In this episode The Propcast talks to Nikolas Samios from Proptech1 Ventures about the effects of coronavirus on the industry.
Click here to listen to Episode 4
The Propcast by Louisa Dickins, Co-Founder of LMRE the leading Global PropTech recruiter brought to you in partnership with UK PropTech Association, The UK PropTech Association is a membership organisation to drive the digital transformation of the property industry.
This show will focus on connecting the PropTechs, real estate funds and VC’s globally…and get everyone talking about innovation of the built environment.
About Our Host
Louisa started her career in property working at a well-known estate agency in London. Realising her people skills, she moved over to Lloyd May to pursue a career in recruitment. She now is a Director at LMRE, who are a specialist recruitment firm driven by PropTech and recruitment professionals, and Louisa oversees their 5 core areas. Louisa co-founded LMRE and provides a constructive recruitment platform to the new disruptors in real estate. Louisa is also on the board of Directors at UK PropTech Association (UKPA).
LMRE believe there is a better way to recruit. LMRE focus on a more comprehensive, client led focus delivering exceptional talent to the right place at the right time. They are passionate about the industry and passionate about people's careers. LMRE spend time with each client to become and an extension of the business, and their transparency and core values help them grow with the sector. LMRE simplify recruitment and innovate with our clients and evolve the people driven, PropTech community.
About Our Guest
Nikolas Samios is Managing Partner of PropTech1 Ventures, the first venture capital fund focused on PropTech startups in Germany. For decades, the real estate industry has shied away from true innovation, but now faces drastic change because of the advancing digitalization. This creates enormous opportunities for PropTech startups that focus on the optimization, digitalization, and disruption of the real estate industry. PropTech1 Ventures is a joint project of the real estate entrepreneur Marius Marschall and the COOPERATIVA Venture Group, which Nikolas heads as Managing Partner. COOPERATIVA is a platform which, based on the experience of its partner as founders, business angels, venture capital managers, and limited partners, covers 360° of the venture capital life cycle: Direct, indirect and LP investments in startups, support in their fundraising and exit efforts, venture-centric family office services and the inception and operation of VC funds in cooperation with leading sector experts.
LMRE website www.lmre.co.uk
PropTech1 Ventures www.proptech1.ventures
Download free white paper “Proptech and the Corona effect”: https://proptech1.ventures/download-deep-dive-2-en
Insights from this Episode
Hi everyone, and welcome to The Propcast. My name is Louisa Dickins, co-founder of LMRE, and board director for the UK PA, and I shall be your weekly host. Each week for 30 minutes, we'll be connecting VCs, PropTech start-ups and real estate professionals globally and assist in bridging that famous communication gap we all love talking about. So, sit back, relax and enjoy the show.
Hi, everyone, and welcome back to the Propcast. On today's show we are fortunate enough to be joined by Nikolas Samios, the managing director of PropTech1 Ventures, so welcome Nikolas.
Hi, Louisa so thanks for having me on your show.
Pleasure to have you today. We'll be looking at the effect of Corona on PropTech. It's a topic which everyone has been talking about and Nikolas has put a white paper together which goes into it in a lot more detail and depth and will give some great insights into the effect. But before we do that, let me introduce our special guest and obviously PropTech1 Ventures. So PropTech1 Ventures is the first dedicated venture capital fund, addressing the untapped potential real estate industry innovation in Europe, bringing together leading real estate companies and entrepreneurs, serial entrepreneurs from the digital sector and venture capital experts. In this role as well as his previous entrepreneur activities, for example Managing Director of the VC office COOPERATIVA and as managing director of Brandenburg Ventures, the VC vehicle of mp3 inventor, Karlheinz Brandenburg, he has participated in more than, how many transactions is it Nikolas?
It's at least 100 maybe it's even 200 today
It's crazy on both sides of the table. Now Nikolas is a proven expert in venture capital methodology with publications such as the standard reference book DEALTERMS.VC and many other professional articles. So Nikolas, at the end will be sharing with how you can get in touch and learn more. But the most recent publication you've done is the white paper you did on PropTech and the Corona Effect looks at the impact of COVID on digitalisation trends in the real estate industry. Can you tell us a little bit more about and give us a brief out outline to it, how you conducted the research, how did you get the data? I mean, you put it together pretty quickly and it gives so much information. So I’d love to hear a little bit more about that from you.
Absolutely. So basically, we published our public publication in February this year. So let's say pre Corona at least if you look at it from the European perspective, on the large PropTech trends for 2020-2021 to watch, and the European growing PropTech construction tech ecosystem. And we felt that two months later, it was really necessary to take a look again, because of the special impact of course, Corona and COVID-19 has on pretty much every business around. If these trends that we identified to be interesting for an investor, but also of course, for entrepreneurs and real estate professionals, if these trends are still intact or if there is any change, if we need to re-evaluate things. Plus, of course, we had a lot of discussions also with our portfolio companies and with fellow entrepreneurs and fellow investors, how this special situation will impact let's say financing rounds. So will there be the nuclear winter? Or will it still be possible now to raise equity for your company, things like that.
So a lot of questions, a lot of uncertainty, and we tried our best to aggregate knowledge and impressions from other investors or LPs and start-ups, of course and then try to aggregate it yet. Let’s say use a little bit of crystal ball plus methodology, but of course, it's, it's a mixture of art and science at the end of the day and put that down in a paper. And we published that beginning of what was it? Beginning of May, so it was something like, let's say, six weeks into the real pandemic situation in Europe. So still, let's say pretty early, but a little bit later than if you just do something like two weeks after the first shutdown, and if you just do a marketing statement, like yeah this is the greatest digitalization accelerator on planet Earth. We felt that that is maybe too naïve, right? So we wanted to aggregate some data, to look at it from both sides at the end of the day. So what is the positive but of course, also, what is the negative part of it.
Yes, being more of a realist. For the listeners who haven't yet read it, I will be sharing with how you can read this white paper. You mentioned four phases of the pandemic, can you please talk us through these? And how certain effects they had on say the industry as well.
So we said that we tried to structure it, so we're the analyst guys that try to get a little bit of structure. In our case, it's basically describing working with start-ups at the end of the day. So the first phase we called it the panic phase. So of course, for obvious reasons February, March this year was a mess. So nobody really knew what happened. Everybody maybe was looking at the drastic pictures you saw from northern Italy, for example where people had to be sent away from the hospitals. And we are in Germany, we're not far away from that, so it's mainly like 200 kilometres away. So we were afraid that the situation would come to the German speaking market like two, three weeks afterwards. And so this is why we also rang the alarm bell and said, okay, something big is coming. So this is a massive wave, this will hit everybody, you have to be aware. What does it really mean for the future, difficult to tell in that first panic phase. So this is also why we believe that in that phase, a lot of investors just pressed pause. So because that is the first obvious reaction you can do in times really happening. And so of course, if somebody tried to close the financing around in that very first phase, it was very difficult.
So suddenly, you had deals breaking up last minute, which is usually not the case in the venture capital environments. If you have a term sheet, if you're doing due diligence, you usually have quite a good certainty that the deal also will be executed but that was completely different. So that was phase number one, so the dark days. Then let's say starting maybe April to May 2020, so always speaking of Europe, so might be different in some other areas around the globe where the wave hit later, but April to May the lockdown phase started, or to say in the picture of the hammer and the dance. So that famous model that I think most of you will know. So governments acted, we had different levels of shutdown of lockdown, of travel restrictions throughout Europe. And of course, in that phase, start-ups had to find new ways, for example, to do B2B sales work because suddenly it's what it was not really possible to travel now to the customers, and we all know that the real estate industry is pretty old school. So usually a sales process involves driving to the customer, or flying to the customer five times to get a signature for contract. So that had to be changed, and so on top of the market uncertainty, you had a real logistics challenge suddenly because your customer didn't really know if it is possible for them, also whatever governance security wise to do deals over zoom conferences, stuff like that. Yeah, so that's not far away in the past. That was pretty new. So I think today it's standard.
The third phase we call the transition phase. So starting from May, roughly May 2020 we saw that the system adopted. So society, government's, business adopted to the new situation I would say pretty fast. Also faster than a lot of people anticipated when the wave first hit. So I would say a lot of industries then said, Okay so we have to do business right now, we cannot stop long term wise it's too expensive. We have to adopt, we have to do something. And this is maybe the situation where also some of the positive statements from like Microsoft CEO and so on are true that this was really accelerating digitisation in the mindsets of business leaders. So maybe like five years in five weeks, something like that. So it was suddenly possible to do a sales meeting over zoom, it was suddenly possible to do even due diligence processes for investors without physically meeting the team. Which usually it's a no go, at least some more conservative markets. So that was the transition part. And we're still pretty much in the transition phase. So we're not done of course. So the crazy Russians now have the from the first vaccine, so let's see when there will be a real one. But we think that mid end 2021 is the timeframe to look at, for getting into the new normal and it's a step by step thing.
But currently, we see that there is a lot less uncertainty in the markets. So people now feel comfortable more or less with where they are. So in the beginning of the panic mode was completely opposite, complete pause, no investment decisions anymore. But I think we are now in a phase at least in Europe, where it's pretty much it's not business as usual but it's getting into the new normal. And this is this is something where you can live in this is something where, what you where you can work with, something where you also can start again to, to have a certain a certain certainty that a transaction, for example, then also is closed and signed and closed if you have a term sheet and stuff like that. So this is roughly how we structured that. Yeah, of course, we're not done but I think right now, it's much easier to predict what happens in the next couple of months and then it was beginning of the year.
When we start looking at direct factors of Corona that have effected PropTech trends, I mean there’ve been various trends that have come up over the past what five years since PropTech has really grown, what would you say are the main factors are?
So of course, what we would you try to do is reassess the main trends that we already saw before and that everybody knows, and to try to assess how these trends are impacted short term wise and mid-term wise, and let's say long term wise. And let's say for obvious reasons, so everything that is close to house hospitality, everything that has a travel related element that is heavily impacted short term wise, so that's obvious. But for example, the interesting question is, if you look at a segment where we're heavily invested in, which is let's say, the boring back end IT process it stuff, you need to run a large enterprise. So if you're an asset manager, how you're managing your assets, how you're managing customer relationships, the ERP CRM document management stuff. So in that area, for example, if you have a digital file, if you have a digital process, if that's even cloud based, you are a productivity wise in a good position. If you have work from home or hybrid situation now, people can work in this situation because you have the basic stuff sorted out. And so that sounds obvious, but for a lot of large real estate companies, it's still not obvious. So they still might have the old legacy IT approach, they hastily had to buy VPN licenses and get laptops for their people and stuff.
So from the start-up perspective, this almost sounds like a joke, but it's still reality with a lot of the old industry players. And so these are things that are enabling them to do business in a way one/two year transition phase, and then maybe so we don't know yet, but maybe also long term wise we have more work from home hybrid situations. So that sounds like something that the market now needs, and that start-ups Of course, can deliver. So this, for example, as a segment where we are, let's say bullish both short term, and long term wise.
And then maybe last but not least, there are also segments that directly get a push out of the Corona situation. So if you think about, for example, regulation around the workplace, if you think about how you have to operate a large office tower, suddenly you have a lot of let's say let's call a distancing, medical hygienic things that you have to consider that are pretty new because that was usually not your main problem. And so for example, if you if you have deployed or if you're now deploying let's say IoT app based track and trace capability in your office, you are in a good position, because if on floor 10, you have a new COVID-19 case and that will happen, statistically it will happen, if you have the track and trace capability you've deployed, you can say, it's just a matter of floor 10, whatever the segment be, and you just have to send home 20 people into quarantine. If you don't have that, maybe you need to send home 1000 people, which productivity wise of course, it's a disaster. So these are things where existing technology so that's not rocket science, but existing technology that maybe hasn't been deployed before now has a killer use case right now. And so that maybe also gets an accelerator from new market opportunities that directly result of the COVID-19 locked down normal situation.
Yes, and earlier when I was going through the phases you spoke about the new norm and being able to look back at investing, what was the effect on the whole start-up financing situation? Personally from you as well, when this pandemic hit how did your business react and are you picking up with investments? I've got clients who had it taken from them, but I've got other clients who are secured and they’re still getting it because they proofed their product. What do you think the effects have been on the start-up investing base?
So that's a very good question, not just because we are investing but also of course, our portfolio companies need to acquire new funds, not just from us, but also from outside investors. So of course, that question was dominant from day one. And of course, in the first weeks, everybody was afraid, so what do you do the main reaction is cash is king, right? So you're trying to optimize your cash flow. And in most countries we were active, there was some options also from government support programs to get additional liquidity or to go to something like let's say, a short work system where your people are just working 50%, but get 80% of their salary with government support money, stuff like that. So that was that was deployed quite quickly. But for example, we as let's say board members in the start-ups where we are invested in, we had to support the usually young entrepreneurs that maybe for the first time are now in these crisis situations. So maybe a cliché but maybe true, they graduated from a business school and last five years was just growth. Yeah, growth, growth, growth and now for the first time, they are really in in such a situation where they really have to make a very tough decision and use tools that they also haven't used before. And so I think it's totally naturally that any venture capitalist or everybody with a portfolio and start-ups for the first couple of weeks all his time was completely eaten up by helping the existing portfolio assessing the damage, organizing third party funding, and so on and so forth.
So regardless if your strategy was, and I don't know if it's wise to make a strategy in week two of the pandemic, you need some time. But regardless of what your strategy was, even if you said, this is now a super great opportunity, I want to do new deals right now, which is true after some months, I would say, but you just didn't have the time you didn't have the resources. Yeah, because the first reaction is support your portfolio. So this was of course the same for us. So we didn't, we didn't stop deal flow work. But of course, it was a little bit slower anyhow. We support ed the portfolio. And then let's say after some weeks or after two, three months, the main crisis work was done. And in our case, it was pretty positive. So none of these start-ups was were belly up or in acute danger there. So but of course, we have to support for loans, financing rounds, and so on and so forth. There's still some work there.
And then then you start normal business again. So then, of course, you start to look at the outside investment universe again. And then of course, what happens is that a lot of investors are maybe a little bit shy still to invest in something where they now see in additional market risk, so coming again to the extreme, if you have something travel related, and you're afraid that there is like a second or third lockdown situation, maybe you're not investing this year. So yeah, these things are difficult to finance right now. If you are let's say in less extreme segments, maybe your investors now want to de-risk their investment decision a little bit by for example, not doing an equity round with fixed valuation, but maybe just giving you a convertible so that the valuation is set next year more or less, so they can't do a mistake valuation wise, for example. So we see a lot of these things happening. So more convertible rounds also later stage, then than usual for example. Or also let's say in the fine print, so that that in a start-up financing contract you will have lots of fine print with whatever liquidation preference and of course, maybe last year entrepreneurs were able to negotiate more founder friendly terms than this year, because investors try to address the additional market risk and optimize their terms and as less investors are currently active, the few investors on the market can now also of course, maybe get a better deal here and there. But it's not a tectonic shift. So all the standards are still there, you see normal deals happening but it's maybe a little bit more investor friendly climate right now than last year.
Would you say the overall investors landscape is now looking slightly more positive and more stable activity going up, then?
I would say it's depending also on the kind of investment. So if you have, let's say, a strategic investor, or a corporate venture fund, something like that, these people that maybe invest off a balance sheet and don't have a fund where they have liquidity they can easily invest in but they have to go to the CFO of the group to ask for every deal, they might be still slowed down because let's say the group CEO still doesn't really know how the market situation will play out in his core business over the next couple of months and years. The professional funds, so if you really have a venture capital fund, so you have committed capital, you have money in the bank literally, these funds can be deployed and usually investing as a venture capitalist after a financial crisis was always a good idea. So if you just look at like 20, 30 years of data, especially in the United States, of course, you have lots of data on that, more or less the best venture deals have been done after the financial crisis, and also the funds that were active after a financial crisis,, so that have been just raised before the crisis and then invested of the majority of the money afterwards or have been raised after the crisis, they are usually outperformers compared to their peers.
