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Why real estate startups are hot right now, according to a top VC – Fortune

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Good morning. Finance writer Anne Sraders here, filling in for Jessica. 

Flow, the new residential real estate startup from infamous WeWork founder Adam Neumann, ruffled feathers this week after Andreessen Horowitz announced on Monday that it had funded it—shoveling $350 million into Flow, per The New York Times. The most eye-catching part of the announcement was, of course, the founder, Neumann. His previous startup WeWork bungled its first attempt at an IPO, cost investors billions of dollars, and ultimately ejected Neumann in Hollywood-worthy fashion

But like WeWork, the new startup is tethered to real estate—a seemingly increasingly hot area for venture capitalists. Over the years startups have popped up looking to solve or build on disparate corners of the real estate market, whether by offering community-focused residential spaces (like Neumann’s Flow apparently intends to, with a concept some are comparing to dorm rooms for adults—as well as, potentially, crypto?) or pitching fractional real estate investing. 

But the reason why some VCs are funneling cash into the sector isn’t simply because home prices have soared in recent years. Brian O’Malley, partner at Forerunner Ventures, told me this week that instead, they’re trying to address a deeper dissatisfaction (and dysfunctions) among consumers and investors. 

As investors, “we’re trying to be less focused on timing the market and what might look great in the next six months, and to be more focused on, ‘What systematic change do people want to have happen over the next decade or two?’” O’Malley says. “The relationship people have with their housing isn’t exactly what they maybe want anymore.” 

Forerunner has invested in a couple real estate-tied startups, most recently Arrived, a company that enables everyday investors to purchase shares in single-family rental properties and receive dividends in return. Forerunner led the company’s $25 million Series A round in May (in total, the startup has raised roughly $71 million, per PitchBook data). Other backers of Arrived include Jeff Bezos’s investment company Bezos Expeditions; PSL Ventures; and Spencer Rascoff, the cofounder and former CEO of Zillow. On theme, Forerunner also invested in Homebound, a tech-enabled homebuilding platform, back in 2018. 

According to O’Malley, real estate is, if not the largest, “one of the largest personal expenditures that [people] have, and there’s not been a lot of technology applied to change the way the business works. What’s exciting about that is that you’re looking at, you know, ultimately trillions of dollars of spend and an opportunity for change.” That’s “what’s got us excited,” he says. 

O’Malley suggests that unlike other industries, real estate has not seen big productivity gains over recent decades. “Building things is not getting cheaper, regulation is getting more complicated, the actual financing component is still, you know, a bit of a small ecosystem of the people that were always able to finance these properties,” he notes. “The way that you buy houses, the way that you rent properties—it hasn’t really changed with other categories,” like transportation (think Uber) or restaurants (think Toast), he added. 

There are clearly “different approaches to the general concept,” notes O’Malley; just look at startups like Neumann’s Flow or Arrived, aimed at tackling very different problems. And even with other competitors that focus on fractional ownership within real estate, like Fractional and LEX (the latter of which raised $15 million in January), O’Malley argues it could be more of a “rising tide” to lift all boats, as the startups take different approaches to the market. 

Of course, fractional investing in real estate isn’t new. “The pitch is not that this is a get rich quick, put all your money in this and see what happens,” O’Malley suggests of startups like Arrived. “It’s like, ‘Hey, this is an important part of a balanced portfolio,’ and some level of exposure, especially the kinds of exposure we’re getting [with Arrived], which…is not highly leveraged and is dividend-focused, is healthy for everyday investors.” 

What first comes to my mind is the host of big risks out there—not least a possible upcoming recession, rising interest rates, still-constrained housing supply, and a cooling residential market. Meanwhile some have raised concerns about the model of taking home properties (which people might buy to live in) off the inventory-constrained market when buying up single-family homes for such startups—the worry being that buying property to rent for investors could make homes more unaffordable for everybody else. (In defense of Arrived, O’Malley notes that “unlike other players in the market, Arrived isn’t bringing institutional money to compete with local buyers.”)   

But VCs like O’Malley believe there’s a lot of change right now in how people are living and working, and “with those challenges comes opportunity.” “The category is still nascent,” he says. 

We’ll have to see if these startups, like the properties they’re focused on, are built to last. 

Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

DriveNets, a Ra’anana, Israel-based cloud-native networking solutions provider, raised $262 million in Series C funding. D2 Investments led the round and was joined by investors including Bessemer Venture Partners, Pitango, D1 Capital, Atreides Management, and Harel Insurance Investments & Financial Services.

Orna Therapeutics, a Cambridge, Mass.-based RNA therapies biotechnology company, raised $221 million in Series B funding. Merck, MPM Capital, BioImpact Capital, and others invested in the round.

HiBob, a New York and Tel Aviv-based HR platform, raised $150 million in Series D funding. General Atlantic led the round and was joined by Bessemer Venture Partners and others.

VidMob, a New York-based advertising platform for brands, raised $110 million in Series D funding led by Shamrock Capital

Bevi, a Boston-based smart water cooler developer and provider, raised $70 million in Series D funding from Cowen Sustainable Investments

Super, a London-based payments platform, raised £22.5 million ($26.5 million) in funding. Accel led the round and was joined by investors including Union Square Ventures, LocalGlobe, and other angels.

Agora, a New York and Tel Aviv-based SaaS company for real estate firms, raised $20 million in Series A funding. Insight Partners led the round and was joined by Aleph.

GrayMatter Robotics, a Gardena, Calif.-based robotics company, raised $20 million in Series A funding. Bow Capital led the round and was joined by investors including B Capital Group, Calibrate Ventures, OCA Ventures, Pathbreaker Ventures, Stage Venture Partners, 3M Ventures, and Swift Ventures

Tessera, formerly Fractional, a New York-based NFT trading platform, raised $20 million in Series A funding. Paradigm led the round and was joined by investors including Focus Labs, Uniswap Labs Ventures, E Girl Capital, Yunt Capital, and other angels. 

BRAVO SIERRA, a New York-based male personal care company, raised $17 million in Series B funding. The Merchant Club led the round and was joined by investors including Capstar Ventures, Redo Ventures, AF Ventures, and Mousse Partners

Trial Library, a San Francisco-based oncology clinical trials company, raised $5 million in seed funding. Lux Capital partner Deena Shakir led the round and was joined by investors including NEXT VENTŪRES managing partner Julian Eison, Unseen Capital, and other angels. 

Microverse, a San Francisco-based online school for remote software developers, raised $4 million in Series A extension funding. Northzone, General Catalyst, All Iron Ventures, True Equity, and other angels invested in the round.

Quaddro, a São Paulo-based management solutions platform for small businesses and entrepreneurs, raised $3.2 million in seed funding. Valor Capital Group fund led the round and was joined by investors including Grão, Bridge Latam, NXTP and other angels. 

Insomnia Labs, a New York-based Web3 advertising and technology company, raised $1.5 million in funding. Polygon, Animoca Brands, Eden Ventures, HBJ Investments, and Concept Art House invested in the round. 

PRIVATE EQUITY

ARC Health, backed by Thurston Group, acquired Southeast Psych, a Charlotte-based mental health provider. Financial terms were not disclosed.

McCarthy Capital acquired a minority stake in WellnessLiving, an Ontario-based business management software company. Financial terms were not disclosed.

EXITS

Francisco Partners agreed to acquire Litmos, a San Ramon, Calif.-based corporate training solution provider, from SAP. Financial terms were not disclosed. 

OTHER

CI&T agreed to acquire Transpire Technology, a Melbourne-based technology consultancy. Financial terms were not disclosed.  

Pattern acquired Current, a Lehi, Utah-based influencer marketing platform. Financial terms were not disclosed. 

Sage agreed to acquire Lockstep, a Seattle-based accounting automation platform for workflows between companies. Financial terms were not disclosed.

WilliamsMarston acquired Paradigm Advisory Group, an Atlanta-based boutique advisory firm. Financial terms were not disclosed.  

