Could Europe’s first proptech unicorn be on the horizon?

IMMO’s recent fundraise – the largest series B proptech raise in Europe – is a sign that the market is growing, and growing up.  When IMMO Capital announced its latest fundraising round last month, a faint sound could be heard in the proptech field. A distant drumming, like the sound of hooves. The tech-driven residential investment platform, founded in 2017 by chief executive Hans-Christian “Gigi” Zappel, chief investment officer Samantha Kempe, formerly of Blackstone, and chief operating officer Avinav Nigam, was already a big deal. It is backed by $2.5bn (£2bn) of commitments from some fairly beefy institutional investors and has plans to buy 10,000 homes across Europe. But what caused shockwaves was the size of the series B raise. Its series A, back in 2019, was a modest $11m. At $75m, its next round is the largest European proptech series B raise on record. Series B raises, which take a successful start-up beyond the development stage and into a wider market, tend to average around $30m. And while there are always outliers, nothing in European proptech had yet risen above $50m. In the US that is not the case. In fact, many European proptech firms – about 44% according to recent European Commission figures – migrate across the Atlantic for their series B or C raise, where venture capital funding for later-stage scale-ups is 34 times higher than in the EU. However, that is starting to change, with US money increasingly coming to European shores. Last year, for instance, Plentific’s £100m series C raise attracted funds from San Francisco VC Brookfield Growth, among others. But more on that later. And it seems a lot of ground has been covered since 2019, when KPMG concluded that proptech offered “unclear returns on investment”. IMMO’s raise would appear to prove that point. What IMMO does is fairly old-school. It buys houses with other people’s money, tarts them up and lets them out. But the way it does it is pure proptech, relying on complex algorithms and hundreds of data points. The firm’s technology analyses more than €6bn (£5bn) of property each month to identify investment opportunities. The IMMO team then physically inspects selected homes, collecting more than 300 data points using the company’s proprietary inspection app in order to make an offer. After buying the property, IMMO “upcycles” them, and then lets them out to tenants via its proprietary “living-as-a-service” rental platform. IMMO says it can do all this at affordable prices – and 52% less carbon footprint than a full redevelopment. “Pension funds themselves, like other large financial institutions and passive capital allocators, cannot access 98% of the residential real estate market: the single-family rental asset class,” Zappel points out. “Institutions could historically not deploy capital into the vast majority of the housing market due to fragmented data, lack of transparency and the sheer scale that exceeds any human being’s capabilities for market intelligence and sourcing investments. We looked to technology to help us do this.” Simple yet effective IMMO’s 26-page pitch deck to series B investors contained a simple theme. Institutions are currently sitting on €15tn of negative yield bonds. If IMMO can make it easy for them to do so, surely they would rather put that investment into Europe’s €40tn SFR market? Although, for Zappel it is even bigger than that. “To us, the housing problem was – and is – much more than fixing a process or changing industry,” he says. “It is about changing an entire category and rewriting a social contract. What is clear is that investors have woken up to the potential. The round was led by US-based fintech fund Oak HC/FT, alongside Moore Speciality Credit and existing investors FinTech Collective and Talis Capital. Oak’s partner Dan Petrozzo explains the appeal. “IMMO is a growth-stage company that has become synonymous with SFR investments in Europe,” he says, noting that this was “one of the most in-demand, supply-deficient asset classes” in the region. Indeed, IMMO has seen 1,200% growth in the past six months, and now wants to invest in SFR across more European markets. Despite being London-based, its activities are almost exclusively centred on mainland Europe. But following the raise that should all change. With its new firepower it plans to go on a hiring spree to find the best talent – it has already poached staff from Disney, Blackstone and BlackRock. It then wants to unlock opportunities in Germany, Spain, India and the UK. Talk of the town The scale of IMMO’s raise appears to confirm what some people have been talking about for some time. European proptech is growing – and growing up. However, with some of the IMMO investment also going towards setting up its ibuying platform, which will see IMMO buying properties off its own balance sheet, this seems less a pure proptech play and more of a hybrid. Added to that is the fact that IMMO raised a few internal rounds between its A and B raises, so this latest raise may actually be more of a C than a B. In which case it would fall below ESG SaaS firm Deepki’s €166m series C raise in March or Plentific’s $100m series C last year. Deepki’s raise was the largest climate-tech software-as-a-service fundraising in the real estate sector. What was even more impressive was that Deepki had previously raised only some $10m-$12m. Either way, investment is building. Pi Labs’ Faisal Butt argues we will see a number of late-stage European rounds in the next couple of years. “This new ‘growth capital’ is going to act as the fuel that will help European proptech cross the chasm from toddler to adolescent,” he says. The Plentific and Deepki fundraisings would appear to prove that. Plentific co-founder and chief executive Cem Savas says that raises will grow and grow. “Proptech has seen more than $60bn of VC, M&A and IPO funding in the last year alone. The European market constituted 20% of all global proptech activity last year, and industry confidence remains at an all-time high. The best days are certainly ahead of us if this is any indication.” Based on Plentific’s recent valuations and its £100m series C, Butt says, a hypothetical series D round at some point in late 2023 could reveal the company to be European proptech’s first £1bn firm, or unicorn. Savas agrees that its series C “only just scratched the surface of a $2.5tn potential market opportunity”. Meanwhile, the firm has just brought Jack Chandler onto its advisory board. The former BlackRock Real Estate chair, who has served on the boards of or as senior adviser to half a dozen proptech companies, set up his firm Majesteka in 2017 to guide proptech disrupters into the higher raises. As one observer said: “That’s just who I’d get if I wanted to go to series D.” Chandler’s own comments seem to give credit to this view: “I see myself enabling Plentific to reach a new inflection point and helping the team forge further relationships with investors.” Does that mean a billion-dollar valuation is likely? “The future, and a potential future funding, will be a momentous milestone in our journey,” Savas says. “Perhaps one for the history books.” That drumming sound in the distance? It isn’t just horses’ hooves. It’s a unicorn’s hooves. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo © Shutterstock