Digitization and sustainability are driving PropTech fast ahead
When looking at the PropTech market, especially two factors are driving the fast-growing interest in investing in startup companies. One is digitization, and another is growing ESG presssure from European regulations. In order to facilitate the classification of sustainable investments and activities and incentivize a necessary reallocation of capital, the EU has set a goal to establish an EU-wide classification system, the EU Taxonomy. This will clearly identify environmentally friendly investments and activities in order to help companies, investors, and issuers recognize sustainable assets and therefore mobilize institutional and private capital towards green investments. And as we all know, digitization helps us all to be environmentally friendly through technology. That’s a main focus for the German-based and European-focused venture capital fund PropTech1.
Focus on the Nordic region
“When it comes to Environment, Social and Governance, digitization enables a lot of new and very exiting solutions on the market, and very early on we saw interesting possibilities in that field”, says Klara Ritter, Head of Nordics at PropTech1. The company was founded in 2018, inspired by the digitization in the FinTech industry, and today PropTech1 has a pan-European investment strategy.
“The Nordic market is very interesting for us, but to be honest, I prefer to see Denmark, Sweden, Norway and Finland not as one market, but as a business region, as the four ecosystems seen from a financial perspective are very different”, Klara Ritter continues. But as a whole, the hallmark for the four countries is that a lot of high-profile founders, according to Klara Ritter, are going into the property space.
Innovation as a business case
She adds that besides digitization and sustainability in the shape of ESG tech solutions, customerization also an issue, which impacts the investment market. Consumer behavior is rapidly changing, demanding a better user experience when it comes to renting, buying, living, and working, which traditional players are incapable of providing. Innovation has now become no longer ‚nice to have‘, but is essential for the industry’s survival.
”Right now, the number of startups in the PropTech area are increasing very fast, but compared to Germany, there has been very little focus on PropTech investment in the Nordic business region. That gives us an opportunity to find and work with some very interesting companies. Here PropTech innovation is still at an early stage, and that’s why we have decided to pursue our operations in this area”, says Klara Ritter.
“To be succesful in investing in the PropTech area, you need people who know both real estate and tech investments very well,” says Head of Nordics at PropTech1 Klara Ritter.
Seeing the value chain as a whole
At PropTech1, they know that a widespread network is important, and in order to make the best possible investments in the PropTech market, the company also reaches out to the real estate world to find specialists with the necessary skills that can help the company understand digitization and innovation.
“Buildings become more energy efficient and energy systems emit less carbon due to re-newable energy sources; a greater proportion of a building’s emissions come from the construction methods and materials. That’s why we have to be observant and work in perspective of the real estate value chain as a whole”, says Klara Ritter. That includes both new materials, new ways to use materials, new processes, and new ways of asset management.
Networking is absolutely essential
For PropTech1, the definition of PropTech includes the entire real estate value chain, therefore also the construction phase of a building, enabling investments in the ConstructionTech sector as well. The startup scene is very well connected, as she says, and networking is an important tool.
“We work in a couple of ways. We work with outbound leads, where we reach out to a company, and inbound leads, where we find and identify a company through our network, for example other angel investors and venture partners”, says Klara Ritter. She emphasizes that PropTech1 does not work along with other PropTech funds but is happy to do so with other generalist funds.
Satisfied with the success rate
Often PropTech1 invests very early, so when an interesting startup company pops up, it’s a scrutinizing process to come to the right decision – to invest or to stay away. PropTech1 wants to be the partner that can help the startup to succeed, so investments are even possible when it has barely left the pre-seed state. Despite having less proof of concept in this stage of a company, Klara Ritter is quite happy with the achieved success rate.
“Most of our investments perform very well, but of course we know we take a risk. However, we limit this risk through meticulously screening the company and the people behind it, analyzing the product or the service, evaluating the market potential, and speaking to industry professionals in order to identify the possibilities to prosper in the future,” ends Klara Ritter.
For more information please visit: www.proptech1.ventures
Now is the time to take action
ESG is a highly relevant topic,and there are a lot of indications that now is the time to take action. It is not only investors that are demanding a stronger focus on these matters, but also regulators and consumers requesting a change in behavior. Moreover, in order to be able to successfully complete an ESG audit report, massive amounts of data will need to be collected, which is still not digitalized or being tracked at present.
The real estate industry is facing various challenges centered around the transformation of the whole industry and the adaption with regards to ESG measures, whether they concern the construction of new buildings with a low-carbon footprint or the retrofit of existing ones. PropTech1 analyzes startups every day that use technology to transform the status quo, boost innovation, and help the real estate industry to adapt to new ESG measures.
Pan-European investment strategy
The venture capital platform for PropTech & ConstructionTech in Europe, PropTech1 Ventures, leverages value from the megatrends of digitalization, method modernization, and sustainability/ESG in the real estate industry. PropTech1 unites a diverse team of venture capitalists, real estate experts and digital serial entrepreneurs with regular presence in Germany, Austria, Switzerland, UK, Nordics, and Benelux. PropTech1 has made investments in 14 portfolio companies since the beginning of 2018 and counts well-known real estate companies, banks, medium-sized companies, and serial entrepreneurs among its shareholders.