The VC vice: Why some in the industry see venture cash as a mixed blessing

While startups are gunning for money, it comes with serious pressure and pitfalls

New York Issue /
Aug.August 03, 2018 07:30 AM

Venture investment comes with serious pressure and pitfalls (Credit: iStock)

The surge in venture investment has been a boon to real estate tech startups, nurturing hope that the industry can finally catch up to more technologically advanced sectors like finance. But some see the flood of venture cash as a mixed blessing.

For starters, raising millions of dollars early can make it harder to raise money later — that’s because the initial money can come with a high valuation that future investors may balk at.

Related: The venture capital gold rush

Ali Hussain, COO of Latch, a smart access system startup, said real estate entrepreneurs often benchmark their company valuations against “hypervaluations in Silicon Valley.”

And while it may be “exciting and you bring on a lot of money and on paper you feel very good, you start to see a lot of problems 18 to 24 months out.”

That’s if the startup is still around in 18 to 24 months.

Mihir Shah, co-CEO of JLL Spark — a real estate venture fund launched by the global brokerage JLL — pointed out that “most startups don’t succeed.”

An added challenge for real estate startups is how slow the industry’s been to adopt new technology. That, Shah said, is where funds like JLL Spark come in — to act as a bridge between entrepreneurs and real estate’s end users.

MetaProp’s Clelia Peters said some of the best-funded startups are being accelerated at an unnatural rate, eviscerating competing companies in the process and creating a “winner takes all” environment.

Related: Who’s holding the purse strings?

What’s more, while traditional real estate firms focus on the bottom line, VC-backed companies spare no expense in their quest to grow top-line revenue.

“That’s what allows venture-backed companies to be so disruptive,” Peters said. “They’re being paid to take as much risk as they can.”

Adam Meshekow of Leap, a startup that provides rent default insurance, said VC investors sometimes focus more on their own short-term profits than a startup’s long-term health, which can lead them to push for questionable business decisions.

“You should be doing what’s good to run the company, not what’s good for the VC company at that time,” he said. “The VC company is only looking to get that five-times return minimum on their money, and that’s it.”


Related Articles

arrow_forward_ios
Eric Gordon
Eric Gordon on the evolution of the residential data game — and how to stay competitive in the new world
Eric Gordon on the evolution of the residential data game — and how to stay competitive in the new world
Big Tech locations in NYC
MAP: Here’s a look at all the Big Tech locations in NYC
MAP: Here’s a look at all the Big Tech locations in NYC
What will proptech look like in 2019 and beyond?
What will proptech look like in 2019 and beyond?
What will proptech look like in 2019 and beyond?
Billionaire entrepreneur Mark Cuban (Photo Illustration by Steven Dilakian for The Real Deal with Getty Images)
Mark Cuban: Metaverse real estate is the “dumbest sh*t ever”
Mark Cuban: Metaverse real estate is the “dumbest sh*t ever”
Homeward founder Tim Heyl (Homeward, Getty Images)
Power buyer Homeward lays off 20% of staff
Power buyer Homeward lays off 20% of staff
The office building at 2400 Sand Hill Road in Menlo Park, part of DivcoWest’s “The Quad” campus
Sand Hill Road reckons with its future
Sand Hill Road reckons with its future
Zillow's Rich Barton and Opendoor's Eric Wu (Zillow Group, LinikedIn, Getty)
After iBuying debacle, Zillow partners with Opendoor
After iBuying debacle, Zillow partners with Opendoor
Metaverse real estate values are plummeting (Photo Illustration by The Real Deal with Getty Images)
Metaverse land prices down 80% in six months
Metaverse land prices down 80% in six months
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...