So this is why I would say it's so-so yeah, professional investors now if you look at them, they're in a good mood at the end of the day, right. So nobody asked for COVID-19 of course, so it's still tons of work and distraction and it's of course, everybody knows also somebody with a personal story. So people are dying at the end of the day, so it's not a good situation, right. But still, as a professional investor, you say, if you if you're correctly investing, if you pick the right targets, if you're optimized terms, it's a good time to invest. So this is why I would say, if you separate the investor base into two teams, you see that team one, more the strategic guys maybe are a little bit slowed down right now because they have other worries, professional investors are pretty active. After that we have to help our portfolio phase, they were kind of just distracted to do new deals, but that's now coming back.
And personally for you and your business, is there anything which you've learned, about how you operate your business? And taking that into the new norm, is there anything that you’re going to change? I mean, obviously, you mentioned about really making sure you look after your portfolio companies which I mean they’re some pretty impressive portfolio companies, and we'd love to chat about that in a little bit. But what advice could you give to others to the investors out there about what you've learnt pre-COVID?
So I’ve been doing venture capital for let's say, like 20 years now or something so this is not the first situation that that the market changed away. And it was always a good idea to for example, be careful with your valuation. If you are investing on a high valuation because there is maybe a small hype situation, maybe the danger of a small bubble or something, if you're investing there, you will be fine both as start-up and as an as an investor as long as the music plays, in a way. But if you have a down cycle, you have a big problem. You will not have a follow on financing round on a higher valuation, you have to accept a down round or have a flat valuation. Stuff that can really have a strong problematic impact on your overall equity story, but that has always been the case and it's the same situation right now. Also, as you said supporting the portfolio company, so we spend a lot of time being a coach, being a sparring partner to the entrepreneurs, we don't want to operate and manage these companies, obviously so that would be plain stupid. And we've been entrepreneurs ourselves so we know how much distraction an investor can bring to a company that maybe out of good intentions, creates ideas day by day and throws them into the CEO and the CEO has to run after all the ideas of the investors, right. So that's also not the way how you should do it.
But if there's material change, if there's a big challenge, if it’s also not just an economic challenge. It's also usually a very emotional, very personal thing for an entrepreneur in a situation like that, maybe he has to lay off people, for example, he has to do hard decisions he maybe hasn't done before. And to be a coach in that situation, not because you're the rocket scientist who knows everything, but you have been in these situations a couple of times before, the entrepreneur maybe he is in a situation like that for the first time. So you can help him there. So, I think these things are universally true and are true in any of these situations. So this is also why, let's say for a team like us, we will have done it before and we react without thinking in a way. So when the crisis happened, we shifted to an autopilot mode. Okay, now we are in a crisis situation so we have to do this and that and that there was no big discussion in the team what to do. And so after some weeks, then you had more room for discussion, because you could discuss how the markets will change and how long will it take and blah, blah, blah, but the immediate things were pretty much clear. It's like if you're whatever in a firefighting Brigade, you don't think too much if you have an alarm call, you do what you're trained.
And for those who are listening who aren't too familiar with your portfolio, tell us a little bit about what you focus on and what you look for in your portfolio for anyone who is looking for investment, or would like to learn more about your portfolio?
Yes, absolutely. So, basically, as you said in your introduction, we are one of the first multi LP financial VCs in Europe, just focusing on Prop tech and construction tech. And so we really take a look at the full value chain. So it doesn't really matter if it's planning, building financing, renting, asset management, IoT whatsoever. So across the value chain, we'll be interested to support great founding teams. And we are also pre stage agnostic. So we invested between like 200k Euros and 3 million Euros in the first check. And we're a little bit strange stage agnostic, still of course the European markets are a little bit less mature maybe than the United States. So the majority of the investment universe I would still consider to be seed stage and the early stage, right. So this is of course, where we need to focus on because the market is not more mature currently, but it's getting more mature as we speak.
And so, we are always trying to avoid let's say hypes because a hype means that valuations are very high. So we've tried to be a disciplined investor. And we always also try to match if we think something is very interesting talk to some experts, or to some customers, if they're if they're really solving a problem. If we have if we make our decision that this is a great case, this is a great team, it makes sense, we also really are willing to take the risk so we can be the lead investor, we can invest before the large A round a B round and support the team in setting up the large A round/B round. So I think this is what we need to be able to do if we consider ourselves to be an expert in that segment. And of course, we can also be let's say, a scout, a shopper for other investors. So we would like to build syndicates where maybe mainstream VCs or family offices or even real estate companies can join a syndicate, so we can support the start-ups with larger techs that go beyond our fund size. So these are things that we're doing.
