Proptech Startup Tip 5 - Pre-seed & Seed rounds

Please bear in mind that these pieces of advices are based on my own personal experience. Every Proptech entrepreneur should always do her/his own research before taking any strategic decision.

You reached the pre-seed/seed stage, congratulation!

You should therefore be done with the following documents! If not, review them one by one before reaching out to investors.

• Onboard core team members & tasks division
• Cap table & legal documents
• Business plan & market validation (Primary and secondary data)
• Financial plan in line with investor goals (growth rate, low churn rate for B2B; low customer acquisition costs, high usage, fast growth for B2C)
• Compelling narrative about your company (impact & scale)

Any challenges related to these first steps? Become a member of the Proptech Startup Network group in LinkedIn and collaborate with Proptech entrepreneurs like you.

If you are done with these documents, you should know if your company needs financing or if you can go for a bootstrap ride. Bootstrapping will give you more freedom and larger returns. However, make sure you have enough cash to cover R&D, pivots & delays as the first sale will always happen later than expected. Indeed, according to KPMG Global PropTech Survey 2018, the average duration to sell a Proptech product or service to a real estate organization stands between 3 and 6 months (B2B service). Therefore, always engage with several investors few months before running out of cash (at least 3 month before).

Before getting into this first round of financing, educate yourself in order to understand the structure of a seed round. Take time to learn the meaning of each terms. Have a look at the articles if you are not familiar with their meanings.

• Raise seed capital
• Priced equity rounds: Preferred shares, valuation and option pool
• Convertible notes: Valuation cap, interest rate and maturity date
• SAFE (Simple Agreement for Future Equity): Valuation cap, discount, no interest rate, no maturity date, company incorporation beforehand
• Due diligence
• Term sheet

In general, the process of getting funded is long and tricky. Especially for an entrepreneur without track-record or established contacts in the industry. On the bright side, there is an increase in the total number of PropTech VCs. The cash poured into PropTech and ConTech by investors is going through the roof. Have a look at the last announcement of 503m raised by Fifth Wall. Furthermore, 30% of the real estate corporates surveyed by KPMG are investing or thinking about investing into PropTech startups.

Prior reaching out to VCs, identify the actual needs of your company and search for such competences in investors. Do not think twice on challenging them on these subjects. Always have a good understanding the strategy and goals of each investor:

• Industry, tech and geography focus
• Early and/or later stages investment strategy
• Total numbers and size of each funds
• Average size of investment commitment
• Investment objectives
• Current and past investments
• Success and failures
• Exit strategy

In later stage, you also might want to get more information about their due diligence process, term sheet, who is present in their investment committee, and when funding can be delivered.

In general, investors are most of the time relatively easy to reach. The challenge is to identify out of this pool of VCs, which are the ones ready to invest in your tech. Indeed, if their fund is in the development or liquidation stage, you will have very few opportunities of getting any fund from the VC in the short-term. When searching for venture capitalists or corporate investors you should look for the following criteria:

• Bring financing today AND tomorrow for growth
• Overall impact on the reputation of your company
• Willingness to sit at your board table
• Network size & QUALITY
• Proptech and/or Contech events hosting
• Proptech/Contech influencer in the VC team
• Other resources provided by the VC platform
• Business development
• Recruiting
• Marketing
• Finance
• Legal
• Coaching
• PR
• ...

The next step is to assess the value of your company (especially if you go for a priced equity round). Understanding how VCs will value your startup will help you during the negotiation process. Here is a great article retracing the most famous valuation methods used by VCs. Always bear in mind that none of the valuation methods can show the real value of your company. Entrepreneurs & VCs only use them as basic arguments at the start of the negotiation. Indeed, the consensus happens when the marginal utility of the capital raised to the investor meets the marginal disutility of dilution to the entrepreneur. For more information, please refer to this insightful article to have a look at the economic theory behind fundraising and very interesting graphs showing the marginal utility of raised capital.

As mentioned, some real estate businesses might be interested to invest in your tech and use it in their company. This might have a big influence on the features of the final product and affect your future revenues. To avoid bad pivots, identify if your investor needs can be generalized to a larger target audience.

Finally, some investors will be part of your board and will take an active role in the decision-making process. This can be helpful for you in order to avoid losing focus. Beforehand, contact different startups from the VC/company's portfolio. This will help you to better understand your future partner’s behavior. Indeed, having an investor at your board table can greatly affect the dynamics of your team and the future of your company. As mentioned earlier, Proptech Startup Network was created to discuss such matter with other Proptech entrepreneurs.

Get ready to pitch! Usually there is a specific way venture firms want to be pitched. Have a look at the Sequoia example here. DocSend has also combined together various pitch decks from successful companies like LinkedIn and Revolut here.

You have now survived multiple rounds of pitches and meetings with your favorite VCs. It is time to select the lead investor for your seed round. This person should help you out with the next steps:

• Set financial terms
• Accelerate fundraising process & get investors onboard
• Set one/multiple date for the round to close (should be worked hand in hand with you)

Below are Proptech VCs you might want to have a look at. Once again, before contacting a VC always understand if their investment focus and the amount they invest fit with your company and needs.

• Fifth Wall
• Stronghold
• Camber Creek
• Polytech Ventures
• Metaprop NYC
• PiLabs
• Proptech Capital
• JLL Spark
• Blackprint Partners
• Loric Ventures
• Proptech1

This is only a small apercu of all the challenges you will face. If you are interested for pre-seed and early-stage fundings, have a look at the Proptech accelerator and Proptech incubators.

Please go through the literature, share with entrepreneurs and educate yourself before taking any decision as getting an investor onboard will have a lot of impacts on the development of your startup. Indeed, getting rid of an investor once he is on you cap table isn't easy.

If you like this article and want to have more content on this subject, give it a recommendation and do not forget to share it! If you have a specific question or subject related to PropTech, please leave a comment and I will do my best to cover it in the next article.

As mentioned, I appreciate any feedback on this reading. Bear in mind, this article is based on my personal experience. It is probable that your VC or a business you enjoyed working with is not mentioned, just write me something in the comment section and it will appear in an updated version.

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