Managing CRE Technology Through Consolidation

New proptech and other CRE-related vendors continue to emerge, but how long can they last? The pressure is on for industry consolidation. What is the state of your technology setup?

Consolidation is the natural state in technology. Here are some reasons:

Ideas and products are not the same as winning business strategies.
Capital accumulates, and not always in the most rational way, which allows some players to buy an advantage they could not develop. Which is fine. But this can become a concentration of investment in a small number of providers, regardless of whether they are ultimately the “best” or not. Not everyone can be like that, and large investors can make quite big mistakes.
Trading capital for intellectual property, assets, or even entire companies often works because the most innovative people don’t want to keep doing the same thing over and over again, so they go off and think about something they’d enjoy more than running a big company.
There is no room in the market for a whole range of competing products, at least not as far as simpler, mass-produced products are concerned, which are widely used and largely interchangeable.

None of this has ended. Even in the troubled proptech industry, money is flowing in because investors have money in funds and the VC and private equity firms that raised the capital can’t hold it forever. Investors want to see a return.

Still, conditions are changing. A recent report from the Center for Real Estate Technology & Innovation (CRETI) found that venture capital funding for proptech companies fell 14.3% year over year in the first half of 2024. At the same time, 63.7%, or 693 respondents, were seeking early-stage funding in the next 12 months. “This distribution underscores the continued momentum for innovation and go-to-market in the proptech space, despite an overall decline in available capital,” CRETI wrote.

But it also suggests that, given the highly speculative nature of investing in software startups, the environment is not conducive to the continued existence of all startups. How many different ways does the industry need to run a multifamily business or support investment underwriting?

Consolidation is almost certain because too many startups are chasing too little money. There will be acquisitions for one of several reasons:

The acquiring company views the acquisition as a way to expand its offering.

The acquiring company wants to integrate this technology into its current offering.
The acquiring company wants to drive out the new competitor.
The acquiring company buys another company to increase employment.

Depending on the cause, your business may function well or it may need to change the products it depends on.