REAL ESTATE TECHNOLOGY PERSPECTIVES THAT COUNT

As the multifamily and single-family rental sectors continue a significant transformation brought on by the pandemic, the need for purpose-built tech aimed at the industry is more urgent than ever. The very nature and purpose of the home has changed for tens of millions of Americans, and firms like ours are racing to identify and foster tech that can accommodate this shifting way of life. With this in mind, we’ve recently brought on a new member of our team with a broad base of expertise identifying, vetting and piloting new rent tech tools from a multifamily operators vantage point.

Shawn Mahoney is the former longtime CTO at GID, a privately owned real estate development company and NMHC Top 50 owner — which also happens to be one of RET’s most trusted strategic partners. Shawn joined our firm earlier this year and has taken on a critical role performing deep analyses of not only prospective portfolio companies and their projected success, but also of the areas within multifamily operations that are most in need of tech-based innovation.

Shawn brings to RET decades of hands-on experience across real estate development, finance and technology, offering a unique perspective that spans the multifamily sector’s evolution from a reluctant —at times even resistant — stance toward tech, into the full-on embrace that is present across much of the industry today.

Early in his career, Shawn focused on tools that would incorporate more data and precision into portfolios — allowing large multifamily operators to reduce waste, tap new revenue streams and optimize operations across assets. Over time, that interest expanded, and reached a crescendo in recent years as proptech and rent tech companies received trillions of dollars in funding from venture capitalists like ourselves.

Having arrived at RET in the midst of an ongoing pandemic and nearly unprecedented upheaval across not only the multifamily sector, but the built environment as a whole, Shawn’s unique skills and experience have been vital to our success over recent months, and will continue to be in the years to come. His perspective as a former senior technology/operations executive will be invaluable as more and more of multifamily industry’s players take an increasingly hands-on role in the development and piloting of tech.

While real estate’s approach to these tools has changed over the years, the business remains a highly conservative one. As our strategic partners begin to wade further into the more volatile waters surrounding early-stage technology, they place their trust in us to pick the most viable and impactful products to strengthen their portfolios and their bottom lines over the long-term.

The presence of voices like Shawn’s — who brings savvy and experience based on time spent throughout all corners of our complex business — will be more important than ever as we continue to serve our partners’ needs and foster a better, more prosperous future for the rental home industry.

Last month, RET Ventures’ roster of real estate technology portfolio companies — along with the owners and operators that make up our strategic investor base — joined us in beautiful Park City, Utah for the annual RET Summit.

As an industry-backed venture capital firm, we are constantly looking for opportunities to foster integration and partnership within our ecosystem, and the Summit is a launching point for many of these conversations.

Having skipped the in-person summit in 2020 due to the pandemic, we were eager to gather this group in person for the first time in two years to engage in face-to-face conversations around emerging opportunities, challenges, and trends in the real estate technology sector. For three days, 100+ attendees participated in networking events, industry-focused panels, and company presentations fueling collaboration and connection.

Thanks to everyone who came out and joined us for another great Summit, helping us continue to drive innovation in multifamily, single-family real estate (and beyond)!

Yesterday, RET portfolio company SmartRent rang the bell on the New York Stock Exchange, marking the beginning of its journey as a public company (NYSE:SMRT). RET led SmartRent's seed and Series A rounds in large part because of the unparalleled leadership team led by Lucas Haldeman — and it was the executive team's product innovation and excellent execution that enabled SmartRent's rapid growth.

But we’d also like to think that RET’s unique approach to real estate technology investment helped make this milestone possible.

Our relationship with SmartRent goes back to our earliest days as a venture capital firm in 2017, when one of the immediate problems we observed was the demand for scalable enterprise-grade smart home technology for institutional multifamily owners and operators.

For some time, homeowners were the core adopters of smart home innovations, from thermostats to doorbells and lighting. Meanwhile, enterprise-scale solutions lagged, leaving multifamily owners and operators without a centralized platform to connect and manage devices across a portfolio, in either vacant or occupied apartments.

That was the problem we hoped to solve when we invested in SmartRent.

From the outset, we were thrilled to support SmartRent, providing resources and introducing development partners that facilitated the company’s growth. Three-plus years after our initial Seed investment, SmartRent is now live in more than 160,000 units across roughly 3,200 apartment and single-family home communities. Notably, as of the end of last year, over half of the units leveraging SmartRent technology were owned or managed by RET’s LPs.

Considering the scope of the problem SmartRent addresses and the quality of its solution, we were always confident in its prospects for success. SmartRent now going public via merger with FWAA is clear validation of our continuing confidence in the company.

SmartRent will be using the new capital raised in the SPAC transaction to expand globally. We are excited to continue our strategic partnership as SmartRent further solidifies its position as the leading smart home automation platform for the enterprise market.

SmartRent serves as the prime example of RET Ventures’ model in action – we are uniquely able to translate firsthand feedback about the multifamily industry’s technology needs into identifying products and services that can bring actionable change and tangible value to early adopters, and revolutionize the market in turn. As the global proptech industry builds on the momentum of the past year, we are excited to replicate the success RET’s partnership model has brought to SmartRent with the rest of our existing and future investments; we anticipate a growing number of successful exits for our portfolio companies in the months and years ahead.

When we launched RET Ventures four years ago, our pitch would often be met with some skepticism. Real estate technology was neither well defined nor well understood as a category, and while we had strong leadership, a compelling investment thesis, and major REITs as fund anchors, our hybrid-strategic model was still unproven.

>What a difference four years make. The majority of our portfolio companies are now creating tangible value for the operations of our Strategic Investors and the broader industry. We’ve successfully exited several of our investments, and our first fund has delivered well beyond expectations, both in terms of operational benefits to the industry and financial returns to our investors.

With Fund II, our already substantial strategic investor base has more than doubled to 40+ institutional real estate owners and operators; as a group, these investors own or manage 2.4 million rental units (among the largest groups ever assembled). We initially targeted $130 million for Fund II, but received enough interest from strategic investors that the fund was far oversubscribed, a testament to the reputation RET has already garnered among major real estate organizations. Ultimately, we closed the fund with $165 million of commitments

As we begin to deploy Fund II, we want to thank all our stakeholders —new and returning investors, portfolio companies, and friends of RET— for their support. With residential real estate undergoing fast and far-reaching changes, technology will play an ever more pivotal role in helping the industry adapt, and we are thankful to all of you for helping us drive this innovation.

Congratulations to Taylor Olson, Jon Soldan, and the entire Slingshot team on the exciting news that Slingshot has been acquired by Workwave.

Slingshot's ability to support customer retention and engage with potential customers at any time of day or night meets a pressing need for many home service providers and other field service companies. When we led Slingshot's Seed round in 2019, we realized how powerful the platform was and the unique potential it had to elevate companies across home and field services.

It's been wonderful to see Slingshot's growth over the past two years, and we wish the company well as it joins the Workwave family and helps a greater number of businesses reach their full potential.

Read more about this exciting news in Landscape Management.

For entrepreneurs and investors alike, a successful VC funding round involves both a financial transaction and a more comprehensive partnership. Most venture capital firms take pride in the way they accelerate the growth of their portfolio companies through a combination of strategic guidance, support services and an ability to open doors with other key stakeholders. With the collaboration of both parties, a successful startup will hone its product and gain traction among users, ultimately driving value for both the startup and its investors.

At RET Ventures, we use a formula that takes this approach to the next level. Take our work with SmartRent as an example.

One of the fastest growing proptech startups, SmartRent is the market leader in the smart home category and has become the sort of impactful technology startup that attracts investment from highly regarded generalist investors the likes of Bain Capital Ventures and Spark Capital. SmartRent’s position of leadership is not due to luck. That the company’s success is primarily a result of the vision and determination of its leadership team is no question. But credit also goes to the unique strategic investment approach we took starting well before we led SmartRent’s Seed and Series A rounds — a strategy we developed when we founded RET Ventures, and which we plan to continue utilizing in the years ahead.

