This article is written by Mr Kanishk Ghambir, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com. Here he discusses “Five Different Business Models in Property Tech Space”.
In a world where everything is being affected by technology, how can property, the world’s most valuable asset be left behind? The property tech space is now filled with start-ups which provide services in all things related to the property with help of technology including Artificial Intelligence and various algorithms. Even though there are various startups in such fields, some of them have unique business models. Few of such businesses are listed below:
- WeWork or presently called We Company is a company which provides co-working spaces to all kinds of businesses ranging from start-ups to large enterprises. It was founded by Mr. Adam Neumann, Ms. Rebekah Neumann, and Mr. Miguel Mckelvey in New York in 2010.
- Business Model: WeWork offers co-working spaces to individuals, group of people, companies, etc. It offers majorly four membership options viz. hot desk (pick a location out of options provided by WeWork and use the desks provided at any time), dedicated desks for a client or business only, private offices, and customised buildout. Flexibility is the idea behind We work business model which protects its clients from the problem caused by long term leases. WeWork offers an individual desk for $50 a day plus a membership fee of $45. For a monthly dedicated desk, the cost ranges from $275 to $600 plus membership fee. Further, the price increases depending upon how many desks you hire, the place and the time you require it for. The best part about WeWork is that you can lease a desk for a day, a week, a month or any time period you require it for.
- About Investors: WeWork, like most of the start-ups today, is backed by big Chinese players including the likes of Soft-Bank and also other entities like Honey Capital, a private equity firm and Greenland Holdings, Real Estate Developer. Apart from these Asian companies, it is also backed by western companies T. Rowe Price, J.P Morgan and Goldman Sachs.1
- Valuation: The valuation of WeWork is around $ 10 billion2 down from $47 billion stated at the begging of 2019.
- Initial Public Offer (“IPO”): WeWork had planned an IPO for September, 2019 with a target of roughly $3.5 Billion through the sale with a valuation of $20 billion but it withdrew the application on September 30, 2019 due to the concerns raised by its investors.
- Acquisitions & investments: a) Case, a construction technology company, was its first acquisition in the year 2015. b) In 2017, WeWork acquired Flatiron, online classes provider and Meetup, online group meetings for people with similar interests. C) Conductor (content intelligence provider), Designation (a design school) and MissionU, a college alternative in 2018 were acquired. d) In 2019 WeWork acquired Managed by Q, platform through which service providers for office work can be hired as well as Spacious, a company which leases spaces from restaurants which are unused during day time and give it to mobile workers.
- Other Ventures– a). Rise by We- A luxury gym providing basic gym amenities with yoga, boxing and fitness classes. b) WeGrow- A private school for children aged 3 till 4th grade. c). We live- It provides co-living facilities with a model very similar to WeWork with discounted rents.
- Current situation– Even though WeWork has been a roaring success but the personal activities, spending spree undertaken by the company and corporate governance failure all caused by the Founder and Ex-CEO Adam Neumann has been under fire due to which he was forced to give up majority of voting rights as well as step down from the business as the CEO due to pressure by the investors especially Softbank. Further, business’s inability to turn a profit and its falling evaluation have raised doubts over the business which caused the delay of much awaited IPO in September 2019.
2. RENT PROFILE
- Rent Profile is a start-up founded in 2016, which is the first online network of verified landlords, agents and renters. It was founded by brothers Paul and David Munday after they themselves were scammed of their deposit and first-month rent. It was founded on the basic philosophy that if there is a tenant check before he could rent such property so why shouldn’t there be a landlord background check? It also helps in further security checks using a proprietary algorithm.
- The platform created by Rent Profile has a database of verified landlords as well as tenants, where both the landlord and the tenant could check each other’s background details. In case if one of them (the landlord of the tenant) is not listed the on the platform/site, either they could be sent an invitation to join the site or Rent profile will themselves conduct a search and provide a report for a fee of 9 pounds.
- Rent Profile checks combine the research of public records as well as other databases to understand and gain clarity on the legitimacy of the landlord along with a manual search.
- For now, Rent Profile has an investment of 2,00,000 pounds, half of which comes in the form of a government grant from innovate the United Kingdom.
- Realyse is like a stock analyst but in the Real Estate business. It provides residential property investors to help and assistance in investing in the Real Estate sector with the help of data analytics, Realyse does so to stay ahead of the market. Realyse was launched in 2016 to provide a fast, effective and efficient way to determine where, when and what to build relying on the integration of various databases which crunch numbers to predict the UK real estate market for next twenty years.
