The Proptech industry has been a darling for venture capital firms in recent years, but now, the valuations of several Proptech unicorns are beginning to tumble.
Inside sources of Bisnow report that some startups are having trouble raising capital to maintain operations and run the risk of going out of business if the market doesn’t turn around soon. Skyrocketing inflation rates (the likes of which haven’t been seen since the 1980s) have permeated through news cycles for months now, but it hadn’t quite reached the private market. Now, as the Federal Reserve raises interest rates in an effort to tamper inflation, the fundraising market for the Proptech sector is beginning to feel the sting of the market downturn.
Since the beginning of this year, the average value of public Proptech companies has fallen an average of 30 percent. The throngs of investors wanting to pour money into Proptech startups have dwindled. Equity shares of many of the companies’ closing funding rounds today are being diluted because they are doing so at lower valuations than in previous rounds. Proptech companies are now trying to pivot their business strategies to garner as much profitability as they can in this bear market, and many are cutting staff in an effort to reduce expenses and stretch their capital further. Many businesses won’t be able to raise their next round of funding if the economy enters a recession and things don’t get better soon.
In general, startups should have a runway of at least 18 months, but during times of economic volatility (like an insanely inflationary market), startups should plan for a 24-month runway. Proptech startups can also utilize numerous strategies like reducing burn, raising income, raising stock, and raising debt to stay afloat. If the bear market is coming to dampen the private fundraising party, then Proptech startups should expect lower valuations, at least in the near-future. But a lower valuation is not necessarily a Doomsday harbinger. For now, startups should salvage whatever value they can until the market recovers.
