How To Pitch A Real Estate Tech VC
Jeff Berman is General Partner at Camber Creek, one of the first venture funds dedicated to real estate technology and the built world. The team owns, operates and manages over 150 million square feet of real estate, making Camber Creek one of the biggest value-add venture partners for real estate tech startups.
Berman comes from a real estate background, and he co-founded Camber Creek after realizing an opportunity to “create a double alpha situation,” both investing in high-growth startups and using those startups to improve the operations of his own real estate portfolio. His portfolio now includes companies like Compstak, Latch, VTS, 42Floors, and more.
Camber Creek portfolio companies benefit from the network effects of his four partners from the real estate world. Casey Berman was President of Operations for one of the Washington DC area’s largest privately held real estate development and management companies. Jake Fingert Jake identified new investments and managed operations for the Federal Government’s infrastructure and real estate portfolio of approximately 350 million square feet. Mitchell Schear was President of Vornado/Charles E. Smith, the DC division of Vornado Realty Trust, a $20 billion real estate investment trust.
Dreamit Urbantech Managing Director Andrew Ackerman recently sat down with Jeff for a wide-ranging conversation on real estate tech, and a large part of that conversation focused on what founders can do to successfully raise venture capital from real estate tech investors.
Key Questions To Answer When Pitching Real Estate Tech VCs
Is there demand for the product? Camber Creek uses a deliberate, formal process to vet startups, which they call the “beta lab.” The lab is made up of Camber Creek LPs, property managers, developers, and other key players from the real estate world. Founders speak to this network as part of the diligence process and get feedback. For example, when Bowery pitched to Camber Creek, the partners ran mock appraisals their LPs to prove the efficacy of the appraisal software. While Camber Creek has a beta lab, founders should have these proof points ready to show investors from the outset, whether that is revenue data, anecdotes from customers, case studies of successful pilots, are other evidence of early product-market fit. For some startups, proving demand can be more difficult. For example, broker technology is harder to vet because of the way that brokers pay for their own tools and use technology. In these cases, growth metrics, retention rates, and usage data can be more useful to succeeding in your pitch.
Does the demand span multiple geographies? “What makes a landlord tick in New York City is not the same thing that moves the needle for a landlord in Topeka, Kansas,” notes Andrew Ackerman. It’s critical that startups prove they can the demand for their product can multiple geographies. “You need a statistically significant sample size that gives conviction around the technology and the ability to ramp up to a venture return. If you based decisions based on a hyper specific geographic portfolio, you cannot get a true feel for whether the product actually works,” states Berman. Startup’s focused on geographical quirks, unique state or city regulation, or other limiting factors can be at a disadvantage when fundraising. For example, many startups that focused on no-fee rentals are facing an existential crisis with the new enactment of new laws limiting fees for apartment rentals.
Does the founder know how to sell into real estate? “One thing we look for is an understanding of what it takes to sell into real estate,” states Berman. “The worst thing I’ve seen is founders who come in expecting hockey stick growth without any reference set for how real estate acts. That’s a fool’s errand.” The four partners have an operational background in real estate, so they can quickly judge whether the founders have that understanding. You don’t need direct real estate experience, but it’s very different important to have experience in an adjacent field so you understand the market dynamics. The best founders have “lived the problem,” according to Berman.
Does the founder know their customer? The best startups listen closely to their customers and adapt to their needs. If you’re going after a fee manager in multifamily, they are not as concerned about expense reduction as they are about top line revenue. You should pitch how to get higher rents. Tenant experience companies should ask, “How does my service eliminate friction?” or “How am I different from others in the market?” Berman points to his portfolio company Nestio as an example of how founders can adapt to the needs of their customers. The startup, a leasing and marketing platform for multifamily, recently released a product called Funnel driven by their own customers’ demand for auto-responses, real time tour scheduling, and better communication tools.
Is the market big enough? Camber Creek asks a number of questions when evaluating the market for startups: Are you a “nice to have” or a “need to have”? Founders can prove this by speaking customers (see first bullet above). Is this a platform company or is this a niche company? If you are a niche company, how will you expand your market size over time? Will the startup own the category? Is it pure play software or business innovation?
Can the startup deliver a venture return? Regardless of the risk Camber Creek is mitigating for the operations of their real estate LPs, they have to make a venture return commensurate with the risk they are taking on by making an investment in a startup. Founders must prove that the startup is scalable, that they are 10x better than the competition, that they are tackling a large problem, that customers are willing to pay them to solve that problem, and that they have a grand vision for the future of their startup. This does not necessarily mean you need to talk about your exit strategy, but founders should provide a roadmap for how they will become a huge company in the future.
Has the founder done his homework before his pitch? If you’re pitching a VC, you must do the bare minimum of looking at their website, knowing their previous investments, and learning about the background of the partners you will be pitching. For Berman, not doing your homework is a “red flag” that makes him question what else the founder might be missing. For Ackerman, the pitch is a test of sales skills, and lack of preparation raises concerns about the founder’s ability to sale customers on their product. If you are pitching real estate venture funds like Dreamit Ventures, Camber Creek, Fifth Wall, or Brookfield Ventures, you should be able to discuss how you will take advantage of working with their network of LPs or corporate partners. Founders have to look at what kinds of assets funds have access to, where those assets are, and whether they fit with the growth strategy of the startup.
What’s next for the real estate tech market?
The opportunities in real estate tech are massive. “If you think about the gamut of activities that a developer, a contractor, a broker, a consumer… that continuum, almost every aspect can be digitized in some sense,” states Berman. The firm is also looking at product that are adjacent to real estate tech, like urban mobility solutions.
There’s an unprecedented amount of capital in the market, and investors are chasing yield, repositioning buildings, and looking for ways to create incremental rent growth. There’s a lot of competition in the real estate market, and that presents an opportunity for startups.
“We’re in an unprecedented category fueled by protracted periods of artificially low interest rates, which has meant that there is a development boom,” said Berman. His portfolio company Why Hotel is one startup that has created a business based on macro trends in real estate. The startup turns newly built, vacant units into pop-up hotels. Why Hotel is solving one of the most fraught cash flow and timing issues for multifamily developers: the lease-up process after the building is completed (which usually takes between 6 and 15 months). Why Hotel saw an opportunity to create a popup hotel product that bleeds down until the hotel disappears as units are leased, generates revenue for owners, and incurs zero risk for the startup, since they are not holding leases.
“They took a problem that was a symptom of where we are in the real estate life cycle” and created a solution, stated Berman. Founders should take advantage of market dynamics to build their business model and create a pricing model that works. For hospitality, the model should focus on driving revenue. In multifamily, that means filling apartments faster, maintain the occupancy amount, looking for opportunities to pull money out of residents by offering other services. New startups are tackling these issues every day, and this is why so many are excited about the real estate tech sector.
By Charles LaCalle, Director of Sourcing at Dreamit Ventures
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