At first days of the COVID-19 pandemic, mortgage interest rates have fallen to historic lows. As expected, homebuyers made hay, taking full advantage of the favorable financial environment to purchase new homes and refinance mortgages on their existing homes. Startups operating in the financial sector of the real estate tech market have suddenly faced a surge in demand, and many have gone on to hire to keep up.
But when those interest rates, house prices and inflation started to pick up, demand slowed dramatically. This meant that once-high-flying startups suddenly faced the opposite problem: too many employees and not enough transactions to make money.
Layoffs have become widespread. Stoppages were a thing again. As interest rates climbed even higher, the once frothy market transformed into an environment where only the fittest could survive.
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To get a sense of how investors who have backed proptech startups with a financial orientation are handling market shifts, we reached out to three active investors. The trio shared their thoughts on everything from the types of startups in the home buying and lending space that have the best chance of survival to the advice they give startups in their portfolios.
Pete Flint, general partner of NFX, noted that chances of survival are higher for proptech startups that allow consumers to invest fractionally in properties and increase access for those looking for a rental approach. with purchase option. “The best thing founders can do in a downturn is to move quickly and efficiently and evolve their offering to meet new market needs. This will help them capture more market share, which will give them the better chance of survival,” he said.
Nima Wedlake, director at Thomvest Ventures, agreed, noting that agility is a key trait. “Startups that survive this period will adapt their product offerings to meet the needs of today’s owners and buyers,” he said.
In such a climate, businesses that help others through difficult times seem to be in particularly high demand. “Companies that sell software that can reduce costs or generate additional opportunities are seeing adoption accelerate as incumbent mortgage lenders realize they need an edge to drive demand. “, underlined Zach Aarons, co-founder and general partner of MetaProp.
“If a startup can prove that its users are realizing significant cost savings, then they should have no trouble succeeding in this market,” he said.
We spoke with:
Editor’s note: For a fuller picture, we look at the proptech sector from three different angles. This survey covers finance-oriented proptech startups, and we will soon be releasing a survey on upcoming technologies in the space, and another that looks at the environmental impact of proptech and what startups are doing to minimize their footprint.
Pete Flint, General Partner, NFX
Startups doing anything related to buying or lending homes have struggled this year. What types of startups operating in the home buying/lending space do you think have the best chance of surviving?
Resilient proptech companies must be able to navigate industry cyclicality. It’s built into the category, and with the long housing and tech boom, many founders have underestimated it.
In my opinion, it’s less about the “type” of startup that is most likely to survive now and more about what startups do to respond to this moment. The best thing founders can do in a downturn is to act quickly and efficiently and evolve their offering to meet new market needs. This will help them capture more market share, which will give them the best chance of survival.
The verticals that we believe will be more resilient during this economy are: