Proptech Data Firms Race To Scale Up Amid Tech Turmoil, Looming SEC Rule
A confluence of factors has supercharged interest in the technology of monitoring, tracking and reducing building emissions, especially the expansion of ESG investment.
With additional pressure coming from the recently proposed Securities and Exchange Commission green disclosure ruling around reporting emissions, as well as an increasing array of local regulations, these tech platforms are becoming increasingly central to meeting regulatory requirements and making investment decisions.
“It’s a rise of data as an asset of the business and the commingling of data across the enterprise to generate proprietary insights,” said Measurabl CEO Matt Ellis, whose firm offers the most widely adopted ESG monitoring software for CRE. “The winning solution is a platform that solves for meter to market, addressing ESG from the guts of the building, across the portfolio, to boardroom concerns with debt and equity. A winning product brings that all together.”
The clear use case for these platforms, and ample room for growth, is attracting extensive capital into the sector. But investors want to make sure whichever firm they pick survives. And that tends to mean scale.
“Lots of early stage ESG companies are for sale, and there’s aggregation opportunities for companies like Measurabl,” said Jake Fingert, managing partner of Camber Creek, a venture capital firm focused on real estate technology that has invested in Measurabl. “What we think is going to happen is that you’ll have leaders like Measurabl be the bomb shelter in a market like this, that everybody will go to for safety. Sentiment has shifted in the last month; if I back the wrong horse, my money could go down to zero.”
Current market activity suggests that more expansion and consolidation may be coming, with recent turmoil and uncertainty only reinforcing the desire for investors to seek out and support firms with proven track records.
Arcadia, a data startup that helps residential and commercial customers decarbonize the electricity grid, raised $200M from JPMorgan Chase in early May, and Measurabl, which has contracts to monitor and analyze 10B SF of CRE, acquired Hatch Data in April after it raised $50M.
“There’s no going back,” said Paige Pitcher, head of strategic partnerships at Moderne Ventures, a venture capital firm specializing in real estate. “If you look at the funding for ESG ETFs, pre-pandemic to today, it’s increased from $23B to $391B. Is there room to run? 17x says yes.”
One of the major tectonic shifts in the market, the SEC’s new ruling about publicly traded firms disclosing climate risks, also introduces additional venues for climate-related proptech innovation, and ways in which this data can prove vital to future investment decisions and long-term strategy.
The SEC estimated the cost of complying to its proposed rule will be between $420K and $530K annually, depending on the size of the firm, the Wall Street Journal reports.
The climate risk assessment part of the SEC’s ruling creates a need for insurance tech and fintech firms that can provide automated risk assessment for firms and help insure them against climate-related damage, said Jennifer Place, a partner at Fifth Wall, the largest proptech venture capital firm.
“We’re seeing very exciting opportunities to invest in insurtech models to address certain assets that, quite frankly, have become uninsurable,” she said.
Most CRE firms are also at a relatively early part of their ESG and emissions reduction strategy, said JLL Spark Managing Partner Raj Singh, who heads the venture capital arm of the large brokerage. For the most part, landlords are focused on measuring their carbon footprint, and many of the measurements provided by today’s software solutions are generic, often based on comparative sets of certain types of buildings.
With firms fixated on creating road maps to net-zero emissions, there still aren’t many good solutions to get there, Singh said, and it is increasingly important to get emissions levels right, especially with new regulations on the way.
That opens up opportunities for more complete and accurate data solutions, especially ones that can speak to all stakeholders, from investors to property management teams actually running the buildings. Enertiv Head of Marketing Comly Wilson, whose tech firm tracks and analyzes building data, including sustainability and emissions, said that in some cases, trying to get a complete emissions picture can lead to using multiple systems, all with their own requirements, limitations and logins.
It is especially vital for compliance with the SEC ruling, which likely will ask for climate risk data, as well as Scope 3 emissions, a measure of emissions generated by materials suppliers, as well as tenants within a commercial building (4 of 5 S&P 500 firms already disclose their Scope 1 and 2 emissions).
“Overall, if you look at the competitive landscape, you see fairly fragmented solutions, with very well-funded platforms addressing specific parts of the carbon value chain,” Place said. “You need a solution that addresses this end to end. I wouldn’t be surprised if there’s more consolidation in this space.”
The data collected by these analytics and monitoring platforms also becomes more and more valuable with the addition of technology that automates building operations. Place said that better operations should be seen as an end goal of the push to better monitor and measure the performance of a building.
Historically, the building operations side has been fairly undifferentiated, with existing firms having failed to scale due to complexity of installation, often focusing their energy on one-off larger buildings and HVAC systems.
There is a dearth of companies providing more rapid installation of these building operations and management tools, which Place said will eventually be fundamental for asset owners and operators to have.
Troy Harvey, CEO of PassiveLogic, a firm that designs and operates a building intelligence system, said a new generation of control systems and technology, which deliver on and act off analytics, offer a big step forward from so-called legacy systems from firms like Honeywell and Schneider. Figure out how to run buildings sustainably, autonomously and in real time, and you can grab a chunk of a $2T market.
“You need a platform that can make decisions in real time,” Harvey said. “Buildings are really just large, immovable robots with tens of thousands of control points. The question is, how am I going to un-dumb a dumb thing?”
Combining all of these technology layers, from analytics to operations to hardware, offers the potential for collaborations or mergers that create a full-stack solution for real estate firms.
Singh said that JLL Spark is looking for what he calls the central nervous system of a building, which can provide accurate assessment of the energy output of a building and correct it when necessary. It is part of the strategy behind the $300M November acquisition of Building Engines, a building operations software platform, as well as the January acquisition of Hank, a building engineering platform.
Singh said there is a lot of room for innovation and investment in the space. The market is relatively wide open for ESG-measuring solutions. Despite being the market leader, Measurabl only has a 5% market share, with dozens of other firms in the space.
Moderne Venture’s Pitcher likewise said that there is plenty of room for new solutions and ideas, especially in a downturn, and she thinks the recent “doomsday” talk around public markets and valuations won’t dampen enthusiasm — and need — for this kind of investment going forward.
“We look at the size of the opportunity, and there’s still a massive R&D gap here,” Fifth Wall’s Place said. “Even if you adopt all the tech available today, put solar on every single building and upgrade to the latest system, we wouldn’t even be halfway to solving the collective industry’s emissions goals.”
CORRECTION, MAY. 24, 4 P.M. ET: A previous version of this story stated that funding for proptech had increased 17x. That figure should instead refer specifically to ESG ETFs.