VC Camber Creek, which has steered clear of co-working, explains how it invests in the midst of a proptech gold rush
- The first half of the year saw more dollars invested in proptech than all of 2018, and real estate tech venture fund Fifth Wall raised a half a billion dollars for its newest fund.
Camber Creek, a DC-based venture fund, was founded eight years ago. It has made 37 investments including investments in smart-lock company Latch, commercial real estate leasing unicorn VTS, and short-term rental company WhyHotel.
- Jeffrey Berman, general partner at Camber Creek, walked Business Insider through Camber Creek's investment thesis.
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Proptech has had a banner fundraising year so far. The first half of 2019 saw more dollars invested in proptech than all of 2018, and real estate tech venture fund Fifth Wall alone raised a half a billion dollars for its newest fund.
But 2019 will also likely be remembered as the year that WeWork, which had tried to paint itself as a tech-enabled real estate disruptor, went from a $47 billion valuation to a failed IPO. The co-working giant is now looking to sell off businesses and cut thousands of jobs. The question of valuations, profitability, and exit strategies has (perhaps belatedly) taken on a new focus when it comes to some of the biggest "tech-enabled" unicorns.
We asked Camber Creek, a Washington-based venture fund, to explain the approach behind some of its earliest investments - including what exactly defines a proptech company to begin with.
The VC firm was founded eight years ago, back before fintech had really become a household term and proptech was barely a whisper in the real estate business. The firm has made 37 investments since 2011, including investments in smart-lock startup Latch, commercial real estate leasing unicorn VTS, and short-term rental company WhyHotel. The firm has not made any co-working investments.
Like other VCs in the real estate world, the firm partners with real estate companies who eventually plan to use the products and services that they invest in. Camber Creek is targeting a $120 million fund this year, more than double the $50 million it has raised so far.
Jeffrey Berman, general partner at Camber Creek, walked Business Insider through Camber Creek's investment thesis. Berman is a board member at portfolio companies Nestio, a leasing and marketing platform, and Bowery Valuations, an appraisal firm.
Berman said that Camber Creek starts any potential investment with two questions.
The first is - "Can we use this product, software, service, within our portfolio matrix?"
According to Berman, the VC's general and limited partners own "close to a billion square feet" of real estate to deploy any potential product.
The second question is maybe the most basic in venture capital - "Is there a viable venture return path for this particular business?"
If the answer to both questions is yes, the next step is for Camber Creek's team to evaluate the business in the context of the rest of its portfolio. Berman described three follow-on questions, each with two variables, that the team uses to evaluate whether a company fits their current portfolio construction strategy.
Is this a 'nice to have' or a 'need to have'?
The first question evaluates how important a company's products or services are, and how likely they would be to perform well even in a downturn.
"Is this a company that is going to be able to weather economic storms? Is it going to be agnostic to economic cycles?" Berman said.
The main consideration is whether a company's product will be where people or businesses cut first when they need to lower costs. A "need to have" company that can perform well in any condition is obviously preferable, though a "nice to have" company may have a large upside when conditions are right.
Berman held up Camber Creek's Nestio as an example of a "need to have" company. The company provides leasing and marketing software for multifamily operators.
"It arguably becomes more important during times of economic dislocation," Berman said.
With a glut of new supply built on the back of low interest rates and slowing renter demand, efficiently marketing and leasing a property will become essential for a landlord in a downturn.
Is this a platform or a niche?
"Platform" is a word that lost actual meaning and become more of an empty buzzword. But Camber Creek's definition is a simple accounting of how dominant a company could potentially become.
"A platform-level company we would expect to be a winner in its given silo," Berman said. "A niche company will support companies that are winners in its particular silo."
VTS, the leasing management software unicorn, is Camber Creek's most-successful platform-level company. It is now used in a third of all US commercial buildings, and the company plans to launch a commercial leasing marketplace later this year. VTS has already merged with Hightower, a competitor with investments from Bessemer Venture Partners, and Josh Kushner's Thrive Capital, and is on its way to being the main source of commercial leasing data.
Niche companies, like Camber Creek's Bowery Valuation, are smaller bets with less chance for monumental upsides, but they're still an important part of a balanced portfolio. Bowery Valuation's automated-valuation software might not become the origin point of every commercial real estate transaction, but its software could become a part of the process for a company like VTS which may be able to become commercial real estate's largest platform.
Pure-play tech company, or business innovation?
This question is related to a larger debate about the definition of proptech: does the term only include innovations in software or hardware, or is it a more nebulous term that encompasses real estate startups who call themselves "tech-enabled"?
Camber Creek invests in either type of company, though for the more nebulous companies, they are looking for a business innovation that sets it apart.
Pure-play tech companies, like VTS or Latch, make up a large portion of Camber Creek's portfolio. The notion of business innovation is both as simple and as evasive as it sounds: is a company doing something that is new and is profitable?
Berman gave WhyHotel, the short-term rental company, as an example of one of the business innovations in Camber Creek's portfolio. WhyHotel partners with developers and landlords to provide short-term rentals from new residential buildings while they are being leased up. WhyHotel does not enter longer lease obligations that can be common among short-term rental companies, while also making revenue from new apartments that are usually empty for six months or longer.
"It's a pop-up hotel, and it allows developers to make more money too," said Berman.
Compared to other short-term rental companies like Sonder and Lyric, WhyHotel is changing how short-term rental supply enters and then leaves the housing market.