Troubled Proptech Firms Highlight Necessity of Due Diligence

Just last week, the proptech company Veev, which was supposed to help make residential construction efficient and affordable was purchased for a tiny fraction of its one-time billion dollar unicorn valuation. The 15-year-old company is now an R&D center in Israel owned by Lennar.

Whenever tech companies focused on a given industry start dropping away quickly and completely, it’s time for businesses in the served industry to reexamine and rethink the relationships they have with vendors. Because you never know which ones will remain and which will close down, possibly with your money or, probably worse, with your data.

The next name to hit the skids is Frontdesk, which rented furnished apartments to its customers. According to TechCrunch, the company laid off all of its 200 workers during a “two-minute Google Meet call.” CEO Jesse DePinto said during the call that they were filing for a state receivership rather than bankruptcy.

Frontdesk had raised $25.8 million according to startup data center Crunchbase. Back in June they acquired rival Zencity. But they apparently have ran out of money. It had credible backers, like JetBlue Technology Ventures, which in a September 2022 blog post explained why they had invested in the company. “One of the things we think is special about Frontdesk is how the company was able to differentiate early on by perfecting its business model first in lesser-known destination cities, such as Milwaukee and Indianapolis, that are less competitive and sometimes overlooked in the market,” they wrote. “Impressively, this resulted in reaching the milestone of 500 units with $5M in capital, which is substantially less to reach the same milestone than that of their peers.”

Of course, having a lot of available inventory doesn’t matter if, in less competitive markets, there won’t be enough demand to support an ongoing business. Always question what companies and their backers are telling you and then ask probing questions. Sometimes even the most basic of information can become a way of unearthing questionable undertakings.

As a non-CRE example, take the collapsed crypto fund HyperVerse, as the Guardian reported. Before everything crashed, promotional materials for potential investors in December 2021 included a different CEO, Reece Lewis, who was touted as having a bachelor’s degree from the University of Leeds and a master’s from the University of Cambridge. “A brief career summary of Reece Lewis, which was presented in a video launch for potential investors, said he had worked for Goldman Sachs, sold a web development company to Adobe and launched an IT start-up firm, before being recruited to head up HyperVerse by the HyperTech group,” the Guardian wrote. “This was the umbrella organisation for a range of Hyper-branded crypto schemes.”

Guardian Australia did a background check. Neither university had heard of him. Nor had the U.K. companies register, the SEC, Adobe, or Goldman Sachs. There was no LinkedIn bio or any material online other than the presentation, except for a Twitter account set up only a month before the promotional materials, including a video of him

Ultimately, HyperVerse would take $1.3 billion from consumers, never to return it, according to blockchain data firm Chainalysis.

The lack of information about Reece Lewis should have proven an enormous red flag without an enormous amount of due diligence. When looking at any sort of tech vendor, do basic research. Look for anything that makes you wonder what is happening. Does a company mention connections to other businesses that have never heard of it? Advertise facilities that, when checked with common online tools like Google Maps, don’t exist or maybe are located in some private house? Fail to show up on any state corporate register? As strange as some of these examples may sound, all have happened at times.

Taking care early on can help keep you from losing money, time, and even reputation.