- Thus, it provides investors expert analysis using the data about the future house prices, yields and every other possible detail about the properties in real-time. Realyse was founded on the basic concept of changing the Real Estate game by providing expert and accurate advice to every investor in a quick and effective way to assist them to take well-informed decisions.
- The database used by Realyse comprises of 20 years of statistics and it provides its users with such access, to understand the rent, debt, demographics as well as market activities for a proper market analysis.
- Realyse offers help to its clients by providing them with a quick overview of sales and rental data, by the property type in different areas and provides them with trends of the last 20 years. Further, it also includes the socio-economics factors by using demographic data for a better and appropriate analysis. It further asses the risks both natural and industrial as well add the facilities nearby the plot like schools, pubs etc. It all is done by applying cutting edge quantitative analytics technology.
- To summarize, Realyse calculates the viability of the investment in the property by the crunching the numbers from both last 20 years and 20 years in future to give a detailed analysis, thus, reducing the amount of due diligence required in such projects by cutting the roughly 40 hours work of a professional by 36 hours.
- The algorithm is made by professionals having knowledge in the field of economics, IT, and other subjects. Realyse makes and attempts to transfer the same transparency level seen across the insurance and financial services industry in the residential real estate industry.
- In the beginning of 2019, in series ‘A’ investment round Realyse got funding of 3 million pounds from Anthemis Group and XTX Ventures.
- Nested is a Real Estate start-up launched in 2016 which provides all the services of a typical Real Estate Agent viz. marketing, sales, and valuation, with a major difference that if it is unable to sell the property within 90 days, it will provide the owners of the property with 95% of the valuation of the house as a cash advance interest-free, so that owners can buy the next house. It is created by Matt Robinson and Phil Cowans.
- Using an algorithm developed by Cowan, the owners are provided with a valuation within seconds and a minimum guarantee price from day one and Nested promises to sell it within 90 days or otherwise provide the money. However, Nested conducts an inspection before confirming the valuation. Then it does all the work of an agent starting from advertising to viewings to sale.
- For the valuation of the property Nested either depends on earlier sales price of the house and added inflations, other factors to it or it analyses the house nearby which is similar to the property and derives the valuation report.
- For, all the efforts, Nested charges a basic fee of 1.8 per cent along with 20 per cent on any extra money earned over and above the valuation found by the algorithm.
- It has raised 120 million in form of 20 million in equity from Northzone and Balderton Capital in 2018 and rest in debt from an undisclosed investor.
- Nested is currently available as a web service in London for houses worth less than one million pounds.
- Wayhome formerly known as Unmortgage is a London based start-up that helps people who cannot afford mortgages to buy houses through the process of gradual ownership over a period of time.
- The business model of the company is, when the buyer has the minimum 5 percentage of deposit (which has to be at least 12,500 pounds) along with the minimum household income requirements, the rest of the house is brought by the company with the help of third-party sources which may be by an independent investor, retirement funds etc. After this, buyer can move into the household and start paying rent as a way to cover the house’s deposit and interest paid by the company. Technically the system is very similar to a bank mortgage but the key differences are a) easier regulations, and b) relaxed rules and background checks, as well as, unlike banks these companies use third-party investors. Further, Wayhome also provides the owners’ facilities to easy the already complex word of ownership of homes and help them with assessment criteria’s and understanding each and everything they are required to know about homeownership.
- The company does not make anything from the customers but instead, it charges a finder’s fee to the partners who invest in the property. The company connects investment partners to customers and charge money from the investment partners. The relationship essentially boils down to that the partners buy the home with customers and customers slowly buy the home back from them. This makes it very easy for people who wish to buy a home but are bound by high prices and interest rates. The company states mortgage is a better way of buying a house as it reduces the financial burden.
- This start-up has raised about 10 million pounds in the seed round of funding from the companies like Anthemis Exponential Ventures and Augmentum Fintech.
Even though the property tech space has seen some creative developments over the years which make the life of the consumers in this field very easy, it still has a very long way to go. Now, more and more startups are starting to enter this field with realization of huge profits with less risk as compared to other technology-related fields.
- https://www.coworkingresources.org/blog/the-wework-business-model (Last accessed on 27.09.2019)
- https://www.cnbc.com/2019/09/30/wework-says-it-will-file-request-to-withdraw-its-ipo-prospectus-after-roadshow-management-turmoil.html (Last accessed on 10.10.2019)
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