Why are new proptech startup numbers dwindling?

While the first alarm bells rang in 2020, the highest year-on-year decline within the segment during the period under review was seen in 2022 at 58 per cent.

Bengaluru: The Indian real estate sector began picking up two years after the Covid-19 pandemic struck, as pent-up demand led to a boom in the property market. The beneficiaries have been the brick and mortar real estate developers, brokers, agents and so on. One segment though, has failed to capitalise on this boom: Real estate or proptech startups.

Data sourced from market intelligence platform Tracxn revealed a consecutive year after year decline in the number of domestic proptech startups launched between 2019-2023. From a cumulative 390 firms founded within the segment in 2019, the number plummeted to a scanty 53 in 2023. This shows that venture capital (VC) firms and angel investors don’t consider proptechs as much of a bet as edtech or fintech startups.

“Right now we’re at a low point in terms of entrepreneurial, investor interest because the proptech sector has not really delivered many companies which have been able to show accelerated growth. This was accentuated by Covid-19,” ZoloStays Co-founder and Chief Executive Dr Nikhil Sikri said. 

While the first alarm bells rang in 2020, the highest year-on-year decline within the segment during the period under review was seen in 2022 at 58%. “This is in line with the larger funding decline across the startup ecosystem,” Tracxn Co-Founder Neha Singh pointed out. Investments into startups in India touched a peak of $35 billion in 2021, before a funding winter kicked in the following year.

“Real estate allied proptech was very popular pre-Covid,” Sikri stressed. Three startups - NoBroker, Infra.Market and Livspace - which went on to become unicorns later, led successful funding rounds in 2019, roping in marquee investors such as General Atlantic, Tiger Global Management, Accel Partners and Ikea. 

The past was a funding boom

Overall, the proptech segment in India started grabbing founder interest and investor eyeballs with triple digit launches starting 2012. Erstwhile poster children for the segment - OYO and Housing.com - concluded their first funding rounds during the year.

Sikri placed the pandemic at the heart of the slowed momentum seen in the proptech ecosystem, which delayed investor exits and generated skepticism around the segment, setting off a vicious cycle. “Proptech due to Covid-19 has taken a much higher beating than anyone else,” he argued. 

Stakeholders across the spectrum, from founders to investors and mentors, highlighted a host of other contributing factors for the dwindling figures.

“In the Indian real estate sector, the bigger issues are structural, which innovation cannot solve. For instance, in some cases data is deliberately kept opaque. You can’t fight that battle with innovation,” Professor Venkatesh Panchapagesan, chairperson of real estate research initiative at IIM Bangalore and ex-chairperson of the institution’s incubation centre for startups and entrepreneurs, NSRCEL, said.

An unorganised, opaque sector

Land and property are largely state subjects in India, resulting in multiple laws that vary across geographies. Owing to the heterogeneous nature of the product’s surrounding landscape, business in this market is seen as a localised play, thus benefiting local agents and brokers.

Grabbing a bigger chunk of a fragmented market makes scaling up challenging, a fact investors have taken note of. While they are not particularly devoid of the appetite to fund proptech ventures today, founders who spoke to DH attested to a reluctant approach observed amongst venture backers during their attempts to secure funding.

“There is less funding in the area because informed investors know the challenges of the area. They know that changes will be incremental. Founders who want to play the long game will understand that they need to attract investment also from investors who can play a long game,” Anirudh Damani, managing partner at Artha Venture Fund, pointed out.

Others agreed. “We haven't seen that many exits on the protech side yet. The other problem for VCs is that they haven't seen a lot of mergers and acquisitions in proptech. So the exit strategies are limited in their perspective,” co-founder and chief executive of search engine Landeed, Sanjay Mandhava, added.

Turning the corner

With tier II and III cities yet to contribute to their full potential in India’s real estate sector, the market opportunity before founders is enormous, and industry watchers appear confident about India’s abilities to innovate for the sector. However, the proptech segment’s ‘UPI moment’ is at least half a decade away, they said.

“Once a couple of companies go public, then again there will be renewed interest,” Sikri opined. Others believe a significant change will coincide with simplification of larger fundamental roadblocks including real estate laws.

The bright spot however is, of the total 1,000 entities incorporated in the five-year period, 895 remain active presently. This was cited as a healthy survival rate by experts who spoke to DH.