All that Glitters is not Gold

Technological change affects nearly everything we do, so it is little surprise that the most valuable companies in the world are Apple, Google, Amazon and Microsoft. Equally, with global real estate worth around $220tn and $900bn of property assets traded in 2015 alone, it’s also not surprising that we are now seeing the explosion of interest in property technology, writes Alex Price, chief executive at Palmer Capital.

In the past year Palmer Capital has looked at proptech companies from big data to AI, from platform to disrupter, and from online information portal to Blockchain-led execution channel. It’s not just us, nowadays even proptech invests into proptech – Zoopla is an investor into other proptech companies. As a traditional VC investor into property companies for the past 25 years, at Palmer Capital the question is should we invest into what often looks like a bubble and, if we do, how do we adapt our investment model for proptech.

To the first question, we think investment into technology is essential to our business evolution, and where we don’t have the skill set this needs to be into third party businesses. With the computing power of the £20m IBM mainframe in 1992 now contained in our iPhones, we need to continue adapting how we operate. As a result, we are reengineering our business to digitise our process and create seamless access to data.

Across the rest of the UK property industry, which often makes the dinosaurs look innovative, there is emerging an acknowledgment that automation, digitisation and distribution mechanisms are changing our working world – whether we like it or not. We are also starting to see consensus on creating a built environment that is informationcentric as offices become smarter, residential for rent more customer focused and warehouses run by robots.

Even if you don’t agree with the change, proptech investment is best way to hedge the potential demise of many current business models – CBRE’s investment into Pi Labs may be a reflection of this.

In terms of what to invest in, with any gold rush not everybody can strike it lucky, regardless of a track record of successfully investing in the old world. So, our first rule is to only back technology or business models that replace or improve our current activities. For example, we think that the use of property-related data combined with data science will transform decision making for investors with this potentially becoming more automated. This investment approach gives us ability to add value to a proptech business and help it interact with the established property world we know so well.

The second rule to remember is that it is all about the people. All successful young companies need a strong management team with similar core values to their investors. Pick a team that you trust, that understand the area they are addressing, that have technology embedded in their psyche and who are open to partnership.

In 2017 optimism reigns and proptech is the “must have” new accessory. However, let’s remember that in the gold rush not all of the prospectors succeed. Back people you trust who operate in areas you understand and we think you will vastly improve the prospects of striking gold.

Author: Alex Price, CEO at Palmer Capital