You would have thought that launching a business venture one month before a global pandemic forced the world into a state of lockdown wouldn’t be the best timing. But not in A/O PropTech founder Gregory Dewerpe’s opinion.
The Swiss financier officially launched his proptech venture capital firm, complete with a €250m (£224m) fund, in February this year. Just over a month later, coronavirus spread from its epicentre in China across the rest of the world.
But Dewerpe insists it was not a case of bad timing. A/O PropTech – which is the largest fund of its kind in Europe and one of the biggest in the world – has committed to closing four deals since lockdown hit in late March, bringing the total number the VC has struck to 14 across Europe, the US and Israel, valued at a total of £40m. Investments to date include Bricklane, Fornova and property management platform Plentific, where A/O PropTech led the start-up’s €29m (£24m) Series B round.
“I’d rather have fresh cash and a lot of money to spend right now than be at the end of a fund, planning to sell a position in the next year and suddenly everything is going to be marked down tremendously,” says Dewerpe. “That’s a bad position. We’re in the best position.”
A team made up of data scientists, mathematicians, engineers, real estate experts and financiers working out of offices in London and Switzerland, A/O PropTech’s modern approach to the market has piqued interest within the tech and real estate sectors. That and the fact it has such a substantial fund to play with, and a hearty appetite for investment. So how is the VC structured? How does it deploy its capital? And, crucially, what sort of firms is it looking to add to its investment portfolio?
Long-term operators
“We have close to €250m of funding, which makes us the largest player in this space in Europe. Probably the second globally after Fifth Wall,” says Dewerpe. Indeed, the fund is backed by “some of the biggest institutional investors in real estate” combining a pool of residential, commercial and hospitality assets valued at more than €32bn.
But unlike “traditional” VC firms which are under pressure to deploy capital and make quick returns, Dewerpe says A/O PropTech’s approach will be a little different.
“We don’t have the same timing limitations a traditional fund has, which is typically that you have a two- to five-year investment period and you have to repay the money back in eight to 10 years typically,” he says. Instead, A/O PropTech invests with permanent capital over an indefinite period of time.
“We operate long-term,” says Dewerpe. “This means we have the luxury of deciding when it is the right time to monetise or get out.”
But investing in this way with permanent capital doesn’t mean the VC is looking to sit on its funding. In fact, Dewerpe says the Covid-19 pandemic has accelerated the VC’s investment timeline.
The firm was originally looking to deploy its capital over the next four years, but Dewerpe now thinks this will be spent in three years or less. He says the pace has cranked up because he expects less bloated valuations of start-ups compared with estimates made pre-pandemic. “What is happening is going to affect valuations,” he says. “It’s not great for entrepreneurs but eventually it was a necessary reset of the market that was getting a little bit out of hand.”
Some start-ups, however, are still “aggressively evaluating their businesses”, says Dewerpe. “We have tried to shy away from these at the moment, as we ourselves are unsure about how the immediate future looks, and we don’t want to be caught on the wrong side of it,” he says.
Another reason Dewerpe expects to make more investments as a result of the pandemic is that lockdown conditions have shown property companies that tech is essential for business operations.
“People have been forced to adopt technology because of the restrictions we have had on our mobility, and technology is necessary for this,” he says.
And tech investment is only set to grow post-lockdown, according to research conducted by CBRE. The agent claims 88% of occupiers are looking to increase tech spending to support a greater demand for homeworking.
Eyeing up deals
With money to burn, A/O PropTech is on the lookout to sign cheques for companies at Series A stages and above providing proptech, data science and AI solutions. It focuses on scalable, asset-light business models “addressing pain points” in the industry.
Although the VC invests in Israel and the US, Dewerpe says it is Europe that is whetting A/O PropTech’s investment appetite. Proptech companies based here have the edge, he says, because regulations that businesses must abide by – including GDPR and climate change – have created huge business opportunities for proptech firms.
“Companies need to be on top of carbon footprint, for example, which you can’t do without technology,” he says. “This creates a very hot market for Europe. We want to make sure Europe is at the forefront of this revolution, and we didn’t want the US to again lead on the tech front when Europe has all the pieces of the puzzle.”
Dewerpe believes that the market is prime for growth through VC investment help. “We felt the European proptech VC landscape was very weak,” he says. “You don’t have that many players with significant capital. We thought it was a shame that most of the capital was coming out of the US, because we think Europe and the UK has a tremendous opportunity to really become a leader in proptech.”
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