On Thursday, 2nd October, as part of OpenCo, London, Spacious co-founder and CEO, Tushar Agarwal, sat down with the founders of Locatable (Nick Katz), and We Are Pop Up (Nick Russell), to discuss the emergence of a new trend in the tech industry being called ‘PropTech’.
Hosted by Juliette Morgan of Tech City and Cushman & Wakefield, the panel shed light on their experiences building PropTech businesses in London and on what trends they see for the future.
JM: How has the property industry responded to the way you’re coming at and nibbling their toes?
TA: It’s been an interesting experience. I think we’re one of the first companies to have looked at how tech companies use office space, as being integrated into the tech community ourselves, we’re able to understand the mindsets of founders. So we’re bringing that to the property industry, and communicating how the need for office space has changed. Generally there seems to be acceptance that this is now a growing trend, although we do sometimes get called just another office broker! And in a way, the company in it’s current form is just a brokerage with a tech interface, but that’s not the grand vision for the company; that’s why we raised funds, that’s why we’re bringing on engineering talent, to make a self-serve marketplace which is very very liquid.
NK: For us, the biggest challenge was probably fundraising. When trying to sell our business to investors, we found they couldn’t pigeon-hole our technology because we’re not a traditional marketplace, we’re building something to help people manage their homes. That was difficult to get property people to understand.
NR: We’ve had a funny journey. In the beginning, people literally laughed at us. I remember when we first kicked-off, my co-founder got laughed out of the room. The guy was like “I just closed a $10 million deal. I left that meeting to come and talk to you about…Pop Ups?” That was 2 years ago, and then last year they started to come around, and we started getting partners onboard. And now, landlords are waking up to the fact that we’re not actually disrupting their industry, we’re solving the true disruptive problem, which is ecommerce. Where before retailers didn’t have another channel to market, they can now turn around and say “Yeah I have my online presence, what deal are you going to do me?”. So Landlords are now realising this and are starting to collaborate with us on solutions.
That sounds like the property industry has started to get it – how has the finance industry been?
NR: Getting the numbers for the finance industry is tough because it only works at scale, but then they come back and say “We’ll fund it when it’s at scale”, so it’s like “Great, thanks!”
TA: We faced similar problems. If you’re a big-time VC, you want a billion-dollar exit, and you want to see scale. Whereas for us, we’re still small and the product we are dealing with (office space) is very physical. It’s not an AirBnB-style transaction either. When people give the AirBnB analogy, it’s different—AirBnB’s a tourism product. So, the biggest investment interest we’ve had has actually been from people that have encountered the office space problem first hand, as well as from the property industry itself, because they’ve understood the challenges and the big trends that are emerging.
NK: So I’ve spent a lot of time pitching to VCs and property investors, and I have a slightly jaded view of the venture capital market. I kinda feel like venture capital doesn’t really exist in Europe. It seems like PE firms and VCs have actually flip-flopped at what stage of business they’re willing to come in at. I haven’t really figured out why that’s happening, but I get the sense that the PE firms have so much money, they kinda understand more of the existential problems we’re all trying to solve and to slither off a small piece to go after something with potentially huge returns—and if it goes bust, it’s not a big deal—makes sense to them. VCs all really want to see revenue and traction, which makes sense at a certain stage of a business, but certainly where we’re at—we need some more adventurous capital.
TA: I’d have to disagree with that. I’ve worked in investment banking and private equity and I think the reason the private equity industry has taken an interest in this sector is because unlike most other tech businesses in the consumer space who haven’t yet monetised or found a business model, businesses like ours actually make revenue from day one. So I think PE firms see that as a steadier form of cash flow; they perhaps view it as less risky than investing in a consumer startup.
I’m fascinated whether your business will get funded by the property industry side or venture industry side, which leads me to the question – is London a good place to do this?
NR: London’s a great place to do this for everything except for capital. I was talking to a founder of a completely unrelated business, and they had traction, they had contacts, and it took them 9 months to close a $2.5 million round. We have an advisor who worked at Goldman Sachs for 10 years and he said the problem that Europe has with ventures is that it essentially squeezes founders to death until they just walk away. So from that side it’s quite a tough place, but from the property side it’s probably the best place. Just because it’s such a property centre. Funnily enough, we are seeing a huge uptake of traffic from Europe. The European landlords generally seem more creative and open to innovation. So in terms of developing our business here, we couldn’t have done it anywhere else—but at the same time, we’re seeing slower adoption here, especially on the institutional side, than we’re seeing from European landlords.
