We asked Rajeev to shed light on the hot topic in investment right now – the proptech sector.
*We would like to highlight that this interview took place previous to the impact that COVID-19 is having on the economy and all industries right now*
So over to the interview with Rajeev and our founder, James Ker-Reid with the key questions and answers:
- The proptech industry – we hear a lot about it in the news about a lot of investment going into the sector. What would you make of the investment you’ve seen from your position over the last 12 to 24 months?
We have been operating for 5-6 years, so we have seen a maturing of the way investment is made into the sector. I think that if you go back 4-5 years, there was a bit of a hype around proptech being the new fintech, money coming in without a real recognition of what was driving value to the ultimate stakeholders, I think we have seen larger sums of money come in from more sophisticated investors and that’s gone hand in hand with the maturing of the technology and the market’s willingness to adopt those technologies. So what I’m seeing is fewer smaller investments into early stage proptech businesses and more meaningful and larger investments, from mainly private equity houses into the more mature sectors of proptech.
- Is there also a splitting out of the technology that these larger players are investing in within proptech?
If you peel back the layers and look at the largest transactions that have happened the market, what you see, particularly on the residential side but also slightly on the commercial side, is an influx of US private equity backed vehicles who are taking a platform play. The macro trend is that US money is coming to the UK to either acquire a platform or bolt leading players into their own platforms. Earlier stage proptechs are at the bottom of the pyramid, and those that reach maturity are either to become platforms themselves or to be gobbled by platforms that are backed by private equity houses.
- Where is that investment coming from in the US? East Coast/ West Coast?
The underlying funds tend to be relatively large so a recent deal I saw was Harvest Investments investing into MRI – a multi-billion dollar corporation. They are both East and West coast investors, these are big multi-billion dollar funds, taking platform plays globally in proptech.
- Coming back to the UK, how would you describe the UK proptech market at the moment, and the growth of some of the new companies and players?
I think there’s been a tale of two halves over the last 12 months and the latter tale has only come about since the election. Last year was relatively subdued – I see proptech as the property sector rather than something separate and it’s not like property technology is a new thing. Property industry has been using technology pretty much from the outset, whether it be spreadsheets or something more sophisticated. I think the subdued property market with uncertainty, particularly in the UK – we saw less proptech companies coming out and successfully raising money. I believe we are seeing the early stages of a bounce. New confidence from the media is permeating into property tech since the election and greater certainty on the economic outlook. It is a very interesting time for property and we would expect to see a further influx of capital.
- Hate to ask, but how do you think Brexit will affect the proptech industry?
Brexit will affect the proptech industry exactly the same way it’ll affect the property industry. I’ve been in the property industry my entire professional career, the rule of thumb is as long as transactions are happening, people are happy, bar if there’s a crash, the greater certainty more transactions can take place. So long as the confidence of economic outlook is there, whether good or bad, the property sector will thrive as there’ll be transactions, residential or commercial, therefore leads to greater demand for property technology solutions.
- How have you seen the development of the different value propositions of these new proptech players over the last 12-24 months?
It’s a cycle – the move from single stack solution, to API driven integrated solutions. Those integrated solutions in part being acquired by the platforms, the integrator, single stack solution, and back out again – underpinning this is a generational change. Historically, property transactions were analogue, I think consumers are driven by their experiences of general consumer apps, and expect mobile first, or smart solutions with appropriate updates with every transaction they are doing. As well as the historical trend to and from single stack solutions, I think the generational shift in the way in which people expect to do any transaction, property is just one of them.
- In the eyes of the user/consumers of the app, do you think it’s easy to identify the different use cases for these different proptech solutions?
It comes down to the definition of the ‘user’. From the perspective of the customer’s customer, If supply is from property company to property company and the user uses it internally for their own users, or externally for customers, I think those end users should not be able to differentiate between the different technologies, they should have a seamless customer journey. Whether that’s provided by a single provider or multiple providers. That is a macro trend – beyond proptech, the bundling of solutions to provide a seamless customer journey, which ostensibly feels to the user as a single solution, but powered by multiple specialist providers is key.
Using Salesforce – we have innumerable plug-ins but it’s still a seamless data flow.
- Within the market of Seed to Series C – what are some of the key mistakes you see proptech founders making within that funding tiers?
At the earlier stage I think the challenges of proptech founders are pretty similar to any B2B founder. Companies I’ve seen struggle to get market traction (a horrible oversimplification here), have typically been solutions to problems experienced by the founder without appropriate objective market validation that what they are doing could form the basis of a sustainable business if executed properly. They seem to be solving problems they had during the transaction without appropriate market validation rather than really driving at what the market needs.
- What recommendations would you give to proptech founders wanting to do a market validation that is proper and robust?
I would suggest they read two books: The Lean Startup, which is a common-place startup founder book, providing methodology whereby you can validate and understand what you’re doing. The Mom Test – helps you put the challenge you’re facing into objective terms and solutions. Also I suggest using the business model canvas to get an overview of key elements of what you’re looking to construct and testing fundamental hypotheses.