IPOS 

PAG, a Hong Kong-based private equity firm, is considering delaying its $2 billion initial public offering in Hong Kong to 2023 due to market volatility, according to Bloomberg. The company is backed by Blackstone

FUNDS + FUNDS OF FUNDS

Shima Capital, a San Francisco-based venture capital firm, raised $200 million for their first fund focused on early-stage blockchain startups. 

PEOPLE

Red Cell Partners, a Tyson, Va.-based incubation firm, hired Roger W. Ferguson, Jr. as chief investment officer, chairman of the investment committee, partner, and a member of the board of directors.Formerly, he was with TIAA.

Sumeru Equity Partners, a San Mateo, Calif.-based private equity firm, promoted Pejman Pourmousa to operating partner, Sofija Ostojic and Nick Sheehan to vice presidents, and  Raymond Shen and Blake Shott to senior associates.

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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B.C. voters face atmospheric river with heavy rain, high winds on election day

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VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.

Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.

The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.

Wednesday was the last day for advance voting, which started on Oct. 10.

More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.

Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.

An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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No shortage when it comes to B.C. housing policies, as Eby, Rustad offer clear choice

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British Columbia voters face no shortage of policies when it comes to tackling the province’s housing woes in the run-up to Saturday’s election, with a clear choice for the next government’s approach.

David Eby’s New Democrats say the housing market on its own will not deliver the homes people need, while B.C. Conservative Leader John Rustad saysgovernment is part of the problem and B.C. needs to “unleash” the potential of the private sector.

But Andy Yan, director of the City Program at Simon Fraser University, said the “punchline” was that neither would have a hand in regulating interest rates, the “giant X-factor” in housing affordability.

“The one policy that controls it all just happens to be a policy that the province, whoever wins, has absolutely no control over,” said Yan, who made a name for himself scrutinizing B.C.’s chronic affordability problems.

Some metrics have shown those problems easing, with Eby pointing to what he said was a seven per cent drop in rent prices in Vancouver.

But Statistics Canada says 2021 census data shows that 25.5 per cent of B.C. households were paying at least 30 per cent of their income on shelter costs, the worst for any province or territory.

Yan said government had “access to a few levers” aimed at boosting housing affordability, and Eby has been pulling several.

Yet a host of other factors are at play, rates in particular, Yan said.

“This is what makes housing so frustrating, right? It takes time. It takes decades through which solutions and policies play out,” Yan said.

Rustad, meanwhile, is running on a “deregulation” platform.

He has pledged to scrap key NDP housing initiatives, including the speculation and vacancy tax, restrictions on short-term rentals,and legislation aimed at boosting small-scale density in single-family neighbourhoods.

Green Leader Sonia Furstenau, meanwhile, says “commodification” of housing by large investors is a major factor driving up costs, and her party would prioritize people most vulnerable in the housing market.

Yan said it was too soon to fully assess the impact of the NDP government’s housing measures, but there was a risk housing challenges could get worse if certain safeguards were removed, such as policies that preserve existing rental homes.

If interest rates were to drop, spurring a surge of redevelopment, Yan said the new homes with higher rents could wipe the older, cheaper units off the map.

“There is this element of change and redevelopment that needs to occur as a city grows, yet the loss of that stock is part of really, the ongoing challenges,” Yan said.

Given the external forces buffeting the housing market, Yan said the question before voters this month was more about “narrative” than numbers.

“Who do you believe will deliver a better tomorrow?”

Yan said the market has limits, and governments play an important role in providing safeguards for those most vulnerable.

The market “won’t by itself deal with their housing needs,” Yan said, especially given what he described as B.C.’s “30-year deficit of non-market housing.”

IS HOUSING THE ‘GOVERNMENT’S JOB’?

Craig Jones, associate director of the Housing Research Collaborative at the University of British Columbia, echoed Yan, saying people are in “housing distress” and in urgent need of help in the form of social or non-market housing.

“The amount of housing that it’s going to take through straight-up supply to arrive at affordability, it’s more than the system can actually produce,” he said.

Among the three leaders, Yan said it was Furstenau who had focused on the role of the “financialization” of housing, or large investors using housing for profit.

“It really squeezes renters,” he said of the trend. “It captures those units that would ordinarily become affordable and moves (them) into an investment product.”

