Venture Proptech Funding Drops 42.4% Year Over Year

Venture capital funding for proptech took a hit in 2023 according to data from the Center for Real Estate Technology and Innovation (CRETI).

“The proptech sector in 2023 observed a recalibration of venture capital flow, amounting to $11.38 billion, reflecting a cautious investor sentiment, one that was foreseen by CRETI in 2022,” they wrote. “This recalibration represents a 42.38% dip from the $19.75 billion invested in 2022 and a significant 64.44% decrease from 2021′s investment high of $32.0 billion. The retraction in investment can be attributed to a market normalization following a period of intense growth and bullish investment behavior driven by digital acceleration during the pandemic years.”

The organization says that the decrease isn’t a reflection on the importance of the proptech sector in commercial real estate. Instead, “it reflects a broader market correction and a return to pre-pandemic investment levels.” But the statement oversimplifies the issue, because a return to pre-pandemic investment means any growth during the time since 2019 has largely dissipated.

That is hardly the case more generally for technology. E-commerce took a huge leap during the pandemic when people became increasingly dependent on having goods shipped to their doors, as so many stores were shut down. As time passed and vaccine use helped reduce the immediate severity of Covid-19, people began returning to their old habits of going to stores.

That reduced the enormous tailwind e-commerce had enjoyed, but the result wasn’t a return to pre-pandemic levels. Instead, e-commerce retail sales maintained a calmer but higher level of activity, closer to an extension of what the growth curve might have been had the pandemic not existed.

The retrenchment of the venture capital community seems more a major reconsideration among investors as happened in the dot com era. It seemed then that almost any idea could attract capital eager for an expected significant return. Most of those companies ultimately failed, although a reasonable portion survived, and some became today’s tech giants.

It could be an inherent issue of VC strategy. They spread money across a number of bets knowing that the real profit will come from a few blockbusters. Some of the investments will be acceptable, and a significant number will go under. The business model is similar to that of book publishing.

When the rush to find the next hot thing begins to wane and money pulls back, what remains is often a less heady and more measured return to investment basics. “Despite the downturn, 2023 has been a year of strategic investment, with funds flowing towards companies that demonstrate clear value propositions, sustainable business models, and the potential for profitability in the short to medium turn,” CRETI writes.

It is what might be expected as a normal for investment at any point. CRE, with its historical disinterest in employing technology, may have seemed a sure thing. As investors and entrepreneurs are finding again, nothing is ever sure in business until the signatures are dry on the contract.