Talking all things PropTech with Elkstone and Pi Labs
Citywealth caught up with the founders of Irish multi-family office Elkstone and PropTech VC Pi Labs to find out about their co-investment plans, and why now is the right time to be investing in PropTech.
Tell the Citywealth readers about your respective roles.
Faisal Butt, CEO & Founder, Pi Labs: I founded Pi Labs back in 2015 at a time when the real estate and investment industry didn’t really understand what proptech was. However, we launched a first fund to invest in early stage startups and have built Europe’s largest proptech portfolio and ecosystem which today consists of over 55 portfolio companies across 10 countries and 3 continents. We have launched two more funds since then and as CEO, I oversee our efforts in seeking out the next cutting-edge solutions from around the world that will reshape the real estate industry. When we find the right company, we invest in their growth ambitions, mentor the founders and help them become global companies. We were early investors in companies such as LandTech and Plentific, which today are widely recognised as top performing European Proptech start-ups.
Alan Merriman, Founder, Elkstone: I founded Elkstone in 2011 coming out of the GFC. We are Ireland’s leading multi-family office with a specialist focus on three verticals – real estate, venture and alternatives. Our clients are mainly entrepreneurs or C level suite executives. On the real estate side, we invest across a wide range of sectors including student, housing, PRS and social. On the venture side we are generalists and focus on early stage, with over 70 portfolio companies backed to date including the likes of LetsGetChecked, Soapbox Labs, Elvie, The Meatless Farm and Manna. Alternatives, we see as a natural extension of our Family Office business. l am the Executive Chairman and oversee all our verticals.
Alan, could you tell us what attracted you to Pi Labs?
Alan: We do a lot of venture investing and whilst generalists ourselves and believers in a diversified portfolio for our clients, we are also believers in the advantage that specialist VCs can bring within particular segments. Life Sciences or Blockchain are two examples of where we have sought out leading specialist global players and as a real estate player ourselves we felt Proptech is undoubtedly another segment that warrants this specialist approach. We were attracted to Pi Labs for a variety of reasons including their deep specialist and research led approach; their impressive performance track record albeit this fund is a big step up in size; their proven accelerator model; and the pedigree of their other Real Estate sector focused LPs – which we believe will give them and their portfolio companies a big network advantage to help accelerate early product market fit and open those important early doors.
Can you both tell us more about your co-investment plans.
Faisal: Pi Labs are experts in the proptech space as we have been investing in this sector since its earliest stages. Having Elkstone and the other investors involved in our fund (such as Great Portland Estates, Assura, PATRIZIA etc.) allows us to connect institutions with the best proptech solutions that our investment team identifies as having the potential to grow to become the next tech unicorns. We share our proprietary research and these co-opportunities with our LPs and through partnering with Elkstone, we can write bigger cheque sizes in pre-seed to Series-A startups from around the world to grow our portfolio to 100 companies by 2025.
Alan: Access to the very best opportunities is key. At Elkstone we have been very deliberate in building up a very select portfolio of international venture fund investments that we look to leverage from a strategic perspective. This means both from a collaborative and learnings perspective but also clearly also in terms of co-investment opportunities. We believe this model is truly a win-win from all participants perspective and in particular it allows us at Elkstone really leverage our own operational capacity whilst simultaneously enabling us to have very strong confidence in the portfolio companies we choose for follow on / co-investment with the VCs we are an LP with.
Talk us through one of your investments.
Faisal: Real estate is one of the biggest contributors to global warming, responsible for 40% of global energy usage. While alarming, to us this means it is a sector with a huge opportunity make a difference. Over 50% of our portfolio companies are involved in improving sustainability in the built environment and we are actively looking to invest in innovations that can make the sector more efficient, transparent, and sustainable. We identified FenestraPro as a cutting edge software that allows architects to design energy-efficient building facades at an early stage of the process. Today the software has been adopted by the world’s largest architecture and design firms including Aecom, Gensler, and Skidmore Owings & Merrill among others and the company has expanded across the US, Irish, UK and Scandinavian markets.
Alan Merriman: Coincidently, we invested in FenestraPro too. However, to cite another portfolio example – studies show that over 90% of construction projects are subject to delays and cost overruns. Evercam is one of our portfolio companies seeking to make a meaningful difference by providing time-lapse and AI-enabled project management cameras that help construction companies to actively track activity, improve communication and automate more leading to much better cross team collaboration and ultimately a better project performance outcome. Evercam cameras are live on some of the biggest construction projects across Ireland, the UK, Australia, Singapore, and more recently, the company has expanded into the US where it already has a significant footprint in major cities across the country. Definitely one to watch.
Tell us more about your ESG commitment and how it fits into Pi Labs’ investment due diligence and ongoing support offered to portfolio companies.
Faisal: ESG investing is incredibly important to us, as well as to our investors. Our prior investments into Switchee, Demand Logic, 720 Degrees, and QFlow, have demonstrated a clear commitment to innovations that monitor energy consumption, carbon emissions, air quality and environmental risk in property development. New innovations in data processing, analytics and AI can truly transform the way owners and occupiers interact with real estate, but also, crucially, achieve environmental and sustainability outcomes. It is only by investing in and developing new technologies, and importantly – deploying them at scale – that we will be able to reduce the carbon footprint of our built environment and meet ambitious net zero targets.
Faisal, you recently announced that capital from the third institutional fund will help grow Pi Labs’ portfolio to 100 companies by 2025. What are the three key criteria that you are looking for in any potential investment.
Faisal: Our aim is to help the most exciting early-stage companies scale and thrive, both regionally in Europe, and globally. The first thing we will look for is whether their proprietary technology can fill a glaring operational and efficiency gap in the real estate industry, and a big focus is sustainability and ESG gaps. These areas are identified by us through working with our LPs, such as Elkstone, as well as conducting our own in-house research to inform the investment themes we focus on, which ultimately influences our scouting strategy. For example, well before most investors, we identified the future of work as a high growth area for proptech. As a thematic, research-led investors, we have produced our own research in this space, and have completed numerous investments that are shaping the future of work. From a financial returns perspective, for each of the five companies we invested in as part of this year’s global accelerator program, our DD and underwriting informed us that there is the potential to achieve at least a £100m valuation at the time we exit our investment.
You’ve been very busy taking action during the COVID pandemic, why is now the right time to be investing in proptech?
Faisal: We believe that Covid will be for real estate what the GFC in 2007/8 was for the financial services sector, in terms of driving innovation and technological adoption in a sector which has been slow moving in this regard. The pandemic has accelerated digitalisation, in some cases permanently, various operations including how offices are used, buildings are managed, construction processes are monitored, asset viewings take place, purchases are completed and numerous others. As Covid has forced the industry to adopt technological solutions, we see many of these trends continuing beyond the pandemic and even becoming permanent. In this context, it is the investors that get behind the best proptech businesses at the earliest stage who will gain most as the world of real estate is becoming increasingly digitised.
Alan: Proptech is in its early innings. As real estate developers and investors ourselves; and occupiers; we see and understand this first-hand. The industry is so fragmented and whilst there have been advancements – as a whole the Real Estate sector is still relatively old school in many ways. There is so much to be done – whether that’s on the construction side; the future of work; or environmental aspects. If you are a founder looking for really big problems to solve – just think of housing affordability; climate change; or health and safety. There’s lots and lots of potential.