Jul 30, 2015
An Open Letter To Venture Capitalists: Let MetaProp NYC Help You Diligence Your Real Estate Tech Deals
I can’t put my finger on the exact date, but it was most likely some time in the year 2012 when a venture capitalist woke up one morning and realized that he or she had been sleeping in a bed, and that the bed was placed in a bedroom, that bedroom in an apartment, and that apartment in an apartment building. The VC went to work after eating a quick breakfast, and realized that the firm where he or she worked was based in an office, and that office was inside of an office building. Then, the Eureka moment occurred: “Holy crap!” pondered the VC pensively, “I both live and work in a building. This real estate thing is really huge, and it’s not going away anytime soon! There must be some opportunity for technology within this industry that builds, leases, sells, and maintains these buildings where I spend so much time.”
Due to this relatively obvious epiphany, the VC then began to start pumping money into every single company the fund saw that had anything whatsoever to do with real estate. “Because the market is so large”, thought the VC, “I don’t even have to do any real diligence within the industry. If something looks good and has a good team, with great engineers, I don’t even half to ask any potential landlord, broker, or property manager if they would even actually use it. Looks and smells like a winner so it must be a winner. Here is a check for $2 million for a seed round and you can fill in the terms on the term sheet. No big deal.”
Please, friends and acquaintances in the venture capital industry. Don’t fall into the same trap that this naïve venture investor did. Although my little yarn is silly and ridiculous, you would not believe the number of well-funded real estate tech startups out there with insanely talented technology teams that are selling hardware and software to landlords and brokers that no one in the industry actually wants. Many of these companies don’t even have ANYONE on the core team that has worked within any aspect of the real estate ecosystem in a prior job.
Don’t get me wrong, there are many excellent VC’s who have done significant diligence on multiple aspects of real estate and have made excellent investments. I am lucky enough that some of them have even let me participate in superb real estate tech seed deals. Some of these investors leaned on me for diligence.
In fact, the reason why I started investing in real estate technology was because of advice from a VC, Stu Ellman of RRE Ventures. As my professor in a venture capital course at Columbia Business School, he told me that my idea for a final paper topic was really stupid and that I needed to focus on real estate technology instead. I took his advice, fell in love with the topic, and then went on to make some excellent investors alongside his fund.
So, with all this hoopla we are announcing the MetaProp NYC VC Diligence Assist Program. (We will try to think up a better name or an acronym later). If you are considering making an investment in a real estate technology company, please send it our way and we will vet it with top experts in whatever field of real estate is relevant. We will of course keep all the information as confidential as you desire, and we ask for nothing in return except for good karma.
Next time you are considering pulling the trigger on a real estate tech deal but you aren’t sure about something, just let us know. We are here to help!