As Apple and Google enact privacy changes, businesses are grappling with the fallout, Madison Avenue is fighting back and Facebook has cried foul.
Both as a term and as a financial product, “buy now, pay later” has become mainstream in the past few years. BNPL has evolved to assume various forms today, from small-ticket offerings by fintechs on consumer checkout platforms and marketplaces, to closed-loop products offered on marketplaces such as Amazon Pay Later (which they are now extending for outside use as well). You can also see some variants offered by companies that want to expand the scope of consumption and consumer credit.
Globally, BNPL has seen the most growth in the consumer segment and has driven retail consumption and lending over the past few years. Consumer BNPL offerings are a good alternative to credit cards, especially for people who do not have a credit history and can’t get credit from banks. That said, a specific vertical of BNPL products is gaining traction — one targeted toward small and medium enterprises (SMEs). This new vertical is known as “SME BNPL.”
BNPL can be particularly useful when flow-based underwriting or transaction-based underwriting is used to offer credit to small businesses.
B2B commerce in India is moving online
E-commerce has seen tremendous growth in India over the past decade. Skyrocketing smartphone and internet penetration led to rapid growth in e-commerce across large cities and smaller towns alike. Consumer credit has also taken off in parallel as credit cards and digital lending spurred credit-based consumption across offline and online stores.
However, the large B2B supply chain enabling the burgeoning retail market was plagued by bottlenecks and inefficiencies because it involved a plethora of intermediaries and streamlining became a big problem. A number of tech players responded by organizing the previously disorganized B2B commerce market at various touch points, inserting convenience, pricing and easier product access through tech-enabled logistics and a modern supply chain.
India’s B2B e-commerce space has developed rapidly since 2020. Small businesses have moved from using paper to smartphone apps for running a significant part of their day-to-day business, leading to widespread disruption in how businesses transact today. The COVID-19 pandemic also forced small businesses, which were earlier using physical means to procure goods and services, to try new and online models to conduct their affairs.
Moreover, the Indian government’s widespread promotion of an instant payments system in the form of the Unified Payments Interface (UPI) has changed how people send money to each other or pay merchants for their goods and services. The next step for solving the digital B2B puzzle is to embed credit inside every transaction and invoice.
If we compare online B2B transactions to the offline world, there is only one missing link: The terms offered to small businesses by their supplier/distributor or vendor. Businesses, unlike consumers, must buy goods and services to eventually trade them, or add value and sell to consumers or others down the value chain. This process is not immediate and has a certain time cycle attached.
The longer sales cycle means many small businesses require credit payment terms when buying inventory. As B2B commerce scales and grows through digital means, a BNPL product that caters to the needs of SMEs can support their growth and alleviate the burden on their cash flows.
How does consumer BNPL differ from SME BNPL?
An SME BNPL product is a purchase financing product for small businesses transacting with suppliers, distributors, aggregator platforms or B2B marketplaces.
The uproar that arose after Dolly Parton rewrote the lyrics to “9 to 5” for a Squarespace Super Bowl commercial revealed a problem with the English language: A worker is no longer a worker.
As she sang in celebration of entrepreneurs:
“Working 5 to 9
you’ve got passion and a vision
‘Cause it’s hustlin’ time
a whole new way to makе a livin’
Gonna change your life
do something that givеs it meaning…”
Some criticized it, saying it celebrated an “empty promise” of capitalism, as if people aiming to establish their own businesses were “workers” who needed to be protected from powerful corporations. Others grasped that there is more nuance in our economy than ever before and that, perhaps, Parton was on to something.
In fact, her updated lyrics represent a shift in the primacy between capital and labor in the 40 years since she penned the original. Gone is the idea that getting ahead is only a “rich man’s game… puttin’ money in his wallet.” Workers today have a different potential than they did in 1980 when she first sang:
“There’s a better life
And you think about it, don’t you?
It’s a rich man’s game
No matter what they call it,
And you spend your life
Puttin’ money in his wallet.”
There are abusive corporations, and we do need a better social safety net so that people aren’t at the mercy of the doctrine of shareholder primacy, but that truth disguises a more complicated reality. The divide between capital and labor increasingly looks like an anachronism, a throwback to the language and illusory simplicity of another time. Yet still, the media persists in pushing this false dichotomy; this mistaken idea that labor and capital are two separate and oppositional forces in our economy. Perhaps doing so is human nature.
