprint. .
Pete Flint, General Partner, NFX
Startups doing everything to do with buying or borrowing a home have had a rough time this year. What types of startups operating in the home buying/lending space do you think have the greatest chance of survival?
Resilient proptech companies must be able to navigate the cyclicality of the industry. It’s embedded in the category, and with the long housing and technology boom, many founders have underestimated it.
In my opinion it’s less about the “type” startup that has a better chance of survival now and more about what the startups to do to respond at this time. Best founders can do during a recession is moving quickly and efficiently and evolving their offerings to meet the new needs of the market. This will help them gain more market share, which will give them the greatest chance of survival.
The vertical markets that we believe will be more resilient during this economy are:
