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Y Combinator Proptech Rankings Winter 2021

It’s that time of year again! Y Combinator just hosted their Winter ’21 batch demo days. Out of 319 companies, 6 startups (2%) were proptech companies. So in a semi-annual tradition I started with the S20 batch, I study their business models, stalk their founders on LinkedIn, rank them, and of course, roast them.

First, a disclaimer. I may say some mean things in here and bash these companies for problems in their business models. It’s because they need to hear it- they’re startups after all and they’re gonna tweak their models a dozen times before their products mature.

Incubators and VC’s sugarcoat and pamper startups until they hit their stride, which is good for them but terrible for the client experience. It may make sense for a startup to abandon their small client base and pivot, but ask whether a client with a $10m building wants a vendor to abandon ship after taking a leap of faith to use a startup.

So as a potential client for proptech companies, I’m giving my unfiltered opinions here. If you’re part of these companies or you’re working in the same subsector, take this as unfiltered constructive criticism.

Some ground rules: Rankings are determined by a mix of my impression of the idea, how well the team is suited for it, my guess at the market size, and their potential to screw over their clients after they pivot or are forced to monetize or exit through M&A.

#6. Houm

Coming in last place is Houm, founded by Nicholas Knockaert and Benjamin Labra. Houm is an all-in-one real estate marketplace that helps landlords find tenants, collect rent, and manage their properties in Latin America.

I hate marketplace startups. It’s not that the idea of marketplace startups are bad. But most marketplace startups are bad, especially in their early days when they’re finding their footing. And they have 2 sets of clients to deal with, which requires double the customer service.

I’m sure VCs see geographic opportunity and a very competent pair of founders. But I see an overly ambitious business model that’s failed in the US. Houm takes on such a wide scope that it actually includes the business models of 2 of the other companies on this list. The marketplace portion matching owners with renters and sellers isn’t uncharted territory. At its core Houm is a property listing site.

It’s the layers of services that make this a real challenge:

  • Brokerage and professional photos mixed in with a referral system to drive prospective tenants to the site.
  • Vetting tenants, arranging tours, and handling all sorts of legal documents including leases.
  • Rent collection and guaranteed payments through rental insurance
  • Handling eviction cases.
  • Property management

The last bullet point uses the least words but takes up SO MUCH TIME AND EFFORT to do well. There are plenty of terrible property managers out there, and they don’t have to maintain a listing site, brokerage service, rent collection, and rental insurance. There’s too much execution risk here.

Servicing small homes doesn’t yield a lot of profit margin. so what happens to those clients when Houm pivots to managing much larger apartment complexes with bigger profit margins? They’re abandoned. I speak from experience. This business model gives me anxiety. Thumbs down. Next.

#5. Machine26

Machine26, founded by Niklas Fritz, Christian Schweiger, and Steffen Schweiger. It’s a marketplace for construction machines.

Yes, another marketplace company. I liked the simplicity of the model and thought the founders’ YC application video was pretty good. Supposedly the process of buying construction equipment is very inefficient, and their platform and matching mechanics improves on what’s out there. This business will probably do pretty well.

But it’s not ranked high on this list because the website is really vague and I can’t tell what the buying and selling experience will be like because it’s too early. Also, to continue my rant about marketplace startups, the data isn’t in their favor. Out of Andreesen Horowitz’s top 100 marketplace startups, the top 4 companies make up 76% of gross merchandise value exchanged. Machine26 has a large addressable market, probably around 100 billion, and each sale is relatively big, but the companies in the top 100 have waaay more potential customers than Machine26 ever could.

And finally, I just don’t think increasing efficiency in construction machine transactions will have a huge impact on the real estate market. Maybe it can help reduce construction costs ever so slightly, but other than that, there’s very little impact to me as a developer. MEH.

#4. Morada Uno

Morada Uno, founded by Ines Gamboa Sorensen, Diego Llano, and Santiago Morales. Their tagline is “We underwrite and insure house rentals in Latin America.” This is a really interesting idea that could’ve been useful for landlords in the US right before the pandemic. But the amount of claims on unpaid rent from the eviction moratoriums would’ve given this business a lot of trouble. According to their website they use more complex risk models to assess tenants ability to pay rents and then guarantee them with money from a US based collateral fund that grows according to the volume and maturity of the portfolio. This is a purely quantitative startup exploiting risk arbitrage.

