Managing Your CRE Tech Through Consolidation

The new proptech and other CRE-related vendors keep appearing but how long can they all hang on/? There are pressures to force industry consolidation. What shape is your tech set-up in?

Consolidation is a natural condition in technology. Here are some reasons why:

• Ideas and products aren’t the same as winning business strategies.
• Capital accumulates and not always in the most rational ways, which lets some players buy advantage that they couldn’t develop. Which is fine. But it can become a concentration of investment in a small number of vendors, whether they are ultimately the “best” or not. They can’t all be, and big investors can make pretty big mistakes.
• Capital traded out for intellectual property, assets, and entire companies often works because the most innovative people often don’t to keep doing the same thing, so they take the exit and think about something they’d find more fun than running a large company.
• There isn’t necessarily enough room in a market for a stream of competitive products, at least not when it comes to something other than simpler commodity products that are in wide use and largely interchangeable.

None of this has ended. Even with a troubled proptech industry, money flows in because investors have money in funds and the VC and private equity firms that have raise capital can’t sit on it indefinitely. Investors want to see a return.

All that said, conditions have been changing. 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. At the same time, 63.7%, or 693, of the respondents were looking for early-stage funding within the next 12 months. “This distribution underscores the continued drive for innovation and market entry in the proptech space, despite the overall decline in available capital,” CRETI wrote.

But it also suggests that, given the highly speculative nature of investing in software startups, the environment isn’t conducive to the ongoing existence of all the startups. How many different ways of running a multifamily business or supporting the underwriting of investments does the industry need?

Consolidation is almost a given with too many startups chasing too little money. There will be acquisitions for one of several reasons:

The acquiring company sees the acquisition as a way of expanding their offerings.

1. The acquiring company wants to integrate the technology into their existing offerings
2. The acquiring company want to put an upstart competitor out of business.
3. The acquiring company is buying the other company as a way of adding to its staff.

Depending on the reason, your business may be fine or it might have to switch products it has come to depend on.