Or perhaps it simply sells more newspapers or generates more clicks. The media certainly thrives on conflict (real or imaginary) and, along with human nature to try to group things into black and white, the continued framing of our economy as somehow consisting of individual actors who exist solely on one side of the capital/labor line makes for easier narratives.
The truth of this aspect of our economy, as with most things, exists in the gray areas. In the nuance and the movement between groups. The U.S. economy has always been uniquely entrepreneurial, from the discovery of the “new land” to the formation of our government to the expansion of our country and eventually its industrialization. Entrepreneurs have long led the way. Today, nearly 60 million people are entrepreneurial in some way.
The vast majority inhabit the frontlines of the economy. They are freelancers or the late-night business starters that Parton sang about. They are freelancing on the side to earn money to support some other dream, or are stitching together lives for themselves by being their own boss. They’re driving Ubers, delivering meals for GrubHub and selling their crafts on Etsy. Never have more people had more access to expand their horizons through pursuing their entrepreneurial dreams than right now. And they exist in the world of technology, where a single person at a kitchen table has the same power to bring an innovation to market as giant corporations did four decades ago.
Victor Hwang, CEO of Right to Start and a former vice president of entrepreneurship for the Kauffman Foundation, described the capital-versus-labor debate as “the biggest false narrative out there. It’s an artificial narrative that we’ve created: employer versus employee; big versus small; corporation versus worker. All are false narratives and contribute to the incorrect notion that the most important fight in our economy exists between these supposedly oppositional forces.”
But our economic and government funding debates are framed, often by the media, around the idea of capitalism versus socialism, corporations versus workers. That increasingly divisive conversation has some of the hallmarks of a deliberately engineered division, like the ones over climate change or gun rights. Right-wing groups with an interest in freezing the government into inaction figured out how to divide the country into two groups and get them fighting.
Why don’t we have universal health care, parental leave, working infrastructure — all things that would, not incidentally, boost entrepreneurship and small business? We’ve been too busy fighting about a socialist takeover and the evils of capitalism.
The conflict thrives in part because we don’t have the right language to describe what’s happening now: “These debates should be viewed as part of a larger discussion,” Hwang said. “We should be striving to encourage highly innovative people and companies. What are the categories we need to develop? How do you classify someone’s role in the economy?”
What we need as an economy is a system that empowers more people to be producers and entrepreneurs. To solve problems and look for opportunities to create change in their communities. Instead, we’ve built a system that supports incumbents; that thrives on the status quo; that stifles innovation and uses the tactics of division to do so. It’s a tension that stems from our neoliberal worldview that achieved an almost consensus in the late 20th and early 21st centuries.
Beyond just arguing that free markets and open trade make it easier and better to do business (which we generally agree with), it also implied that the only thing that mattered in our economy was making big companies bigger (while, perhaps, allowing for the occasional upstart — but only those that had the potential to grow quickly and become big companies themselves). Lost was the value of smaller businesses, operating in the in-between spaces in our economy. We don’t even effectively measure their impact.
Wanting to know how the “economy” is doing, we look no further than the fate of the 500 largest publicly traded companies (the S&P 500) or the 30 massive businesses that comprise the Dow Jones Industrial Average. No wonder people across Main Streets are scratching their heads as pundits describe the economy as thriving by citing the continued rise of the Dow when they can see the millions of small businesses closing all around them.
In our book, “The New Builders“, we describe entrepreneurs as “builders.” Builder is a word with Old English roots in the ideas “to be, exist, grow,” according to the Online Dictionary of Etymology. In a century where change is the lingua franca, builders own the value of their own labor as a mechanism to build independence and, eventually, capital.
We often forget that the majority of these builders — the small business owners of America — create opportunities with the most limited resources. According to the Kauffman Foundation, 83% of businesses are formed without the help of either bank financing or venture capital. Yet small businesses are responsible for nearly 40% of U.S. GDP and nearly half of employment. Perhaps that’s why International Economy publisher David Smick termed them “the great equalizer” in his book of the same name.
Technology has fundamentally changed the landscape for businesses of all sizes and has the potential to enable a resurgence of our small business economy. Rather than pushing a false narrative that individuals need to choose between being a part of the labor or capital economies, we should be encouraging fluidity between the two. The more capital ownership we encourage — through savings, investment in their own businesses, and by allowing more and more people to become investors of all kinds — the more we drive wealth creation and open economic activity for generations to come.
A version of this article originally appeared in the Summer 2021 edition of The International Economy Magazine.
