I was reading your blog post on “When I Finally Realized that CRE Tech was Gaining Serious Momentum” and your sense that finally the industry was moving past the “early adopters” attending CREtech and other events, to the increasing notice being taken by the real estate industry of how technology is changing how their business is done.  It caused me to step back and think about what I am waiting to see…my turning point moment for which there are glimmers that it is happening.

I have been an investment banker since 1979 and an early New York transplant to Silicon Valley during the heady years of the 1980s and 1990s.  About four years ago, along with my partner, I started focusing on the intersection of the real estate industry and technology innovation.  My first new business call was with an exciting company in the space that had already raised significant funds from angels and strategic partners, but not the traditional venture capital community.  At that time there were about a dozen VC firms who had done two or more real estate tech deals in their portfolio.  I made it a mission (as I have done in my almost 40 years of technology banking) to speak with the VCs who were focused on our mutual areas of interest.  I was struck by the fact that at the time such a small portion of the companies who were in the real estate tech space actually had traditional venture capital support and the VCs who had made investments in the space largely didn’t consider themselves real estate experts.  It was much more that they found a company that had identified an underserved opportunity with a credible team to back…just like the criteria sought in any other investment opportunity they might look at.  They didn’t seek to identify companies serving real estate, but found an attractive investment opportunity that happened to be in real estate space.

It wasn’t just the case that the VCs didn’t see themselves as real estate experts, so many of the teams building products, services and companies to serve these opportunities didn’t see themselves as real estate experts either.  They saw the slow adoption of technology in the real estate industry as an opportunity to provide solutions, sometimes repurposed technology serving another industry subsegment.  My partner and classmate who helped found the Stanford Professionals in Real Estate (SPIRE) alumni group observed in 2014 that SPIRE’s membership was transforming from a “60-something”, white-male organization, to a younger and more diverse group with the increasing membership of technology-focused entrepreneurs who had little traditional real estate experience.  They saw the widening gap of technology solutions directed at real estate problems and were joining SPIRE for networking access to this important alumni group.  These entrepreneurs in the broader Stanford community were the people who were recognizing the opportunity to fill a need that would grow, especially as millennials began to take over the positions of power and decision-making in the real estate industry.

One of the most important developments in my understanding of the companies and subsegments of the real estate tech industry, and turning points in it being taken seriously, has been the independent research that has developed.  This required a recognition that FinTech as not the overarching category in which real estate tech was initially subsumed.  The recognition by CB Insights and Traxcn that real estate was its own category into which there were many subcategories resulted in very helpful visual maps to see where companies fit in a competitive overview.  I frequently go back to their visual and narrative descriptions as I research different companies and their market positions.

No matter how different the real estate industry might be from other industries, my experience as a technology banker has shown me that the challenges and path to success for technology companies has similar evolutionary paths.  All technology companies (regardless of industry) require sources of capital.  At the earliest stages friends and family and industry angels serve those needs.  But at some point, the capacity of those sources gets tapped out.  Larger institutional sources like venture capital become both an important path to funding but also a gatekeeper in discerning the difference between a good idea and a real business opportunity.  VC firms are increasingly differentiated by the industry subsegments they focus on, and this is largely based on the industry expertise of its partners.  So another turning point is a financial one where you see increasing financial sponsorship from existing and new venture firms with a clear focus on real estate tech.

[With my apologies to any number of people/firms who deserve to be included in the mentions below.]  To think that the real estate tech community will thrive without the support of this important source of capital for early/emerging tech companies is to ignore the pattern of success that venture capital support has brought to innovation over the decades.  Camber Creek’s strategy of being very early in opportunities where their experience in real estate gives them a leg up on recognizing companies who are truly solving a demonstrable problem/opportunity.  Brick & Mortar Ventures and Navitas Capital focus on the built and construction technology side of the market.  The addition of Rich Boyle to the Canaan Partners team is a clear recognition that industry expertise in real estate will augment a traditional VC strategy.  And perhaps most significantly in my view is the launch of Fifth Wall with its strategy of bringing in LPs who themselves could be strategic partners in any of the investment opportunities that are looked at as well as a “bird dog” source of opportunities.

My conclusion is that we have needed to see a number of groups who have their own self-interest in seeing real estate tech be recognized for the opportunity it is.  The traditional sources of capital that has been a necessary part of the sustained growth of other technology segments, must be behind real estate tech as well.  The ecosystem must provide the capital, allow for inevitable failures, recycle capital as the successful companies seek new sources of funding and M&A consolidations.  I am seeing the financial pieces gradually falling into place.

Bradford Harries is a partner of Chessiecap Securities, a FINRA registered broker-dealer that provides investment banking services including capital raising, M&A and other corporate finance services. He is a graduate of Stanford University with an AB in Economics and MBA. His Wall Street career began in 1979 and has particular expertise with respect to technology and emerging growth industries.