Financial Report: The Rise of Real-Estate Technology in the European Venture Capital Ecosystem

Written by Tarun Anbarasu

Overview

The European venture capital (VC) scene has been growing steadily in recent years, and it is now one of the most vibrant VC markets in the world. In 2022, European startups raised a record €111.5 billion in VC funding, up from €84.9 billion in 2021. This growth has been driven by a number of factors, including the increasing availability of capital, the growing number of experienced VC investors, and the emergence of new technologies with the potential to disrupt existing industries.

The COVID-19 pandemic and the war in Ukraine have had a significant impact on the global economy, and the European VC market has been no exception. In the early stages of the pandemic, VC investment activity declined sharply as investors became more risk-averse. However, investment activity rebounded strongly in 2021 and 2022, as investors became more confident about the long-term prospects of the European economy.

Figure 1: Quarterly Investment Trends in Deal Quantities over the Past 6 Quarters

The data reflects the rising confidence that Europe has gained in the years since, in addition to the robustness of the entrepreneurial sphere against the Russian Invasion of Ukraine in February of 2022. The impact of the pandemic and the war has been uneven across Europe. Countries with strong social safety nets and flexible labor markets have been more resilient to the shocks. However, countries with weaker economies and more rigid labor markets have been hit harder.

The European Central Bank (ECB) has responded to the pandemic and the war by cutting interest rates and implementing large-scale asset purchase programs. These measures have helped to support economic activity and financial markets. However, the ECB is now facing a difficult balancing act as it tries to keep inflation under control without causing a recession. The next graph demonstrates the capital breakdown of the various sub sectors of the FinTech vertical in the European Venture Capital markets (PE/VC backed, private debt financed, accelerator/incubator/angel backed).

Figure 2: Capital Breakdown of European FinTech Sub-Sectors in Venture Capital Markets

It is evident that Cryptocurrency, the Blockchain algorithms that back it, SaaS, AI/ML, and Big Data have long dominated the FinTech vertical. With the comeback of entrepreneurial activity on the continent, it is obvious that future growth will ensue if the other more inactive sub-sectors were to pick up and gain traction to the extent of the leading 3 subsectors. Real Estate Technology (RET), one such subsector, is an industry that is rapidly evolving and transforming the way that people buy, sell, and manage real estate. RET encompasses a wide range of technologies, including online marketplaces, mobile apps, property management software, and artificial intelligence.

RET is being employed to address a number of challenges in the real estate industry, including:

1. Lack of transparency: RET is making it easier for people to access information about properties, such as sales history, tax records, and neighborhood demographics. This information can help people make more informed decisions about buying or selling a property.
2. Inefficiency: RET is automating many of the tasks involved in the real estate process, such as scheduling showings, generating contracts, and processing payments. This can help to save time and money for both buyers and sellers.
3. Accessibility: RET is making it easier for people to find and rent properties, especially those who live in rural or underserved areas. This can help to increase access to affordable housing.

RET, although an incredibly new field, has its own set of emerging subsectors, each of which was created in response to its own unique set of demands from the overall Real Estate market.

Figure 3: Relative Deal Sizes in Various FinTech Sub-Sectors

As shown in the capital breakdown graph above, the Application Software vertical is one of the larger sub-industries of RET, with approximately 12 deals containing a total of $13.6 million dollars worth of capital in the past 500 days (June 2022 — present).

The next graph shows the median post-valuation quantity vs. the median deal size. Since RET is an extremely new industry, data only goes back as far as Q3 in 2022. Regardless, the graph shows the heavy upward trend in RET over the past few quarters.

Figure 4: Median Post-IPO Company Valuation vs. Median Deal Size

In terms of the actual sizes of the deals, there is a clear upward shift in the median from 2023 Q2 to Q3, with data for Q4 still yet to be published. The regression shows the forecasted median deal size for Q4, which itself is based on the overall sentiment of the market, and the fact that despite a Venture Capital slowdown in America, the European VC scene will continue to develop due to a constant cycle of innovation and overall robust economic infrastructure. If the volume of deals were to increase, invested capital would increase, as both have continually demonstrated a direct correlation, especially in the borderline bubble-like “blind investing” many VCs began to partake at the beginning of the AI market craze.