Also like the working backwards approach, from recollection, Amazon started with the press release of an ideal solution and validating that in an idealised world, recognising you’ll never get there for MVP, does what you are doing and solving, resonate and what assumptions are you willing to make in order to reach that idealised outcome?
- Those founders with market validation, or at least on their way, what are some of the challenges you might then face as a proptech founder?
Historically, not as much now, but due to the influx of capital, there was a lot of noise around the sector with relatively few decision makers to reach, relative to other more general B2B applications. So getting noticed is key and within the property sector there is a high degree of reference ability, making sure you get traction and recognising that referrals are critical to scaling business in this sector. You can’t cut corners. Whilst property is viewed as a rich sector from the outside, property is capital and asset rich but may not be as income rich as other sectors, so when comparing proptech to say fintech, my takeaway is that the closer you are to money, the more money is available to invest in technology by prospective customers, therefore more money available by the tech companies to invest in their own R&D. The amount of cash available for tech investment vs the amount that is tied up in the buildings is something to be wary of.
- We’ve talked about challenges – what would you say are some of the absolute ‘don’ts’ as a proptech founder?
- Don’t write a line of code without getting proper market validation.
- Don’t write a line of code without properly understanding the landscape, which means peeling back the layers. There are lots of solutions out there that you might not be aware of and, therefore, not properly understand the competitors and landscape. Be respectful. People who come in shouting about disruption is great for short-term headlines, but that message sticks in people’s minds.
- Try to build a sustainable business that happens to be technology-based rather than build silicon valley technology business.
- Property is a sector that fundamentally works. So much of it is rooted in legislations – making assumptions without properly validating what can and cannot be changed is a sure way to burn through cash. Some of the ways the property sector operates, while archaic, are required.
- You’ve built up to 30+ employees now. What problems have you had around talent acquisition – we hear a lot about proptech firms needing industry experience, is that true?
I’ve not particularly viewed talent acquisition as people with or without industry expertise. The challenges we faced were ‘this is the first business I’ve started’ and fundamentally, recruiting is hard. Knowing what you’re looking for, and why, and then being able to identify that in prospective hires is something I struggled with at the start. Everything we do in our business we try to simplify, therefore the 3 things we look for is attitude, drive and coachability and the industry experience is the bit on top. Generally, we take the view that the hard skills can be learned if someone has already ticked the boxes for those three points. We invest a lot in our team to upskill and teach a lot about the property sector but every hire we got right, they ticked those three points – in fact, we have had 100% success rate. I wish I had come up with this method myself, and to be fair we were coming to those three points conceptually, but I went to a talk by Glyn Trott who runs Agent OS and he said those three words – attitude, drive and coachability. The penny dropped at that moment and he had encapsulated exactly what we were looking for but we had been unable to articulate at that point in time.
- In your opinion what do tech founders fail to do that doesn’t create predictable revenue?
It’s very dependent on what they are doing. I think the subscription model has fundamentally shifted business models for both hardware or software. IOT providers doing things on a license fee model. There are very few, if any, proptech businesses that are stuck in that ‘one-off’ rather than the predictability of a revenue model perhaps? If you’re looking at the i-buyer or the online agent I wouldn’t view this as a proptech business, it’s just a differently enabled agency business. What I’m surprised by, given that property sales transactions are happening less frequently and more people are renting, is that I haven’t seen a knock-out tech-enabled lettings proposition.
- What do you think is the failure rate of proptech businesses today in the UK?
Depends what you define as a failure, and over what time period. I have seen friends launch businesses in the proptech space that have failed to get traction, but then pivoted, rebranded multiple times and THEN get the traction. I wouldn’t view that as a failure, instead part of the learning curve, but from the outside it would look like 3 failed companies before the one success. You only get the insights from being within the market – from the outside there’s lots of false impressions about how the property sector works. When you are in it, that’s when interesting opportunities start to arise.
- What advice would you give to other proptech founders making a similar journey to yourself?
Don’t try to do anything too complicated, keep it simple! I’ve seen others come up with very complex processes for various things – the tendency is to over think and over complicate. The beauty is in simplicity, whether it’s a customer onboarding process, marketing process, attribution of marketing, recruitment etc – simplify! Challenge yourself to come up with the simplest solution to a challenge you are facing, rather than trying to solve lots of things through a single solution.
- Any guidelines or framework that you use to accomplish that point of keeping it simple?
If you can’t explain it simply, you don’t understand it well enough. If we are looking at a new tool, for example, the benefit of it has to be understood by people who are not specialists in that area. Everything we do, we try to explain as simply as possible.
Over and out from the team at Sales for Startups. We’ll be interviewing other successful CS leaders, Tech Founders and even recruitment leaders to see why we are missing the mark when it comes to growing existing accounts at tech companies.
If you’d like to be interviewed please comment below or feel free to connect with me on LinkedIn or submit a request on our website.