2020 was an undoubtedly turbulent year. As real estate / property technology (“proptech”) investors, Adams Street was not immune to the macro environment. The pandemic encouraged investors to recalibrate to what a “new normal” was going to look like. It also forced many proptech businesses to look inwards and ask the hard questions about whether they could survive, let alone operate, in a restricted world (think Airbnb’s dramatic decline in April1).
Trends such as record-low interest rates and the desire to live outside dense city centers has led to the largest residential real estate boom since the 2008 Great Recession2 – a phenomenon we are seeing help spur exponential growth at our portfolio company, Homeward
Digitization within proptech dramatically accelerated as in-person activities such as tours, property management, notarizations, appraisals, and more had to take place virtually. In addition, trends such as record-low interest rates and the desire to live outside dense city centers has led to the largest residential real estate boom since the 2008 Great Recession2 – a phenomenon we are seeing help spur exponential growth at our portfolio company, Homeward, a next-generation residential real estate platform that enables home buyers to reduce the normal friction associated with buying and selling homes.
Despite many of the obstacles proptech companies faced due to COVID-19, financings and exits in the space soared in the second half of 2020 and into the first quarter of 2021. Airbnb went public3 in December. OpenDoor went public via a SPAC4 that same month. Regorra, an appraisal software company, announced a $30 million Series B5 in January of this year. Notarize, a company providing electronic notarizations, announced a $130 million Series D6 last month on the heels of 600% growth in 2020. Also announced in March, short-term rental property management platform and Adams Street portfolio company Turnkey was acquired by Vacasa.7 The list goes on.
Special purpose acquisition companies (“SPACs”), or blank-check companies, rose to prominence in 2020. There are additional proptech-focused SPACs still in the market for targets, so we expect elevated activity levels to continue well into 2021.
OpenDoor’s exit, however, provides a look into another interesting facet of 2020 that impacted proptech companies and investors. Special purpose acquisition companies (“SPACs”), or blank-check companies, rose to prominence. There were 248 SPAC IPO transactions last year, up from 59 in 2019, and the count for 2021 is already over 300,8 with many more in the pipeline. Companies such as DraftKings and Virgin Galactic went public via SPAC and new SPAC managers range from former House Speaker Paul Ryan to former NBA star Shaquille O’Neal.
There were 248 SPAC IPO transactions last year, up from 59 in 2019, and the count for 2021 is already over 300,8 with many more in the pipeline
In the proptech world, SPAC activity was noticeably high with blank-check companies leading some of the highest profile deals of 2020. WeWork announced in March that it would go public via a SPAC,9 and OpenDoor, Offerpad, Porch, AppHarvest, View, Open Lending, Latch, Matterport, United Wholesale Mortgage, and Vivint have all announced or completed SPAC mergers in the past 18 months. There are additional proptech-focused SPACs still in the market for targets, so we expect elevated activity levels to continue well into 2021.
We think about this phenomenon through four lenses: capital needs, business model complexity, M&A potential, and evolving market dynamics within proptech.
Scale and speed to market are massive competitive advantages in proptech (more so than most sectors) which, in combination with the fact that real estate is a highly fragmented market, help make proptech a fruitful sector for M&A
First, Adams Street believes that many of the shifts seen over the past 12 months will remain in a post-COVID world as consumers get used to, and develop a preference for, tech-enabled platforms in real estate dealings. Second, although we have seen the proptech market undergo massive changes, we believe the opportunity remains in its early stages. Real estate is one of the largest assets classes in the world and, as a result, we believe there are plenty of opportunities to create big companies in areas of the industry that are still adopting technology – transaction management, property data and appraisal, mortgage and loan management, to name a few. As investors, Adams Street is interested in partnering with proptech companies that are tackling some of these underpenetrated sectors or working to further digitize real estate.
1. Source: www.cnbc.com/2020/04/06/airbnb-raising-1-billion-amid-fallout-from-coronanvirus.html
2. Source: www.cnbc.com/2021/01/22/existing-home-sales-in-2020-were-highest-since-in-over-a-decade.html
3. Source: www.cnbc.com/2020/12/10/airbnb-ipo-abnb-starts-trading-on-the-nasdaq.html
4. Source: techcrunch.com/2020/09/15/opendoor-to-go-public-by-way-of-chamath-palihapitiya-spac
5. Source: www.prnewswire.com/news-releases/reggora-secures-30-million-in-series-b-funding-led-by-spark-capital-301206203.html
6. Source: www.forbes.com/sites/rebeccaszkutak/2021/03/25/notarize-raises-a-130-million-series-d-round-after-a-year-of-600-growth
7. Source: www.businesswire.com/news/home/20210311005314/en/Vacasa-Signs-Agreement-to-Acquire-TurnKey-Vacation-Rentals
8. Source: www.spacinsider.com/stats
9. Source: www.nytimes.com/2021/03/26/business/WeWork-Spac-ipo.html
10. Source: PitchBook Data, Inc.
11. Source: PitchBook Data, Inc.
12. Source: markets.businessinsider.com/news/stocks/the-electric-vehicle-spac-boom-wont-slow-anytime-soon-bank-of-america-2021-1-1029965992
13. Source: www.prnewswire.com/news-releases/compass-agrees-to-acquire-modus-301145839.html
14. Source: www.businesswire.com/news/home/20201122005077/en/CoStar-Group-Agrees-to-Acquire-Homesnap-a-Digital-Residential-Real-Estate-Solutions-Provider-Used-by-300000-Agents-Responsible-for-More-Than-Half-of-All-US-Residential-Real-Estate-Sales
15. Source: www.housingwire.com/articles/boomtown-acquires-longtime-partner-brokermint/
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