The Greens’ platform includes a pledge to advocate for federal legislation banning the sale of residential units toreal estate investment trusts, known as REITs.

The party has also proposed a two per cent tax on homes valued at $3 million or higher, while committing $1.5 billion to build 26,000 non-market units each year.

Eby’s NDP government has enacted a suite of policies aimed at speeding up the development and availability of middle-income housing and affordable rentals.

They include the Rental Protection Fund, which Jones described as a “cutting-edge” policy. The $500-million fund enables non-profit organizations to purchase and manage existing rental buildings with the goal of preserving their affordability.

Another flagship NDP housing initiative, dubbed BC Builds, uses $2 billion in government financingto offer low-interest loans for the development of rental buildings on low-cost, underutilized land. Under the program, operators must offer at least 20 per cent of their units at 20 per cent below the market value.

Ravi Kahlon, the NDP candidate for Delta North who serves as Eby’s housing minister,said BC Builds was designed to navigate “huge headwinds” in housing development, including high interest rates, global inflation and the cost of land.

Boosting supply is one piece of the larger housing puzzle, Kahlon said in an interview before the start of the election campaign.

“We also need governments to invest and … come up with innovative programs to be able to get more affordability than the market can deliver,” he said.

The NDP is also pledging to help more middle-class, first-time buyers into the housing market with a plan to finance 40 per cent of the price on certain projects, with the money repayable as a loan and carrying an interest rate of 1.5 per cent. The government’s contribution would have to be repaid upon resale, plus 40 per cent of any increase in value.

The Canadian Press reached out several times requesting a housing-focused interview with Rustad or another Conservative representative, but received no followup.

At a press conference officially launching the Conservatives’ campaign, Rustad said Eby “seems to think that (housing) is government’s job.”

A key element of the Conservatives’ housing plans is a provincial tax exemption dubbed the “Rustad Rebate.” It would start in 2026 with residents able to deduct up to $1,500 per month for rent and mortgage costs, increasing to $3,000 in 2029.

Rustad also wants Ottawa to reintroduce a 1970s federal program that offered tax incentives to spur multi-unit residential building construction.

“It’s critical to bring that back and get the rental stock that we need built,” Rustad said of the so-called MURB program during the recent televised leaders’ debate.

Rustad also wants to axe B.C.’s speculation and vacancy tax, which Eby says has added 20,000 units to the long-term rental market, and repeal rules restricting short-term rentals on platforms such as Airbnb and Vrbo to an operator’s principal residence or one secondary suite.

“(First) of all it was foreigners, and then it was speculators, and then it was vacant properties, and then it was Airbnbs, instead of pointing at the real problem, which is government, and government is getting in the way,” Rustad said during the televised leaders’ debate.

Rustad has also promised to speed up approvals for rezoning and development applications, and to step in if a city fails to meet the six-month target.

Eby’s approach to clearing zoning and regulatory hurdles includes legislation passed last fall that requires municipalities with more than 5,000 residents to allow small-scale, multi-unit housing on lots previously zoned for single family homes.

The New Democrats have also recently announced a series of free, standardized building designs and a plan to fast-track prefabricated homes in the province.

A statement from B.C.’s Housing Ministry said more than 90 per cent of 188 local governments had adopted the New Democrats’ small-scale, multi-unit housing legislation as of last month, while 21 had received extensions allowing more time.

Rustad has pledged to repeal that law too, describing Eby’s approach as “authoritarian.”

The Greens are meanwhile pledging to spend $650 million in annual infrastructure funding for communities, increase subsidies for elderly renters, and bring in vacancy control measures to prevent landlords from drastically raising rents for new tenants.

Yan likened the Oct. 19 election to a “referendum about the course that David Eby has set” for housing, with Rustad “offering a completely different direction.”

Regardless of which party and leader emerges victorious, Yan said B.C.’s next government will be working against the clock, as well as cost pressures.

Yan said failing to deliver affordable homes for everyone, particularly people living on B.C. streets and young, working families, came at a cost to the whole province.

“It diminishes us as a society, but then also as an economy.”

This report by The Canadian Press was first published Oct. 17, 2024.

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