Introducing Fifth Wall Ventures
Last year, we set out to build something completely new: a venture capital fund to act as the connective tissue between the world’s largest owners and operators of physical space and the entrepreneurs redefining how the world interacts with their environments. Today we’re thrilled to announce Fifth Wall Ventures has raised its first fund: $212 million to invest in transformative technologies for the Built World, the largest ever fund dedicated to real estate technology.
We’re in the early innings of one of the single biggest shifts in the history of the U.S. economy. The Built World is rapidly colliding with technology, transforming the way we interact with our physical environment and influencing the way we live, work, sleep, consume, move, create, connect and play. The “Built World” encompasses much more than buildings: it represents an entire ecosystem of the companies who own and operate physical space, and the innovative start-ups developing technologies that will transform, optimize and democratize access to these spaces. This ecosystem hasn’t yet fully been realized.
Fifth Wall’s Limited Partners are the largest and most influential owners and operators of real estate in the world, representing more than $640 billion of real estate and over 7 billion square feet across every major sector of the industry including:
- CBRE - largest brokerage and real estate services company in the world
- Equity Residential - largest owner of apartments in the U.S.
- Hines - largest developer of office buildings in the U.S.
- Host Hotels & Resorts - largest hospitality REIT in the U.S.
- Lennar - second largest homebuilder in the U.S.
- Macerich - third largest mall owner in the U.S.
- Prologis - the global leader in logistics real estate across the Americas, Europe and Asia
Other LPs include Lowe’s Home Improvement and Rudin Management Company. These industry-leading companies are the largest buyers, partners and consumers of technology solutions for the Built World. When they adopt a given technology solution, it often becomes the industry standard.
Fifth Wall LPs are similar in their commitment to innovation and in their deep understanding of the opportunities and challenges that technology presents for the future of their businesses. Our shared vision has taken shape faster than we could have imagined, with already $60 million of successful investments in some of the most transformational companies in this space: b8ta, ClassPass, Clutter, Notarize, Opendoor, States Title and VTS.
We envision a future where technology is seamlessly integrated into the physical spaces around us, creating a shared environment that is more accessible, efficient and delightful than ever before. Alongside $28M in SPVs, Fifth Wall today has $240 million assets under management to begin fulfilling our mission: to accelerate innovation in the Built World.
A Transformation on the Cusp
Continuous innovation has transformed our digital lives. An endless array of software and apps occupy our time – it’s estimated the average American spends more than one-third of their day in front of a screen. The torrid pace of transformation and disruption in the digital world has fundamentally changed our society. But what about the physical world around us, where we in fact spend 100% of the time? The physical spaces in which we live our lives have a far more profound influence on our lives, our families, our well-being and the economy at large. Yet, somehow these physical environments remain largely untouched by the same levels of technological progress.
The device or computer you’re reading this sentence on likely has more technology than the entire building you’re in at this moment. There’s more software involved in purchasing your bedroom mattress, or repaying your friend for lunch, than financing the largest purchase of your life: the home you sleep in every night. The average multi-tenant office building likely uses the same manual ledger sign-in process for visitors that existed 15 years ago.
At 14% of GDP, real estate is the largest industry in the US by a wide margin. Real estate is also the largest asset class, capital market, lending category and store of consumer wealth. But the industry itself has historically been slow to adopt new technologies. The average U.S. industry spends about 3.5% of industry revenue on IT. The real estate industry? About half a percent.
In 2016, we first identified this unique whitespace in the venture capital ecosystem. We were fortunate to have had professional experience in traditional real estate (at Blackstone, Goldman Sachs, Tishman Speyer and Starwood Capital) and then as successful start-up founders (Identified, acquired by Workday, Cabify and Invitation Homes). That hybrid experience offered a rare perspective on how the largest industry on earth was on the cusp of a profound technology transformation.
We noticed something quite surprising. Despite real estate’s slow pace of technology adoption, venture capital investments in real estate and hospitality technology have already produced more multi-billion dollar companies than any other industry, apart from healthcare and life sciences. Less than 40 real estate and hospitality companies represent more than $250 billion of value, led by two of the three largest “unicorns” today: WeWork and Airbnb. Marc Andreessen once said that “Software is eating the world.” As so it is. But as software eats the physical world, the scale of the opportunity was proving to be staggeringly vast and the impact on our lives profound.
So why were there no significant real estate focused venture funds? Very few venture capitalists have any real estate industry experience, and couldn’t speak to the challenges that entrepreneurs were facing in scaling their products to this enormous, but idiosyncratic, industry. Additionally, real estate tech is a hard space to invest in. Why? Because success or failure for early-stage companies often hinges on the adoption decisions of a handful of industry incumbents. Entrepreneurs needed institutional validation for their transformational ideas.
We decided to try a bold approach to solving this problem: what if the biggest customers for Built World technology could invest in and leverage their domain expertise to help the very entrepreneurs whose growth they were accelerating? These corporates wanted to help entrepreneurs, but a platform to do so hadn’t emerged. And in a world filled with often undifferentiated venture capital investors, Built World entrepreneurs increasingly seek value-added investors with a unique ability to understand and support their company’s growth.
A Symbiotic Relationship
Many of Fifth Wall’s LP/portfolio company partnerships have already produced dramatic results: Portfolio company b8ta is a software-powered retailer designed to make physical retail accessible for makers and customers. b8ta is designed to help people discover, try and learn about new tech products in real life while empowering makers with a simple retail-as-a-service model that puts them in control of pricing, marketing and product training.
Fifth Wall Anchor LP Macerich, one of the nation’s leading owners, operators and developers of one-of-a-kind retail properties in top U.S. markets, has co-invested alongside Fifth Wall to form an game-changing partnership with b8ta. With a high-profile destination store already open at Macerich’s Santa Monica Place, b8ta and Macerich will quickly roll out the concept to five additional top-performing malls. b8ta adds strong foot traffic from tech-savvy, experience-oriented shoppers, who also are top targets for a wide range of other mall retailers. Additionally, Lowe’s and b8ta customers in select markets can now shop a “SmartSpot powered by b8ta” pop-up retail experience to demystify the home tech purchasing process for customers.
Similarly, VTS, a cloud-based leasing and portfolio management software company, has already been deployed at both Hines and CBRE, and is positioned to offer nearly all Fifth Wall LPs immediate advantages for managing their CRE deal workflow, engaging with brokers and increasing lease conversion. In fact, for all of Fifth Wall’s portfolio companies, we have structured similar partnerships and commercial agreements that dramatically accelerate the growth and industry adoption of their products.
Fifth Wall believes the most profound change can derive not only from a reimagination of our digital lives, but also from our physical world. We’re excited about the road ahead because the traditional way we interact with space has always been limited by the technology that we can apply to it. Imagine what we can do when technology’s impact is truly unlimited to reimagine not only our digital lives but the physical spaces where we live our lives.
Brendan Wallace & Brad Greiwe
Co-Founders - Fifth Wall Ventures
Fifth Wall INSIGHTS will be a destination for just that: insights into the Built World’s biggest ideas, emerging trends and the most audacious concepts. We’ll be posting regular pieces from not only our Fifth Wall team, but also from our LPs and portfolio companies. You can sign up for our Newsletter here and reach us at email@example.com. We look forward to hearing what you think.