Gilbert N. Michaels, of West Los Angeles, Calif., preyed on tens of thousands of small businesses and charities by overcharging them for toner they didn’t need, federal prosecutors said.
Repeated shocks from hurricanes, fires and floods are pushing some rural communities, already struggling economically, to the brink of financial collapse.
The emptying of Manhattan’s office districts has benefited Brooklyn neighborhoods where residents worked from home, testing the balance of power between the city’s boroughs.
The lack of tourists during the pandemic may have made the city more livable, but empty streets don’t buy jewelry.
Flexible Fridays, employee empowerment and creative problem-solving all helped these companies bring on new workers during the pandemic.
The Delta variant has upended events, office reopenings and travel, raising new challenges for service businesses and their workers.
After waning for decades, applications to start businesses surged last year. If the rebound proves durable, it could provide a more resilient economy.
Some $76 billion of the program’s $800 billion in loans may have been taken improperly, a new paper concludes.
Trust wants to give smaller businesses the same advantages that large enterprises have when marketing on digital and social media platforms. It came out of beta with $9 million in seed funding from Lerer Hippeau, Lightspeed Venture Partners, Upfront Ventures and Upper90.
The Los Angeles-based company was started in 2019 by a group of five Snap alums working in various roles within Snap’s revenue product strategy business. They were building tools for businesses to fund success with digital marketing, but kept hearing from customers about the advantage big advertisers had over smaller ones — the ability to receive good payment terms, credit lines, as well as data and advice.
Aiming to flip the script on that, the group created Trust, which is a card and business community to help digital businesses navigate the ever-changing pricing models to market online, receive the same incentives larger advertisers get and make the best decision of where their marketing dollars will reach the furthest.
Trust does this in a few ways: Its card, built in partnership with Stripe, enables businesses to increase their buying power by up to 20 times and have 45 days to make payments on their marketing investments, CEO James Borow told TechCrunch. Then as part of its community, companies share knowledge of marketing buys and data insights typically reserved for larger advertisers. Users even receive news via their dashboard around their specific marketing strategy, he added.
“The ad platforms are a wall of gardens, and most people don’t know what is going on inside, so our customers work together to see what is going on,” Borow said.
The growth of e-commerce is pushing more digital marketing investments, providing opportunity for Trust to be a huge business, Borow said. E-commerce sales in the U.S. grew by 39% in the first quarter, while digital advertising spend is forecasted to increase 25% this year to $191 billion. Meanwhile, Google, Facebook, Snapchat and Twitter all recently reported rapid growth in their year-over-year advertising revenues, Borow said.
The new funding will go toward increasing the company’s headcount.
“We have active customers on the platform, so we wanted to ramp up hiring as soon as we went into general release,” he added. “We are leaving beta with 25 businesses and a few hundred on our waitlist.”
That list will soon grow. In addition to the funding round, Trust announced a strategic partnership with social shopping e-commerce platform Verishop. The company’s 3,500 merchants will receive priority access to the Trust card and community, Borow said.
Andrea Hippeau, partner at Lerer Hippeau, said she knew Borow from being an investor in his previous advertising company Shift, which was acquired by Brand Networks in 2015.
When Borow contacted Lerer about Trust, Hippeau said this was the kind of offering that would be applicable to the firm’s portfolio, which has many direct-to-consumer brands, and knew marketing was a huge pain point for them.
“Digital marketing is important to all brands, but it is also a black box that you put marketing dollars into, but don’t know what you get,” she said. “We hear this across our portfolio — they spend a lot of money on ad platforms, yet are treated like mom-and-pop companies in terms of credit. When in reality Casper is outspending other companies by five times. Trust understands how important marketing dollars are and gives them terms that are financially better.”
FreshBooks, a Toronto-based cloud accounting software company focused on SMBs, announced today it has secured $80.75 million in a Series E round of funding, as well as $50 million in debt financing.
Existing backer Accomplice led the equity financing, which the company described as “an inside round” that propelled FreshBooks to unicorn status with a valuation of “over $1 billion.”
J.P. Morgan, Gaingels, BMO Technology & Innovation Banking Group and Manulife also participated in the equity investment, along with platform partner and new backer Barclays. With the new capital injection, FreshBooks has now raised a total of more than $200 million in funding over its lifetime.
FreshBooks has built a cloud-based accounting software platform designed to make things like invoicing, expenses, payments, payroll and financial reporting easier for small business owners and self-employed people (and their clients). The company, which says it has served more than 30 million people in over 160 countries, was bootstrapped for the first decade of its life.
