In the early days of the COVID-19 pandemic, mortgage interest rates fell to historic lows. Primarily, home buyers made weeds to take on new homes and refinance mortgages on their existing homes, taking full advantage of the favorable financial climate. Startups operating on the financial side of the real estate tech market faced a sudden surge in demand, and many hired to keep up.
But as interest rates, housing prices and inflation began to climb back up, demand slowed dramatically. This meant that once high-flying startups were suddenly dealing with the opposite problem – too many employees and not enough transactions to make money.
The layoffs became widespread. Shutdowns were a thing again. As interest rates rose even higher, the once frothy market turned into an environment where only the fittest could survive.
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To understand how investors backing proptech startups with a financial focus are dealing with market changes, we reached out to three active investors. The trio shared their thoughts on everything from what kind of startups are there in the home buying and lending space to the advice they give to startups in their portfolios.
Pete Flint, general partner at NFX, noted that survival is more likely for proptech startups that allow consumers to partially invest in properties and increase access for those seeking a rent-to-own approach. “The best thing founders can do during a recession is to move quickly and efficiently, and evolve their offering to match the new needs of the market. This will help them capture more market share, thereby They will get the most chance of survival,” he said.
Thomwest Ventures principal Nima Wedlake agreed, noting that agility is an important attribute. “Startups that survive this period will adapt their product offerings to meet the needs of today’s homeowners and buyers,” he said.
In such an environment, companies that help others in difficult times seem to be in particular demand. Zach Aarons, MetaProp Co-Founder and General Partner, said, “Companies that sell software that enable cost-cutting or additional lead-generation opportunities are seeing rapid adoption as existing mortgage companies realize That they need an edge to drive demand.”
“If a startup can prove that its users are seeing significant savings, they shouldn’t have a hard time succeeding in this market,” he said.
We spoke with:
Editor’s note: For a more complete picture, we’re looking at the proptech sector from three different angles. This survey covers proptech startups with a financial focus, and we will soon be publishing a survey that looks at the technology coming to the space, and another that examines the environmental impact of proptech and how startups can reduce their footprint. What are you doing.
Pete Flint, General Partner, NFX
Startups doing anything related to home buying or lending have struggled this year. Which type of startups do you think are most likely to survive in the home buying/lending space?
Resilient proptech companies need to be able to navigate the cyclicals of the industry. It is inherent in the category, and with the long housing and tech boom, many founders have underestimated it.
In my view, it’s less about the “type” of startup that is more likely to survive now and more about what startups do to respond to the moment. The best thing founders can do during a recession is to move quickly and efficiently, and evolve their offering to match the new needs of the market. This will help them capture more market share, giving them the highest chance of survival.
The areas we think will be more flexible during this economy are: