REAL ESTATE TECHNOLOGY PERSPECTIVES THAT COUNT

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.

As a venture capital firm focused heavily on tech solutions for single-family and multifamily rental property, we keep a close eye on the flow of capital to the real estate tech space as part of our day-to-day operations. Sensing something of a market vacuum for this sort of data, we recently decided to increase the rigor with which we track this investment activity, with the goal of both enhancing our own familiarity with these trends and presenting them to the broader market.

A few weeks ago, we presented the first of what we expect will be many quarterly reports on rent tech trends at this year’s virtual NMHC OpTech conference. Considering the event was held virtually due to COVID-19, it is not surprising that the contents of the report demonstrate how investment activity has been affected by the pandemic.

We hope you’ll review the entire report, which is embedded below, but some of the most salient takeaways include:

1. Reassuring Resilience for Early-Stage Deals. The pandemic hit the country hard in the final weeks of the first quarter, and it was not surprising to see that that led to a deal slowdown in Q2. In fact, with just 23 early-stage deals, the “rent tech” space had by far its slowest quarter since we began tracking it in 2018. But things bounced back nicely in Q3, once investors had time to take stock of the pandemic and assess their new reality. This resilience is due in large part to the ways in which many real estate-related technologies are “pandemic-friendly” and facilitate social distancing and working from home.
2. Funding for “next-gen property managers” has seen a decline. This category refers to companies that sub-let apartments within multifamily properties, typically renting them out for short stays, and includes startups like Vacasa and Sonder. With the larger hospitality industry’s struggles in 2020, it was no surprise to see this segment struggle as well. In fact, with investment volume declining by about 50% in Q1-Q3 (as compared with the same three-quarter period in 2019), it saw one of the most significant slowdowns across the proptech arena. It should be noted that while activity has slowed, it has not stopped altogether, as some companies which leverage a unique approach to collaborating with their multifamily partners have actually thrived over the course of the year. Our portfolio company Kasa, which raised a $30-million Series B funding round in Q3, is a prime example.
3. The number of early-stage companies getting funded is declining. Even as funding activity bounced back in Q3, the overall trend is hard to miss. Since peaking in Q1 2019, the number of early-stage funding rounds has been heading south. While this may initially seem to point to the market losing interest in these tech companies, that’s actually not the case — the dollar value of real estate tech investment and VCs’ own fundraises remain strong. However, as the cohort of these companies matures, a greater portion of that capital is concentrated toward later-stage funding rounds, and the number of early-stage companies raising capital has taken a dip. With tech adoption increasing across the industry, we at RET remain bullish on the prospects for early-stage technologies, and we will continue to work with our strategic investors to fill the gap and fund the most compelling rent tech startups.

For more insights into proptech and rent tech trends from the year, you can view our full research report.

For many of us, 2020 has been by far the most unusual year in our lifetimes. Even so, innovation and the adoption of technology have continued unabated, and in some cases have accelerated. A prime example of this is the growth of rent tech. In fact, the rapidly evolving world in which we live has helped many real estate-related technologies thrive, as social distancing has increased the importance of tools that support real estate operators and renters and the new socially distanced, work-from-home reality.

After the whole world seemingly came to a chaotic halt in March, the RET team, like many others, took the opportunity to take stock and reflect on our strategic priorities. We assessed the situation — both for our fund and for our portfolio companies — before getting to work developing strategies that would bring success to our growing ecosystem of real estate operators and entrepreneurs in this “new normal.”

As the summer rolled on, we found ourselves as busy as ever, and we backed several exciting companies in the rent tech space during the last few months. These included:

— Engrain, a unique company that creates building mapping technology and visualization software, with a focus on multifamily properties. Engrain builds a 3D map layer for properties to act as a “Google Maps for real estate.” With an open API, they will pursue integrations with other technologies, enabling self-guided touring, accounting systems, facilities management tools, and other asset and property management-related solutions to benefit from wayfinding and location-based data analysis. RET led the $3.7-million funding round in Engrain.

— Kasa, an innovative hospitality company that partners with owner-operators of multifamily and hotel properties to offer business and leisure travelers short-term accommodations. While there are other companies in this space, Kasa is unique in its approach to collaborating with multifamily operators and has invested heavily in its technology stack, which enables it to be more nimble in its operations and provide greater value to its industry partners. Even as the broader hospitality industry has struggled, Kasa has sustained strong occupancy and unit growth through 2020, meaningfully growing market share. RET was proud to participate in both Kasa’s $20 million Series A (which closed less than a year ago) and its $30 million Series B.

— PassiveLogic, a next-gen autonomous building management system (BMS) that leverages an AI-driven digital model infrastructure to reduce BMS installation time by up to 90% and ongoing energy spend by 30%. The technology can improve the insight institutional landlords have into the operational performance of their portfolio, and also provides open interoperability for other software and hardware, making it a welcome next-generation smart building solution for the industry. RET invested in the company’s $16-million Series A raise.

— Falkbuilt, which manufactures offsite fabricated interior construction components and develops software to bring efficiencies to architecture, design and construction. Falkbuilt’s founding team has a wealth of experience in construction, and the company has a robust distribution network of 70 independently owned branches, helping it rapidly grow its domestic and international client base. We were very excited to lead Falkbuilt’s $20 million CAD Series A round.

We also made a still-unannounced investment in the IoT space with a company developing a novel application for microphone-based AI with exciting applications for the real estate sector. We look forward to sharing this with you all soon.

We’re also vetting a number of other compelling real estate tech companies, and will have more news to announce soon!

If you’ve followed RET Ventures since we first launched Fund I back in November 2018, you know that the firm has seen countless wins and successes over the 16-month period. Just in the last year alone, we invested more than $60M in 11 rent tech leaders that work closely with some of the largest single- and multifamily owners and operators in the U.S. Commercial Observer recently posted a nice article on the history of the fund and our early traction that you can read here. It’s been an incredible journey to watch RET’s unique model provide deep, strategic relationships with entrepreneurs, LPs, and mainstream investors to help develop some of the most innovative real estate technologies in the industry.

Today, GlobeSt.’s Real Estate Forum released its annual “Commercial Real Estate Tech Influencers” and decided to include John and the firm as one of the honorees. If you’re not familiar, this list is known for highlighting the top tech, real estate, and investment firms making major contributions to the robust rent tech and proptech innovation ecosystem that is fueling real estate’s long-awaited digital transformation. To be included among so many pioneers, trendsetters, and forward-thinking entrepreneurs is both an honor and a validating moment for the RET Ventures team, the LPs that believed in us, and our business model.

We’re just getting started and we hope you’re as excited as we are for what the future holds for the firm. Thank you for your continued support and keep an eye out for more exciting announcements from RET Ventures in 2020.

Last year, I penned a blog post titled, ‘Why We’re Excited About Rent Tech’ shortly after we announced our first fund — the category delivered on its promise and then some in 2019. In fact, proptech investment hit $14 billion by mid-year 2019, more than all of 2018 combined. All of this activity is luring major generalist VC firms towards proptech which is a major development as they’ll provide not only large pools of capital but also experience scaling global businesses to emerging proptech and rent tech businesses. The real estate technology ecosystem is maturing nicely and we expect big things in 2020.

Specifically, there are three trends that have us excited for the rent tech space in 2020:

Smart Apartment Tech Extends Beyond Apartments

The operations and cost savings that mature smart apartment technology provides is now enabling owners to deploy portfolio-wide as opposed to unit-by-unit. With proven IRRs and implementation becoming easier and more affordable, smart apartments are now mainstream across rental properties. It’s more common than ever for an apartment complex to provide smart features to their residents — such as smart thermostats, locks and lighting. Utilizing smart technology for asset protection is also becoming mainstream, with leak sensors virtually eliminating major water damage incidents.

Two of our portfolio companies — SmartRent and GiGstreem — are major players poised to facilitate this trend. SmartRent is a leading smart home platform company that is seeing very strong industry adoption, for multifamily property managers and renters that enables greater visibility and control over apartment assets. Some of SmartRent’s offerings include smart locks, thermostats, light switches, leak sensors, building access and parking control that improve resident experience, while also allowing property owners to take better care of their assets.

GiGstreem specializes in providing high speed internet service to multifamily properties. By working with GiGstreem, property owners can offer reliable internet upon move-in, thus eliminating the need for residents to select and set up individual cable and wireless packages. In addition to offering residents high-end amenities such as this, GiGstreem’s building-wide Wi-Fi solutions ensure that all other smart apartment technology, such as SmartRent’s solutions or individuals’ smart home devices, run reliably 24/7.

The ‘Hotelification’ of Rental Properties

We’re seeing multifamily and single-family owners make significant investments in high-end amenities. This “hotelification” of rental properties is a major opportunity as it allows organizations to create new revenue streams by adding services like dog walking and apartment cleanings that greatly enhance resident experience. Over the past year, Hotelification has introduced new product categories to multifamily and single-family rental property owners.

Many multifamily and single-family residences are using Amenify’s ‘resident experience platform’ to broaden their amenities offerings. With Amenify, residents easily book high-end amenities with third-party providers; over time this will include offerings such as cleaning, hiring personal trainers, pet services, events, or concierge support, with their mobile phones. This enables property managers to effortlessly offer residents top-tier services and create new revenue streams while offloading much of the work that would traditionally be required to offer such amenities, like vetting services, setting up local partnerships, or hiring additional staff.

There are also a burgeoning group of high-growth companies, such as moved, that handle all aspects of the moving process, from providing boxes and other packing materials, to hiring movers and managing residents’ schedules. Moving is one of the top life events that people stress out about so many rental property owners are using moved as a compelling incentive to simplify their transition to one of their buildings.

Multifamily and single-family organizations are also making a more concerted effort to respond to short-term rental companies like Airbnb and VRBO by taking a page out of their own playbooks. A growing number of rental properties directly oversee and offer units to business visitors, tourists or tenants’ friends and family to take advantage of otherwise under-utilized units to create new revenue streams and amenities — but only if they can ensure existing tenants are not negatively impacted. It’s important for rental owners considering this strategy to work with like-minded partners and closely monitor regulations around short-term rentals and partner with municipalities whenever possible to ensure compliance with local laws.

Self-Touring Paves the Path Towards Self-Leasing

The multifamily industry is abuzz with empowering people to view prospective apartments without a leasing agent. Numerous companies have emerged with solutions from lockboxes, to iPads, to fully integrated access control systems that allow prospective residents to enter and tour the property at their leisure. We see this as just the first step towards a larger opportunity we see happening in 2020: self-leasing.

Multifamily and single-family organizations are building end-to-end leasing experiences that will allow a prospective resident to tour and execute a lease on their own time and whenever convenient for them. We are seeing an increasing amount of our LPs seek to utilize several technologies to assist them in this initiative including CheckpointID for identify verification, SmartRent to manage activities like building/unit access, and Nestio or Funnel for the CRM tools to manage all leasing activities and determining when and how a leasing agent should interact with a potential resident. This is a win-win scenario as people are free to tour, and potentially lease, apartments on their own schedules while rental owners and operators are able to better utilize leasing staff to engage prospects that need extra attention or on higher-value “concierge” activities.

As we head into the New Year, our team is incredibly grateful to continue working closely with an incredible group of entrepreneurs and multifamily and single-family organizations to support the burgeoning rent tech market. We’re confident that the proptech surge shows no signs of slowing down in 2020 and beyond.