Fifteen months ago, MetaProp, one of the early venture-capital players in proptech, set itself an ambitious goal: raise $100 million to back the next generation of startups.
But in a regulatory filing last month, the firm disclosed it was just halfway to that target, a rate of fundraising that industry players said lags behind the norm. According to the filing, MetaProp raised $51.1 million from 56 investors as of July 2 for MetaProp Ventures III, with the first chunk of money flowing in December 2019.
Meanwhile, MetaProp is launching another, larger fund to make bigger investments in more mature startups, as The Real Deal first reported Wednesday. The new fund, dubbed MetaProp Growth Select I, has a target raise of $200 million, regulatory filings show.
MetaProp, which has backed startups such as Spruce and Side and bills itself “the most active early-stage PropTech investor in the United States,” declined to comment on its fundraising efforts. Sources said its raise might be complicated by a number of factors, including a more crowded field of venture firms vying for investor cash and MetaProp’s reliance on real estate LPs – not to mention Covid.
“If you raised your fund from real estate capital, you’re going to have a huge amount of difficulty raising from them now,” said one investor, speaking on the condition of anonymity. “They are trying to conserve capital. They are not looking to deploy capital into illiquid investments.”
MetaProp’s founders are Zach Aarons, a longtime angel investor and former project manager at development firm Millennium Partners, where his father is a partner; Aaron Block, a former top producer and Chicago office manager at Cushman & Wakefield and a former executive at Russian e-commerce platform RuBay; and Clelia Peters, president of Warburg Realty, who came from Boston Consulting Group. Zak Schwarzman, formerly of Gotham Ventures, joined as a general partner in 2016, and Maureen Waters, a former president of Ten-X, joined last year after Peters left for Bain Capital Ventures.
After launching with an inaugural $5 million friends and family fund, MetaProp raised $40 million in 2018, blowing past its target of $25 million and pulling in money from big real estate names like Cushman, CBRE, JLL and RXR Realty. MetaProp also established an accelerator program at Columbia University, which gave startups 22 weeks of mentorship and up to $250,000 in funding. Aarons, in particular, became a notable speaker in the proptech world.
But since then, the field has gotten a lot more crowded.
Fifth Wall Ventures, the Los Angeles-based firm launched by Blackstone Group alumni Brad Greiwe and Brendan Wallace, has $1 billion under management and in February closed a $100 million retail fund in February. The firm is also raising a $200 million carbon impact fund. Several others have initiated new funds, including Navitas Capital, which disclosed a $100 million fund in January. Moderne Ventures and Camber Creek are both raising undisclosed amounts for new funds, filings show.
VC funds are amassing significant dry powder, or unspent cash waiting to be invested, according to a July report from Pitchbook and the National Venture Capital Association. U.S. VC funds raised $42.7 billion in the first half of 2020, compared to $53.6 billion in all of 2019.
But the report noted that the top 15 funds raised $22.7 billion, or more than half the total amount, shifting the balance of power away from smaller players.
“Much of the success of established VCs has to do with their positive historical performance and name recognition,” the report stated, especially “when no face-to-face meetings are taking place.”
As of Aug. 5, the average time to close a fund was 14.4 months, according to Pitchbook. Sources said a typical round can take up to 18 months to close, and some VC firms pre-seed rounds and line up investors so that they can bust out the gate with the ability to write checks.
According to Pitchbook, MetaProp had $91.1 million in assets under management as of mid-July, with $73 million in dry powder.
Known for backing seed- and early-stage companies, it has invested an average of $3 million in 95 companies. Some of the better-known companies it’s backed include Side, a firm that acts as the broker of record for top residential agents and has raised a total of $70 million, and Spruce, a title insurance startup that raised a $29 million Series B in May. (MetaProp did not participate in Spruce’s Series B.)
Founders said “the Zachs” helped them articulate how technology could benefit an industry that’s been notoriously resistant to change.
“Zach [Aarons] was a great advocate and a guide through the early stage,” said one founder, who said MetaProp bridges a critical gap in the capital markets. “That’s kind of how they pitch themselves, but it’s true. There are a lot of things that are unique to real estate investing that remain opaque to Silicon Valley.”
Sources said the growth fund is a natural progression for an early-stage investor. Some of MetaProp’s portfolio companies have graduated to that stage, which is typically less risky than earlier investments. But unless MetaProp participates in subsequent funding rounds, they risk seeing their stake diluted.
To date, MetaProp’s portfolio has seen 10 exits, Pitchbook data show.
Nine were M&A deals, and one — Irene, a startup that bought seniors’ homes and let them live there — went . Among the success stories was Dynasty Marketplace, an AI-powered leasing assistant acquired for $60 million by AppFolio, the cloud-based software company. Spacious, a restaurant co-working startup, was acquired by WeWork for $42.5 million, although WeWork subsequently shut it down as it scrambled to cut costs.
This week, MetaProp announced it led a $4.8 million seed round in Proper, an AI-powered accounting and bookkeeping startup for the multifamily industry. But during the early days of coronavirus, it focused on triaging existing portfolio companies.
“We wound up doing a lot of our defensive work pretty early,” Schwarzman told TRD in June.