I’m not clear what the landscape is like in the Mexican rental market, but I can only assume this business works because their risk models are better predictors of tenant reliability than what’s typically done. And there’s not enough info about how this collateral fund can cover all the rents in a six sigma event. Without knowing these things, it’s tough to judge the stability of the business. They’re offering risk free stable cash flow backed something that’s not risk free. It would be a great deal for me as a landlord, but the most I can say is MEH.

#3. Topkey

Topkey, founded by Tom Patton and Jonathan Sukhia, is- you guessed it- another marketplace startup. This one’s a platform to connect investment homeowners with property managers.

I actually like this idea because I have first hand experience with this problem. If you’re a remote landlord and don’t want to be hands on, a good property manager is necessary. But there’s so many points to evaluate a manager on that it’s hard to objectively compare them apples to apples. Topkey recommends 3 property managers from their database and compares them side by side across dozens of metrics so you don’t have to build a comparison spreadsheet from scratch. Great solution to a very real problem. And the website is clear and simple to follow. I also enjoyed reading some of the blog articles.

The way Topkey makes money is that property managers pay for conversions of leads. And the way Topkey gets leads is that potential vacation home buyers enter the address of the target property and they get a report on projected revenue estimates based on the capabilities of specific property managers, which you can compare side by side. I tried entering a property in New York, but they’re only in one market in Florida right now.

I would actually be interested in using this service. The only reason this didn’t rank higher is that I liked the upcoming startups better. But Thumbs up!

Alright, top 2. These business models are not quite twins but definitely siblings with a common theme of lowering the entry point to buy real estate. But before I reveal them, help make my channel more accessible by turning that like button blue and hitting the subscribe button if you liked this content. It takes a ton of research to put these together but only one little click on your part to make YouTube suggest it to more people.

#2. Fractional

Fractional, founded by Stella Han and Carlos Treviño, is a Platform for fractional ownership of residential investment properties. It’s a pretty creative model that blends aspects of crowdfunding and ibuying with traditional real estate investment. The website lists investment properties submitted by buyers brokers and vetted by Fractional. Investors can choose to invest fractional amounts of the closing price, like $10,000. If they want to leverage the investment, Fractional will buy up to 50% at a 3.5% interest rate for 30 years. And Fractional handles all the legal and financial acrobatics of splitting ownership and distributions for a 2% closing fee and 2% of the monthly rent. To put that in perspective, a typical real estate fund charges 2% of the assets under management every year, so this is way cheaper.

Crowdfunding hasn’t really been too successful at bringing real estate investment to the masses, so Fractional gets a lot of credit for a new approach to the problem. I would almost consider this legal tech because setting up legal docs for co-ownership is a pain in the ass. But they’ve turned it into a template that they can make money off of. I am a little concerned about how they can sustain 3.5% loans for 30 years if they’re an early stage startup that may not last 3 years. Nonetheless, thumbs up, and bonus points for being clever.

#1. Homebase

And finally… Homebase takes a very similar idea with slightly more altruistic goals, which is why it’s my # 1 pick. It turns Vietnam’s difficult lending environment into an opportunity. They raise money from high net worth individuals, institutions, family offices, and debt funds. Not unlike a real estate developer like myself. The difference is how they deploy the capital.

Homebase co-purchases homes with buyers who don’t have the ability to get the limited and high interest rate financing options available. The buyers own a portion of the home- at least 20%, but have full usage rights. They can even rent it out!

Since Homebase owns the rest, the buyers have to pay rent on the portion owned by Homebase and can buy more equity in the home over time until they own the whole thing or sell and get proceeds for their portion of ownership.

An idea like this has a lot of potential to impact the real estate market in Southeast Asia because a lot of countries in the region have extremely high gini coefficients- a measure of wealth inequality. Empowering younger 1st time home buyers to enter the market makes these markets healthier, and gives younger people opportunities to accumulate wealth earlier instead of throwing money away on rent.

The biggest risk I see is if Homebase goes out of business, it’s going to be a mess for the partial homeowners to untangle the legal docs with a variety of institutions, family offices and debt funds. That’s why it’s so important that this team has good founders that can make this company last, and their qualifications are really what make Homebase stand out to me. Among them they’ve worked at Goldman Sachs, Mckinsey, founded a couple of blockchain startups, have a couple of computer science degrees, a couple of business degrees, and a CFA. Oh and they’re just two people. Phillip An and JY Tan, you guys get a big thumbs up.

YC W21 has a lot of potential and I look forward to following their progress.