To better showcase our strategy, we’d like to go behind the curtain on the SmartRent deal, illustrating the program we’ve created with the goal of helping build the most compelling startups in the proptech space.

The Proptech Sector

The old aphorism states that “it’s not what you know, but who you know.” However, RET’s approach is predicated on the assumption that those two categories are intertwined.

Founded in 2017, RET was established with the express goal of funding technologies for, and in partnership with, owners and operators of residential real estate. To accomplish this mission, the RET team brings together real estate, investing, operating and entrepreneurship experience. With this highly targeted mandate and capability set, RET curated a Strategic Investor base comprised primarily of real estate companies who are potential users of the technology we invest in. By creating such a targeted, highly engaged group of LPs, we’ve equipped ourselves with an important voice to consider when developing our investment themes, sourcing and assessing investments and guiding the growth of our companies.

Proactive Investment

Like all other VCs, we are frequently approached by startups looking for funding. While our investment team has extensive experience in both venture capital and growth investing and the real estate industry, we regularly consult with our Strategic Investors to ensure that we have the most timely and accurate insight on the value a given technology solution will provide to the industry. And with our 40+ Strategic Investors owning and managing a fairly meaningful subset of the industry, often we learn about demand for the product from existing users — our Strategic Investors — who are strongly considering signing up. Coupled with our extensive analysis and underwriting, this gives RET Ventures a significant competitive advantage in identifying the startups that are poised to gain market acceptance and scale their growth.

But the value is even greater on the proactive side. While we are actively tracking more than 1,250 companies in the proptech space, our regular conversations with our Strategic Investors allow us to regularly discuss industry challenges that none of those technologies can sufficiently resolve. The importance of a deep understanding of the industry in this sort of discussion can’t be overstated. Investors — even those focused solely on residential real estate technology — are, by definition, a step removed from the technology, which effectively means they are prone to missing some level of nuance or be behind the adoption curve. End users, who utilize the existing technology and experience the pain points firsthand, have a better perspective on what the industry needs.

After we have determined what technology solution the industry needs to solve, we are uniquely suited to find or build the right solution that can address those issues.

The Investment Process

With this approach in mind, three years ago, we determined that there was serious demand for a smart-home integrator designed for the multifamily industry. Consumer-oriented smart home devices have proliferated in recent years, allowing millions to benefit from in-home tech amenities. But with disparate products serving as thermostats, smart door locks, smart lighting, IoT sensors, intercoms, media devices and more, a unifying platform became an essential need in a streamlined smart home. And, while there were a number of emergent consumer-focused platforms, there was no enterprise-focused platform, particularly for operators of large multifamily and single-family rental portfolios, that would meet the needs of both owners — e.g., portfolio-level asset management features — and their residents.

As an early-stage venture capital firm focused on driving technology innovation in the multifamily and single-family real estate sectors, RET Ventures was well aware of this problem. With no mature technologies available to fill the void, RET began a search for an early-stage startup that could capture the market opportunity.

The first step in our selection process — quite atypically for venture investing — was issuing an “RFP” to several early-stage startups and identifying which had the potential to actually create the solution we and our Strategic Investors envisioned. We then had five startup finalists gather to present their companies and technologies to a group that included both our corporate executives and senior leaders from several of our Strategic Investors.

When we started this process, we considered an additional vetting round to whittle our five candidates down to two or three, who would each run small pilots with our LPs before we decided who to back — but that ultimately proved unnecessary. SmartRent swept the room. From every vantage point — founder, vision, experience, product — the company had the necessary ingredients to become a best-in-class platform. The only area where SmartRent fell short — reference client base and commercial traction — was an area we felt confident we could address.

We led SmartRent’s seed round in Q1 2018, while also pre-negotiating a Series A that we would lead if all went as planned.