TA: But do you think that’s because the UK economy is essentially heating up; people are a bit more bullish about the economy so retailers don’t actually have to take risks on ventures like this, whereas in Europe there’s a lot of latent space lying around and so they’re willing to look at different options?
NR: I think it’s because beneath the London property industry is actually finance. When we started, we were like “We’re going to fill every vacant space on every empty high street”. But as we dug down, we started looking at why those spaces were empty, and it turned out the reason Landlords couldn’t lower the rent was because there was all this debt sitting on it, and if you lower the rent, it breaks the debt covenants. So essentially you don’t have a property problem, you have a finance problem. And I think that’s where London differs from a lot of Europe.
NK: Having worked in both New York and London, I’ve found that the pace to get people onboard is much slower in this country, but when you actually get in somewhere and you prove that you can raise funding and start generating traction, you’ve actually achieved a lot more than a lot of the companies in the Valley. They literally get money chucked at them, sometimes completely at the ideas stage, with zero validation, and that’s why there’s an enormous amount of failures. So the quantum of businesses getting funded here is slower, but I bet if you looked at the total number of successes versus failures, the percentage would be in the UK’s favour. The investors are more risk-averse.
Is there anything you wish you had done differently on this journey?
TA: I guess in an ideal world with an infinite amount of time, I probably would have spent more time personally working in the property industry. So my proxy for that has been trying to spend as much time as possible with those in there. A lot of time when I’m trying to set up meetings, people get a little defensive over what I want, and normally it’s just to learn, and see where we can help. We’re trying to create a product which actually creates more efficiency in the market, rather than trying to disrupt people.
NR: We spent a lot of time iterating at the speed of the industry. Building something, “Hey do you like this”, “What don’t you like about it”, “Ok, we’ll go change that”, and moving forward that way. Where really what’s made the difference is marketing and getting out there and finding the early adopters. We weren’t bullish enough in our vision and that people would adopt it. Other than that, I would have raised a lot more up-front capital, because with your raises there’s the knock on effect of your first raise setting the tone for your second and your third.
What do you think the next big thing is going to be in PropTech?
TA: I don’t know whether it’s going to be a big trend or not, but one thing I’m seeing is hardware actually coming into the office environment. We’re already seeing it coming into the home with Google’s acquisition of Nest and with Internet of Things becoming a really big trend that everyone keeps talking about. There are companies out there who are looking to make the whole office environment a lot more efficient.
NK: Well you just stole mine, so I’m going to say it too! I’m also extremely excited about the whole Internet of Things space. I think it’s still pretty far in the distance but what that’s going to do with regards to data and connecting data to decisions in terms of property is going to be massive. And I guess beyond that, whether it’s PropTech or maybe the whole tech industry as a whole, I think one of the most exciting evolutions we’re probably going to see is a move away from a single-point-in-time solution, or response, like you get from a google query, and something more akin to helping you through an entire journey, a grouping of experiences that is mapped out with data. Whether it’s renting a property or starting your own business, there’s a set number of decisions that you’re going to have to make along the way, and lots of people have had to make them before. Right now I don’t think technology is doing as good a job as it could be in connecting all those interlinked decisions and helping you understand from the data what some smarter decisions might be.
NR: The first I’d say is commercial. We’re going to see a shift from asset value to use value. We actually made a heat map in our office last week of property values at a resolution which you don’t see, because right now commercial property is traded on such long-time horizons, there’s no comparability. For us, we don’t work in number of years on the lease, but in how many tenants you put through in a year, and the price of that changes. So just as retailers are exposed to seasonality and the different trends of the consumer, landlords have typically been isolated from that. And now we’re going to see landlords coming into that fold just because they’re going to have to, because of what technology allows. In residential, I think you’re going to see house-as-a-service, and just as AirBnB has taken the home into the hotel market, that will open up the hotel market to residents in new ways. And the third prediction I have is that legislation will be used to combat both of these changes. People always ask us “Local authorities must love you, right?” Well they kind of do. Because what they want is long-term stable business rates, and so they’re quite happy when we say “Oh we filled vacant space”. When we start saying “We shift use from long-term to short-term”, anybody who’s sitting on a long-term revenue stream, all they hear is “Your tech is going to attack my long-term revenue stream”.