The Future of our Economy Lies in Property Development and Startups Finding Common Ground

“Perhaps one of the most important financial decisions a forest landowner will make is determining when to harvest timber.”

That, the opening of a PennState article exploring the financial decisions land owners consider in this use case, including how to determine and calculate when to maximize financial returns, prompted a thought about investing in property and how real estate investors and developers might better appreciate investing in startups.

Seeing the Forest Through the Trees

Put yourself in the shoes of a City planner, a property owner, or real estate developer.

Driving through town, perhaps a booming town like where I live in Austin, TX, you see that dirt on the side of the road and know that it has potential.

You see a hastily crafted wood sign that reads “250 acres for sale — Zoned — Call for details”

To the left and right are buildings occupied, and behind our property you see some construction under way. Your mind immediately turns to all you know about that part of town: property values, turnover, traffic patterns and mobility, infrastructure, and more.

There the dirt sits; worth far more than the ground itself, when developed.

There is an aggravating question too frequently asked of startup founders, “how much revenue do you have?”

You pull over and take down the number on the sign.

You know the demand for space there, you’ve been in talks about the future of the area, and you know what it costs, roughly, to turn that into housing, office space, coworking, or multi-use. You can even calculate in your head what some build-to-suit scenarios might involve.

You call, and discovering what it costs to invest in the property, to buy it, you throw on top of your math, the various development scenarios and a $2M piece of property with another $5,000,000 invested, carry the 1…. easily becomes something worth $15,000,000, in your head.

You put in a second call to other investors and friends.

“What?” they utter. “$2 million? Why is this land on the market for $2,000,000 when it isn’t even developed nor producing any revenue??”

Investing in startups and property is more alike than different.

The Value of Trees

The return on any investment is inter-dependent on the underlying infrastructure.

• Is that location valuable?
• Will office space there be too expensive?
• Can we develop upon it with the features and benefits necessary?

And before you read on, thinking I meant those bullet points to refer to our property investment, know that those questions pertain too to an investment in startups and operating businesses.

What do startups need to think about? What do investors in startups consider?

• Is that location (industry, city, region) valuable?
• Will we be wasting money on office space or can it be spent meaningfully?
• Can we develop what we’re doing with the features and benefits of that space in mind?

WHERE businesses work matters. It is not just four walls and a door. Four walls and a door is little more than an expense. Whereas investing because of location, as you well know, makes a difference.

I’ve explored this quite a bit about Texas and other markets. That, for example, a cybersecurity startup and investment in Kansas just isn’t as meaningful as a cybersecurity venture in San Antonio, where a great majority of that experience can be found. Our MediaTech Ventures work, as another example, is largely in places like Austin, Chicago, and Los Angeles, Korea, Italy, and Colombia, because it’s there where economic development and property investment meaningfully and substantially impacts the very industry that’s thriving there in particular.

We’re all readily familiar with the important role space plays in our work, with the studio or venue space being paramount to the impact we have, but it’s the buildings and structures in the broader sense and the role that they play collectively that struck me.

John Zozzaro; MediaTech Ventures

And yet, largely throughout the world, cities are not working with BOTH property developers/investors AND industry, to meaningfully develop the places that matter.

Worse, property developers and investors are neglecting that the impact and investment that they can (and should) make as venture capital investors, is by mitigating the risk of investing in startups – working with industry to develop space that is more than four walls a door.

When Trees Mature

“In most cases, a forest contains both high- and low-value species. It is likely that some trees are growing faster than others. Factors affecting individual tree growth are competition among trees, sunlight, tree age, and soil conditions. Young trees generally grow faster in height than older trees, and they add relatively little stem diameter. Depending on competition, as trees get older and larger, annual height growth decreases, but diameter growth continues, albeit, at a slower rate. Eventually, average annual volume growth decreases.” 

PennState Extension

City planners and property developers and investors look at dirt in precisely the same way that an Angel Investor looks at a founder.

“What? $2 million? Why is this land on the market for $2,000,000 when it isn’t even developed nor producing any revenue??”

What I saw in that PennState article about the timber industry is that rather than putting up a building, we can appreciate the idea through farming those trees.

The location matters, the kind of trees planted, matter. Your investment in that property will fail to pay off if you plant palm trees in Michigan. You know better than to plant trees that take decades to mature, when you can’t wait that long for a return.

Why are we putting up buildings without working with the most meaningful trees??

How do you decide to invest in the property knowing full well that it will take time for the trees to grow? Knowing that full well, eventually, volume growth decreases? PennState describes the distinctions between a startup and a company, and the investments made in them, through trees.

“What? $2 million? Why is this land on the market for $2,000,000 when it isn’t even developed nor producing any revenue??”

As we increasingly work remotely and from home, the development of that property should be about more than just four walls because no one really benefits from four walls. Cities are sitting on vast tracks of unoccupied but developed office space to which few will meaningfully return because it’s the wrong kind of trees in the wrong place.

We can invest in planning a city and developing property to bear revenue by planting the right trees in the right places… by working with industry to put the right resources and converge sectors in meaningful ways through property, so that entrepreneurs, new businesses, and investors IN THAT SECTOR, thrive.

The path forward through the forest is is there as long as we pull ourselves from being stuck in the familiarity that dirt developed to concrete, bears revenue, simply enough. That we pull ourselves from being stuck in the idea that that startups and new businesses immediately bear revenue when a cost of the space itself is a burden to overcome before they can actually even occupy the space. Being so stuck, we’re failing to find common ground, we’re overlooking that the most meaningful path forward for property development and investors, in support of and participation with startups, is to do what it does best – but to do it with the industry itself to plant the right trees in the right places.

“The route to a sustainable future is through social investment and entrepreneurship – community by community.”

Miles Fidelman; Social Entrepreneur and Policy Analyst, Protocol Technologies Group 

Economically speaking, entrepreneurship is fickle. Fidelman’s observation of social investment is in civic infrastructure; the properties and purpose of that land… that a sustainable future of investments in startups and innovation, starts there, together, as a community.

Fostering a startup community requires an investment in the underlying ecosystem so that entrepreneurs can take meaningful, personal risks: strong job market, mobility, affordable office space, stability for investors, support of startup oriented education, and development of community – social investment, to provide that sustainability of an ecosystem within the community, that enables entrepreneurs.

The industry knows your trees and as those skyscrapers grow from the ground, at your expense, a future in which property development increasingly converges with venture capital, is a future with a better return for everyone. Let’s do it.