And you have to have in mind of course, that let's say Europe is compared to the United States let's say five years behind, speaking of venture capital, private equity, market development, but if you assume that we have a similar development over the next couple of years and all signs there, hopefully now we can also develop ourselves from a pretty much German speaking player right now to a European player that's also on the agenda. So and this is also reflected in the portfolio. So you will find companies that are as I mentioned before, in that boring back office IT space where we see tremendous room for efficiency increase, companies like I could trade for example, Architrave which is the market leader in German speaking markets for document management systems for large asset managers. For example, Archilyse a Swiss startup that's doing very clever AI, very high-tech platform to work with the data you generate from for example, floor plans and also the 3-D information you have from city models. So, you can easily feed the engine, your floor plan and it will say okay, if you have like window number five, you will have sun eight hours of the day and so the cooling must be like that, and stuff like that. So things that an engine can calculate so that usually is today calculated at an architect or some kind Engineering Company. So, these things of course can be automised. So, a company that has developed the most capable middleware for large IoT deployments in commercial buildings, so they for example, that this virus guard package that I mentioned before we have invested in several reconstruction tech companies that try to industrialize for example energy efficiency renovation, a large topic of course, so generally speaking we are very bullish on green technology because we believe that's the super major trend in a way for the next 10/20 years. So that's what we do.
Okay, so that's what you’ve been involved in in your business, now Nikolas outside of investment in PropTech, what do you like doing and what are your hobbies? Anything weird you've taken up over lockdown? Like I've started meditating, it’s not that weird actually it’s probably quite good for my mental sanity. Tell us something which we don't know about you outside of PropTech.
Okay, so I used to do a lot of music back in the school days. So I was an avid keyboard player and guitarist and stuff like that. And we did a lockdown band, so we used an online platform to connect our home studios together so that we can play as a band while being quarantined in five different living rooms. So that was fun, so starting my music career.
Well looking forward seeing you on the big stage! Who knows will Glastonbury be on next year? But I hope to see you on mainstage. So is there any other industry or career that you would like to pursue other than obviously being a famous musician?
Of course, I think a topic that most of us can relate to is digitalization, let's say of the education industry if you want to say so. So I have two small kids and so of course for them, it is hard not to go to school or not to go to kindergarten. And the situation and in Europe is still very analogue, right? So you can really optimize that, it's still tough to get a school onto an online platform, to get even email addresses for all teachers is already a problem. So simple stuff there, so let's say besides my business life, I think I will devote some time and money as a non-profit part to support the digitization of education.
Yes, we'd love to hear a little bit more about that. Unfortunately, this is coming to the end of the show, but before we go, we'd love to hear about how can we find the white paper on the Effect of Corona on PropTech, how can our listeners connect with you and PropTech ventures, we'll be sharing this all in the small print. But for those listening, if they share that information with us.
Absolutely. So you can just go to the website, which is www.proptech1.ventures and you can download all the white papers we did for free. So that's easy. Also, if you want to contact us regarding co-investment opportunities as an investor, or if you're a start-up looking for funding, or maybe you're from the real estate industry and want to learn how maybe it's possible, to collaborate with as a fund, feel free to contact me, you will find our contact data on the website. I'm also on Twitter, LinkedIn, wherever so if you just Google me, you will find me.
Awesome. Well, look Nikolas it's been an absolute pleasure having you on the podcast and looking forward to hearing hopefully, maybe your next single coming out but thank you so much, and hopefully we'll catch up soon.
Excellent. So I will let when that happens! Bye.
Thank you for joining us this week on the Propcast and a big thanks to our special guests. Make sure you visit our website www.lmre.co.uk where you can subscribe to our show, or you'll find us on iTunes and Spotify where all good content is found. While you're at it, if you found value in the show, we'd appreciate people rate and review us on iTunes. Or if you simply spread the word. Be sure to tune in next Tuesday, and I'll catch you later.