We invest in founders tackling huge problems in Latin America, and real estate is not only the world’s largest market, reaching ~$379.7T in 2022, but also an old industry ripe for disruption.
We've invested in many proptech companies, including Houm, Yave, Aptuno, Neivor, PropertySimple, and Plaza, and have evaluated hundreds more. Here’s how we think about proptech in Latin America.
We are looking for proptech startups that:
Bonus: if the proptech is lending or buying property, it must have a path to a reasonable cost of capital
We don’t think simply copying and pasting a successful US or Chinese proptech business model into Latin America works and global brands will find it hard to compete directly in Latin America without localizing their product. Unlike SaaS in Latin America where people can use global SaaS companies like Google, Salesforce, and more, it’s unlikely that big global proptechs will be able to compete locally without local teams and products. Latin America’s real estate market is much less developed than the US or Chinese markets:
Copying a US or Chinese proptech and bringing it to Latin America can be like driving a Formula 1 car on a dirt road. It might look great and be the best-engineered product, but it won’t get you very far in these conditions. Proptech companies in Latin America need Latin American solutions to Latin American problems.
We’re a VC fund, not a real estate fund. Many “proptechs” are “prop” but no tech and likely should fit into the real estate or private equity bucket. While traditional real estate companies can be great businesses, they likely won’t generate VC returns. We invest in proptechs with real technology, not just property businesses with a thin technology layer.
There’s a continuum between zero technology and 100% technology. Some proptechs are pure software businesses. Others are traditional real estate businesses dressed up like proptech. Zillow, a leading real estate marketplace from the US, is on the software end of the spectrum. WeWork is on the other end of the spectrum. It was a traditional real estate company masquerading as a tech company that ate up $22B of investor capital at valuations as high as $47B, filed for bankruptcy in November 2023 and underwent major restructuring.
Most prop techs are somewhere on the continuum from WeWork to Zillow.
We don’t need proptechs to be 100% pure software, but we prefer tech-driven companies closer to Zillow than WeWork.
Latin American proptechs like QuintoAndar and Houm fall between Zillow and WeWork, blending technology with offline operations to solve Latin America specific problems. They use software to create online property marketplaces, do tenant underwriting, publish listings across platforms, manage digital contracts, and for customer service. However, they also handle offline tasks like property showings and evicting non-paying tenants.
We’ll invest in companies that combine software with real-world operations because Latin America hasn't built the data and software layer yet. Limited access to reliable data, slow or incomplete access to government property records in countries like Mexico, and a lack of trust between real estate stakeholders are too complex for software alone to solve.
Businesses closer to the pure real estate end of the spectrum are likely to be valued like real estate companies rather than tech companies. As companies move closer to the WeWork end of the spectrum, we need lower entry points to justify the risk and potential lower valuations at scale that these businesses likely will have. Some are entirely uninvestable from a VC fund but aren’t necessarily bad businesses.
The likeliest big Latin American winners are from the middle of the spectrum companies like Quinto Andar to pure software companies like Zillow that combine real-world logistics with network effects and software.
Latin America’s proptech software paradox
We love scalable, high-margin Software as a Service (SaaS). But in Latin America, it’s hard to capture a high percentage of the value you create. Real estate agents generally aren’t professional, and many are unwilling or unable to use technology or pay for data, making it hard to generate the 10-20x returns VCs need.
We look for proptech software that can monetize real estate transactions, payments, loans, insurance, and other revenue streams, not just software.
Real estate is a complex and heavily regulated market. Proptech, like insurance, is a market where it helps to have previous industry experience. Founders with prior real estate experience have a leg up because they understand market dynamics from day one.
Sometimes, outsiders know how to disrupt a market, but if you don’t have real estate experience, we’ll want to understand why you will win.
If your proptech lends money or holds assets on the balance sheet, you need affordable cost of capital:
Many proptechs lend money to their clients or hold real estate on their balance sheets. If your model requires lending or is asset-heavy, you must find a capital source that makes your model work, or your unit economics won’t work.
Cost of capital is a major challenge for startups. Startups can’t take deposits like banks do and lend them out, so they have to raise large amounts of equity, which dilutes the founders, or find a private lender to borrow from. Most startups don’t have any track record, so they end up struggling to scale.
In the 2021-2022 zero-interest rate environment (ZIRP), some asset-heavy or lending business models worked, but as interest rates rose, many of these models stopped working, as venture debt prices make it hard to compete in real estate where consumers expect lower interest rates than in personal lending.
Three proptech industries: Residential, Commercial, and Land
Each of the three main real estate categories has unique challenges that technology can help improve. We’ll invest in all three.
Most founders target the residential real estate market. We’re interested in seeing startups that use successful models from residential real estate to help improve the commercial real estate market, but copying directly doesn’t work.
Proptechs focused on land tend to be more challenging to build and less attractive to invest in because of complex zoning, longer timelines than residential and commercial, fewer data availability in Latin America, and issues like illegal land seizure, which is more common in Latin America than other markets.
Latin America’s real estate market is full of inefficiencies, creating huge opportunities for technology to make an impact. We'd love to hear from you if you’re a proptech founder building in Latin America. Feel free to create a Magma Memo to get feedback, even if you think you’re not a fit.
There are still tons of Latin American real estate problems that need Latin American proptech solutions. We would love to talk to you if you're building something cool.
