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Saturday, January 28, 2023

Early Compass Investor Talks About Where He’s Looking Next

“Reducing friction was yesterday’s play,” Alpaca VC general partner Ryan Freedman told Inman in a wide-ranging interview. He stressed the need for a full suite of industry services.

This report is available exclusively to subscribers of Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

For years, real estate industry professionals have talked about the potential for proptech companies that can “reduce friction” during the various processes involved in a transaction.

That’s old news, said Alpaca VC general partner Ryan Freedman.

Freedman’s firm, an early investor in the tech-enabled brokerage Compass, searches for companies looking to disrupt the space. 

Ways still exist to make improvements across the board in real estate. But true modern disruptors in what Freedman calls “proptech 2.0” are the ones that will acquire, not be acquired.

“If you’re coming up with something that’s going to solve a problem that’s part of the user experience, you’re just going to be a better widget within someone else’s platform,” he said.

Freedman spoke with Inman about his outlook on proptech amid an ongoing slowdown, as well as the types of companies in which he’s looking to invest. The conversation has been edited for brevity and clarity.

Inman: Paint the landscape for me. How has your outlook and strategy changed in the past few months, specifically as it comes to proptech?

Freedman: I think the macro-environment has affected the venture space across the board. I don’t think proptech has been uniquely affected in any way.

I don’t think that changes the value proposition of real estate technology and what it’s here to do. The simple version is that this was one of the biggest asset classes in the world and one of the last to digitize. That digitization has begun, and it’s becoming more and more sophisticated. It’s moving from proptech 1.0 to proptech 2.0.

I figured proptech was down and out. But then Fifth Wall raises $866 million, specifically for real estate.

Look, Fifth Wall has been the winner of aggregating capital, proptech specifically. It was only a matter of time until a fund of this time got raised.

We’re still in early innings here as to what the tech is doing, as to the investment in these platforms and the potential to what they can be. There are so many massive issues to be dealt with when you talk about real estate. You’re talking about everything as simple as operations to construction.

In a previous interview, you said, ‘At the end of the day, figuring out what the pain points are that are unique to that market, potentially.’ What are the big pain points you’re watching for in real estate? What’s the golden goose for an investor?

Reducing friction was yesterday’s play. We’ve been investing in point solutions that reduce friction for a long time. They need better full-suite solutions, whether that’s in their back office or in the assets that they’re operating.

Yesterday, you had a multifamily building with a property manager with a short-term rental lease, with a short-term rental management company in there with two different experiences. That’s not what tomorrow looks like. Tomorrow, all of this is integrated, all dynamic — it all flows through.

Are you interested in finding value in the real estate industry or finding the next major disruptor?

The potential for 1.0 companies has capped. I think you’ve seen the Yardis, the MRIs of the world acquire a lot of these point solutions. If you’re coming up with something that’s going to solve a problem that’s part of the user experience, you’re just going to be a better widget within someone else’s platform.

We’re looking for the companies that can break through and be the acquirers and either control distribution or have platforms for whatever their product might be.

What are some companies you think might be that golden goose?

Carbon is a hot topic. We have a company that just launched that’s playing in a voluntary carbon credit market called Carbon Title. They will provide general contractors with a way to deliver a carbon-neutral building through the use of the voluntary carbon credit markets.

The reality is a lot of that tech and R&D are still a ways off. So the only way we’re going to be able to deliver carbon-neutral assets in the real estate industry in the short term is with carbon credit markets. Carbon Title is on a mission to bring that to the contractors and developers of the world.

I see you’ve also invested in a company called Prevu. Tell me about why.

It’s just a different customer journey these days. The way the system is designed is when you showed up to a broker’s office they opened a phonebook of the listings. People are now doing the first part of their journey online.

You need a brokerage experience to be a bit different. Prevu helps you empower that discovery process. You come to them at the end and make your offer and get your deals closed, and they give 2-3 percent back to the buyers in the form of a rebate.

Most buyers don’t want two brokers at the showing. What’s the point? Because that’s how it’s been done forever?

Email Taylor Anderson

 New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here



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