Company Spotlight: Evorest

Evorest is a private VC-backed Swiss company that offers a digital rental deposit solution. It provides tenants and landlords with an alternative to the traditional rental deposit process. With Evorest, tenants can create a digital rental deposit in minutes, without having to transfer any money to the landlord. The deposit is held in a secure Swiss bank account and is protected by deposit protection of up to 100'000 CHF (Swiss Francs). Landlords can use Evorest to streamline the rental deposit process and reduce their risk. They can easily access the deposit in case of damage or unpaid rent, but the deposit is always under the tenant’s control. Evorest also offers tenants the option to invest their rental deposit in a low-risk portfolio. This allows tenants to earn a return on their investment while their deposit is being held. Overall, Evorest offers a convenient and secure way for tenants and landlords to manage rental deposits.

Here are some of the benefits of using Evorest:

1. Convenience: Evorest offers a digital rental deposit solution that can be created in minutes.
2. Security: The deposit is held in a secure Swiss bank account and is protected by deposit protection of up to 100'000 CHF.
3. Transparency: Tenants and landlords can always see the status of the deposit and any deductions that have been made.
4. Flexibility: Tenants can invest their rental deposit in a low-risk portfolio if they wish.

Founders Giancula Cottiati, Felix Graule, and Marc Schuster are all formal BCG consultants who have grown Evorest from the ground up. When reaching out to Co-Founder Marc Schuster, he had the following to say about the mission of Evorest and what their ultimate aim is:

“The mission we are following is ‘Evorest aims to revive locked-up capital’, which we believe is especially true for rental deposits but also for other escrow accounts. Those are locked up for an average of 5 years. In Switzerland, the average share of tenants amounts to c. 60% and therefore the perfect region to start our business. Our vision is to revive all locked-up capital and give tenants the opportunity to grow with the market instead of earning minimal interest in the escrow accounts as is the case today.”

Their innovative idea attacks the problem of dormant capital, while their overarching vision extends beyond mere financial liberation; they aim to empower tenants to actively participate in the market’s growth, in stark contrast to the current scenario where escrow accounts yield minimal interest.

Revenue model

Evorest offers 4 different levels of investment for customers willing to use their services for their rental deposits, each of which collects:

1. Conventional Account: regular savings account without investing / 20 franc opening fee / no annual fee
2. 25% Account: allocate 25% of the rental deposit into an Evorest ETF / 20 fran opening fee / 0.4% annual fee
3. 50% Account: allocate 50% of the rental deposit into an Evorest ETF / 20 fran opening fee / 0.5% annual fee
4. 75% Account: allocate 75% of the rental deposit into an Evorest ETF / 20 fran opening fee / 0.6% annual fee

Evorest makes its profit out of a percentage of the wealth generated from the returns on the ETFs (exchange-traded funds) that the rental deposit is invested into.

After choosing an account type, the consumer can choose what ETF “focus” they would like to invest in, each of which contains equities in various categories:

1. Sustainability Focus: contains companies on the innovative edge of the “Green Tech” space
2. World Focus: contains companies in Europe, the US, and emerging markets in other parts of the world
3. Switzerland Focus: allocates deposits into an ETF of multiple local Swiss firms of various sizes

Summary

Evorest presents a compelling investment opportunity with significant upside potential in the burgeoning European venture capital landscape. As an innovative player in the Real Estate Technology sector, the company offers a groundbreaking digital rental deposit solution that addresses the challenge of dormant capital. Evorest’s mission to “revive locked-up capital” is not only relevant to rental deposits but also extends to other escrow accounts, resonating with a broader market. This forward-looking vision aligns with the growing trend in the European startup ecosystem, where previously dormant verticals like Real Estate Technology are gaining traction, balancing out drier periods in more established sectors like FinTech and Software Services.

The successful seed funding round, secured from undisclosed investors, signifies confidence in Evorest’s potential. The pre-investment valuation of increased heavily post-funding, highlighting the attractiveness of the company’s value proposition. With an authorized share structure, low par value, and a strategic approach to pricing, Evorest demonstrates financial flexibility and room for growth.

With its innovative revenue model, Evorest not only provides a convenient and secure solution for tenants and landlords but also generates revenue through a percentage of wealth derived from ETF returns. This unique approach sets the company apart, offering a dynamic investment opportunity for those seeking to participate in both the Real Estate Technology sector and the financial market’s growth.

Evorest’s innovative approach to unlocking capital and empowering tenants to invest in low-risk portfolios positions the company as an exciting prospect in the evolving European venture capital landscape. Its vision and performance reflect the growing diversity and potential in the startup ecosystem, making it a notable contender for investment consideration.

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