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Real Estate Startup Investment Fails Despite Continued High Housing Demand?

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Real Estate Startup Investment Fails Despite Continued High Housing Demand?

  • 13 Jul 2023

One of those startup investment niches where it's simple to create a compelling business plan is real estate.

Who wouldn't want a hip, 3D-printed home, a completely furnished guest cottage that sets up in an hour, or an apartment complex that also manages to 'improve the lives of its residents'?

Investors in real estate startup companies are aware of the difficulty in executing a project.

"A lot of stuff in construction and real estate is very relatable," declared Raja Ghawi, partner at Era Ventures, a VC firm specialising in the built environment. "And the demand is endless."

However, Ghawi noted that while creating a strong pitch may be simple, the operational difficulties are anything else. He added that investors have a history of placing risky wagers on real estate, which occasionally provides entrepreneurs with "incentives to go from zero to 100 very fast."

This may help to explain why the real estate and proptech industries have a history of notable successes and failures. On the miss side, well-known names include WeWork, the coworking pioneer who fell from unicorn to penny stock, and Katerra, a former unicorn out to revolutionise the building sector. On the successful side, businesses like Procore Technologies, Nest, and Airbnb have given early investors significant returns.

What’s happening now

Startups that are primarily focused on real estate have not been spared by the current general decline in venture capital investment, which is now in its second year. According to Crunchbase data, investment for American startups in industries related to real estate is likely to reach a record low.

We mapped out funding to real estate categories for 2023 to date as well as the previous five calendar years to get a feel of how investment has changed over time:

Real Estate-Related Startup Investment

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

1. EquipmentShare, 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.

2. R-Zero, 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.

3. Avenue One, a New York-based tech platform for institutional investors in residential real estate, landed $100 million in a financing led by growth investor WestCap.

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