Venture Capitalists Flood Real Estate Industry as Tech Revolution Kicks Off
A new startup, called Opendoors, is attracting attention from venture capitalists and tech firms after it announced in June that it was raising $325 million to growing its home flipping business. The latest round of private funding increased the four-year-old company’s value to $2 billion.
Venture Capitalists Fund Real Estate Startups
But this just the beginning. Only three months after its first round of funding, the company managed to double its cash pile thanks to a $400 million investment from Vision Fund by Softbank. Opendoor revealed the deal on Thursday, saying that investment hasn’t changed the company’s valuation.
But Opendoor wasn’t the only company backed by the Japanese conglomerate. In Thursday’s announcement, Softbank’s Vision Fund said that it has also invested $400 million in Compass, a high-end brokerage that has now soared to $4.4 billion in value.
The two investment mega-rounds are the latest in venture capitalists’ efforts to take over the emerging technology sector in real estate. Even Silicon Valley wants a piece of this so-called ‘proptech’ pie.
The tech industry has turned most of the old-line industries on their faces. The taxi business has been upended by Uber while Airbnb has overtaken the hotel and brokerage industry. Now real estate is the latest industry Silicon Valley is looking to disrupt.
Many venture capitalists have already homed in on the sector with huge investments with hopes of infusing it with data and software. Investors are looking to bridge the gap between real estate and technology by adopting software that could make mortgage, pricing and construction management more efficient.
Industry on the Verge of Disruption
Tech startups are starting to rear heads in the real estate industry with backing from powerful venture capitalists. According to data provider CB Insights, Investors poured $3.4 billion into these startups in 2017, an amount that is five times higher than five years ago. Fifth Wall Venture is a capitalist firm that focuses entirely on proptech companies.
Vision Fund’s managing director, Jeffrey Housenbold, says that tech is starting to invade the real estate industry and investors have just started paying attention. So far, Zillow and Redfin are the leaders of tech innovations in the residential real estate market, but other startups are quickly following suit, and coming up with new technology in areas of construction management, financing, appraising, co-working, retail space and residential amenities.
Vision Fund is so far the biggest and most aggressive backer behind startups in the proptech space. The venture capitalist firm has made generous investments in companies in various real estate divisions. Some of the most prominent names include construction company called Katerra, home rental insurance firm, Lemonade, office rental startup, WeWork and an Indian hotel company, Oyo Rooms.
Rise of Proptech
Housenbold says that the investment trend in the proptech market might have been influenced by Softbank’s interest and deep pockets (the multinational conglomerate has almost $100 billion to spend on promising startups. He says that more and more people are becoming curious about Vision Fund’s investment activities since it is a leading player in venture capitalist industry.
With investment in Opendoor, the most prominent startup in the proptech market, Vision Fund has gained access to residential housing. Founded in 2014, the Silicon Valley brokerage firm has managed to raise $1 billion so far from investors like Softbank, GGV Capital and Khosla Ventures.
The main goal of this proptech startup is to make the homeownership process as easy as a click of a button. Although the current reality remains far off from the goal, Opendoor has simplified the home-selling process through its breakthrough software technology.
The company also recruits the help of human evaluators who assess the home’s value and make an appropriate offer to the seller. If they accept, Opendoor buys the property with a 6.5 per cent sales commission. It has also recruited 100 real estate agents who provide assistance to the customers if they ask for it.
Opendoor bought homes worth $316 million in August in various southern U.S. cities. The total sales were significantly higher than $100 million in January.
What changes do you envision in the real estate industry with the rise of proptech startups?
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