A High-Conviction Investment

After a few of our Strategic Investors piloted SmartRent, any doubt we had was gone. Several of the largest residential operators had now used the technology and made subsequent decisions to adopt the platform, and we led SmartRent’s Series A round six months later.

Because we were so passionate about the solution SmartRent was providing, our investment in the company was unique in a few different ways. First, we made a particularly high-conviction investment in SmartRent, acquiring a much more significant ownership percentage than is typical in a venture investment. We also committed to have several of our LPs — all of them major multifamily operators with a total of more than 250,000 units owned and managed — work extremely closely with the SmartRent team, effectively incubating the product to meet our joint vision. With this ongoing feedback, we had confidence that the SmartRent team would be able to hone the software and hardware to meet the needs of varied users, creating a more flexible solution that resonated with a larger portion of the industry.

Ongoing Guidance

In addition to providing SmartRent with several ideal development partners from among our LP group, the internal RET team was very hands-on with the SmartRent team. Our entire team — from partners on down — worked closely with SmartRent founder and CEO Lucas Haldeman to provide business and operational support for the growing company.

In one notable example, over a year ago, when SmartRent was still aptly classified as an early-stage startup, one of their vendors was a small overseas company that made essential technology for SmartRent. Lucas and his team saw the potential value of vertically integrating with this vendor, which would allow them greater latitude in terms of designing their software and hardware. But as an early-stage company without an in-house CFO, they didn’t have the internal manpower to assess and manage the potential acquisition.

The RET team, however, has extensive experience in M&A. One of the RET Ventures partners with 10+ years of private equity M&A experience jumped in to help lead the acquisition effort, traveling abroad to meet the team and underwriting the deal in conjunction with SmartRent. Over a year in, that transaction has already borne fruit, as the combined team has collaboratively built compelling functionality for SmartRent’s core user base.

Taking the Next Step

With a compelling product and strong development partners, SmartRent has been growing its client base rapidly. Since our initial investment, they’ve quickly ramped up their unit count from virtually zero to 160,000 units and have gained attention from some of the largest technology investors. SmartRent’s Series B round was led by Bain Capital Ventures and its Series C was led by Spark Capital. The Amazon Alexa Fund also invested in SmartRent — an incredibly strategic investment partner for a smart home technology product. In early 2021, the company finalized yet another round of funding, garnering $31 million from a group led by Lennar Ventures, aimed at opening channels to the single-family housing market and broader residential uses.

As SmartRent has grown, RET has continued its support of the company, investing alongside Bain Capital and Spark Capital in each venture round. When SmartRent was raising its Series C, we decided to create a special purpose vehicle (SPV) of 10 real estate owner-operators — both RET LPs and otherwise. The investment by this SPV, which collectively operates 400,000 units, directly into SmartRent is yet another example of RET’s unique ability to accelerate the industry’s embrace of the company.

Just three years after our first investment, SmartRent’s valuation has now multiplied more than 20 times over. With investments from some of the most well-regarded venture capitalists and a technology solution that supports hundreds of thousands of multifamily units across 48 states and four countries, it is a prime example of what a successful proptech startup should look like. By the end of 2020, SmartRent was deployed in more than 2,700 apartment communities, and used by 19 of the NMHC Top 30 owner/managers in the U.S.

Looking ahead

As a fund, it’s very gratifying to see how we were able to play such a significant role in filling the significant market need that existed. Leveraging our unique investment approach, we were able to work hand-in-hand with SmartRent — at the time a fledgling startup with whose vision we were aligned — and help the company scale its growth. While Lucas and his team have obviously done a tremendous job — and the lion’s share of the work — in building SmartRent, we’d like to think that our unique approach played a role in the company’s success.

And now that we’ve validated our approach with a number of investments including SmartRent, we intend to show that it’s replicable. Working hand-in-hand with our LPs, we’ve already identified several other areas in which existing technologies for residential real estate come up short, and we are currently in the process of vetting potential technology partners with whom we can work together to fashion much-needed solutions. With the LP ecosystem we’ve created, we’re confident that we’ll be able to help create solutions that will create real value to the industry.