Venture Capital Funding for Proptech Takes a 14.3% Dive

A recent report from the Center for Real Estate Technology & Innovation (CRETI) says that venture capital funding for proptech companies fell 14.3% year over year in the first half of 2024.

Total funding for the sector was $4.37 billion. That was down from $5.10 billion in the first half of 2023 and $13.13 billion during the same period in 2022, according to the survey of 1,088 proptech startups. It suggests that investors are becoming more cautious, with a “prioritization of quality over quantity.”

Another potential explanation is that current yields of Treasury instruments — the 6-month at an annualized 5.24% or 10-year at 4.25% as of July 19, 2020 — continue to present attractive opportunities to investors who want decent returns with little risk in turbulent times. Treasurys also offer strong liquidity, something not so available in VC funds.

Venture capital has been an important source of funding technology for decades. Startups by definition typically don’t have the track records and revenue to obtain debt-based financing from sources to enable development and growth. Without an equivalent capital source that will take big bets and back a lot of companies that will winnow down over time to a smaller established group, innovation would be much harder to come by.

The need or desire for more money is large. The survey results said that 91% of the companies plan to raise capital, with 45% looking to do so within the next 12 months. As important sources of money decline, some portion of these companies will be forced to sell off to larger firms or close their doors.

Almost two-thirds (63.7% or 693) of the respondents were looking for early-stage funding, which is riskier. Growth-stage accounts for 28%, or 304 companies. Late-stage is 8.3%, or 91 companies. “This distribution underscores the continued drive for innovation and market entry in the proptech space, despite the overall decline in available capital,” CRETI wrote.

Volumes of total funding may be down, but the rounds remain steady. The median funding amount was $115 million a week, while the average was $168 million, and so is upwardly skewed, likely by the larger amounts provided to a small portion of proptech firms, typically at later stages of development.

CRETI argues that the number of companies looking to raise capital offers opportunities to investors. That may be true, but until rate cuts start and the advantages of fixed income shrink, money may continue to be scarcer than in the past.