Warren Buffett – acclaimed value investor:
Exhaling, Adaku, an African PropTech startup founder, puts her head on her desk with despair. Working tirelessly, against the odds, for over 5 years in a PropTech startup now, she asks herself: “Is it as hard as this in America?”.
After graduating from university at the top of her class, she started her career in the property industry. Soon after getting to grips with the industry’s obvious pain points, ambition and a hunger to be part of the solution triggered her next move. Adaku co-founded a startup – aimed at solving this pain.
Feature development is achingly slow, but it’s as fast as she can go with her small, bootstrapped group of determined team mates. VC funding is the fuel she desperately needs for her engine. Hiring more team will speed up development on user-requested features. This will deliver a more valuable product. In turn, translating into a boost in revenues. But VC funders need greater revenues from Adaku to justify their funding. Adaku has been stuck in this wicked “chicken-and-egg” problem for a while, with no obvious solutions.
Adaku is not alone in African PropTech, and her challenges are not unique.
But, tough as her road is, there is a strong thesis backing her conviction…
(In 1950 only 10% of the world’s population was African).
Decentralised, renewable energy is electrifying this young, fast-growing population, while internet data proliferation and online learning is democratizing education for this young workforce. Remote working, augmented by efficient money transfer systems, is enabling this younger, ambitious workforce to access labour markets around the world, and repatriate wealth. Technology appears to be dismantling Africa’s historical shackles to progress.
This growing mass of humans need food, and consumer goods. These productive citizens will need places to live in, places of entertainment, and places to work.
Property, both residential and commercial real estate, is required to house these bodies, and support the provision of these services and activities.
The built value of African CRE is estimated to be valued at $0.2T to $0.6T. The growth of African real estate towards the global ratio of CRE to GDP of 34% seems inevitable. If Africa’s population grows 80%, the CRE industry’s growth prospects will be further boosted.
Now we turn attention to one key driver of PropTech – funding and related networks. Fortunately, courtesy of The Big Deal, an offshoot of growing maturity in Africa’s VC environment, we have the data to answer these questions.
The question: in response to this anticipated wave of growth, is African PropTech funding 1) racing ahead of global ratios, 2) on par with the rest of the world, or is there 3) bottled up supply?
Courtesy of Crunchbase, the ratio of PropTech to total VC funding averages out at c.5%.
Thanks to The Big Deal we have, since 2019, both total VC funding and African PropTech VC funding numbers.
The below charts indicates how Africa compares:
Since 2019, African PropTech’s ratio has hovered between 0.3% and 0.5% of total VC funding – significantly less than the global ratio of 5%.
Over four and a bit years, of $14.2B total VC raised, only $55.8M (or 0.4% of total) flowed to PropTech. Put another way…
Since 2019 (and up to Mar 2023) the under-funding adds up to $712M.
Lots of pent-up capital…
Fortunately, courtesy of Savills and Crunchbase, we have the total global value of CRE and PropTech funding, from 2016 to 2022.
Here we see a steady increase in PropTech funding as a percentage of built CRE assets.
In 2016 PropTech VC funding was 0.025% of all built CRE.
By 2022 this ratio had increased to 0.058%.
Taking the average of the last four years, we get a ratio of 0.0546%.
Now, we look at African PropTech. Using an approximate, conservative, African CRE value of $400B, and the above ratio, we would expect $867M of VC funding to have flowed into Africa over the last 4 years. Instead, we have seen just $46.7M flow.
For example, in 2022, PropTech funding was $214M less than expected. This is a fraction, 7.1%, of the 0.0546% expected ratio. Again, put another way…
Looking through this second lens, the value of Africa’s bottled-up PropTech funding, over three years, hovers around $820M.
Across 44 deals into 30 PropTechs, over 4 and a bit years, we saw listings platforms taking the lions’ share, followed by resi and fractional property investment.
Commercial real estate (CRE) and GreenTech were conspicuous in their non-appearance.
African PropTech VC funding is awakening. Global tech accelerators are moving into African PropTech with purpose. MetaProp’s accelerator has signed up Estate Intel and Spleet.
Rentsmallsmall is with Techstars Toronto, while Red Swan CRE has made it to Aldar’s program.
These PropTechs all hail from Nigeria.
ARM Labs’ Techstars Accelerator program has recently launched in Lagos with the intention of investing in early-stage FinTech & PropTech companies based in Africa. Up to 12 startups will be selected on an annual basis, and will have access to their vast network.
PropertyFinder in the UAE is now a unicorn. In parallel, dedicated PropTech venture capital funds like Fifth Wall have moved into North Africa and the GCC, REdimension Capital has setup in Southern Africa, and Watheeq in the GCC has sprung up.
On the client side, technology adoption as a differentiator is being discussed in property business boardrooms. Respected industry bodies, like the South African Property Owner’s Association (SAPOA), SA REIT and GBCSA are joining hands in PropTech committees – and aligning with PropTech associations like APF and PropTech Africa.
On the PropTech side, with increasing product maturity, PropTech functionality is starting to edge away from the value added by traditional Excel or inhouse solutions.
The African property market seems destined to grow, and grow fast. Property industry pain is not decreasing, while savvy local businesses are looking to technology to solve their pain. Smart investors are moving into this large market with limited PropTech competition, and strong “home ground” advantages. Their thinking: PropTechs in Africa are battle-hardened, cost-efficient and resilient. PropTech VC funding can provide the needed jet fuel to Africans like Adaku to achieve dominance in Africa, and then scale into more mature markets.
As the common saying goes, if you can make it in Africa, you can make it anywhere.
This is a key number in South African commercial real estate (CRE). After a lot of hard work, we are able to deliver a firm, defensible value to SA – relevant to businesses (who almost all operate out of CRE), policy makers and the industry itself.
For a South African CRE industry buffeted by Covid, weak economic growth and public sector incompetence, is solar power too good to be true? Is solar indeed one of property’s unicorns – a positively geared investment with increasing cash flows – and what are the risks associated with it?
Apple, one of the most profitable businesses in the world, is the king of outsourcing. Its brains reside in California, while its grunt work is spread to specialists all over the world. Is CRE missing a trick? Like the strategic minds at Apple, can it farm back office services to cheaper, specialist hands – and drive greater profitability?