As in the case of many startups, FreshBooks was started to solve a pain point for one of its founders. In 2003, FreshBooks’ co-founder Mike McDerment was running a small design agency. When it came to billing clients, he found Word and Excel frustrating to use and felt like they weren’t built to create professional-looking invoices. So he coded his own solution that became the foundation of what is now FreshBooks. The company was self-funded until 2014, when McDerment decided to bring on outside investors and raised $30 million from Oak Investment Partners, Accomplice and Georgian Partners.
In 2019, Don Epperson joined FreshBooks as executive director before transitioning to the role of CEO this year. McDerment, who previously held the position, remains as executive chair of the company.
FreshBooks has 500 employees in Canada, Croatia, Mexico, the Netherlands and the United States — hiring over 100 people in the past year. Also in the last year, the company entered the LatAm market after acquiring Mexico-based e-invoicing company Facturama in September 2020 in an effort to expand its audience in Spanish-speaking markets.
FreshBooks plans to use its new capital toward sales and marketing, research and development and additional strategic acquisitions.
The company will also use its new funding toward investing in markets that are becoming more regulated and helping owners manage their finances through “simplistic workflows,” according to Epperson.
For example, he said, more business owners are working to become digitally enabled to meet local tax and invoice compliance systems.
“The need for owners to manage their business digitally has accelerated, and this has changed how small business owners work with bookkeepers and accountants,” Epperson told TechCrunch. “The funding comes as an injection of confidence in our mission to digitally enable small businesses.”
When it comes to growth metrics like year-over-year revenue percentage growth, the exec was tight-lipped, saying only that FreshBooks has “seen significant growth” in the number of new customers since last year, in part fueled by a pandemic-driven increase in new small businesses.
The pandemic also uncovered the need for us to understand how seismic events affect our customers, Epperson said.
“After analyzing FreshBooks’ own proprietary data, we learned that businesses owned by women were taking three times longer to recover in the U.S. versus businesses owned by men,” Epperson said. “This stat laid the foundation for conducting more research into how the pandemic was affecting businesses across multiple industries and entering into data-sharing partnerships with local governments to help policymakers enact change in the support available to small business owners.”
Jeff Fagnan, founder and managing partner at Cambridge, Massachusetts-based Accomplice, is clearly bullish on FreshBooks’ potential, saying of his firm’s continued investments in the Canadian company over the past seven years: “With more people choosing self-employment, the FreshBooks team fundamentally believes in the growth of small businesses, and the importance of helping these businesses scale. As insiders, we have better context for how the company is scaling and how the market is growing, and this is why FreshBooks is our largest investment to date.”
FreshBooks is the latest in a growing number of Toronto-based unicorns. Late last month, 1Password raised $100 million in a Series B round of funding that doubled the company’s valuation to $2 billion. 1Password first became a unicorn in 2019.
A program being started in Atlanta helps midsize farmers buy their own land while providing much-needed fresh food to urban consumers.
At an optical business in New York City, it took months of coaxing, a cash bonus and a weekly testing mandate to persuade 90 percent of the staff to get a coronavirus vaccine.
Ask any employee and they’ll tell you one of their least favorite things to do is file expenses. And for companies, the process of managing corporate spend is one of their biggest challenges.
Corporate credit cards help ease that pain, so it’s no surprise that the competition between startups in the space is heating up by the day.
One of the fastest growing players in the space is Ramp, a fintech company that earlier this year secured a $150 million debt facility with Goldman Sachs after having raised a $30 million Series B in late December 2020.
Today, the New York-based company is announcing a new feature that it says will give its corporate customers greater control and flexibility over the way their cards are used. Specifically, Ramp said it now offers its customers the option to approve or block merchants on the cards they offer to their employees.
In an exclusive interview with TechCrunch, Ramp co-founder and CEO Eric Glyman said the move was in response to customer demand.
“This was one of our most requested features, especially from companies with over 100 employees,” he told TechCrunch. “They said, ‘I can block a spam call. It’s crazy I can’t do this with my credit card.’ ”
With the new feature, Ramp says companies “have complete control” over how their employees use their corporate cards, down to the vendor level. It allows companies to outline specifically who employees can spend with, which vendors can be charged on what card and how much they can charge.
So, why is this a big deal? Glyman said this means that merchant-specific cards greatly reduce the risk from stolen or compromised cards. It also helps keep employees from inflating expenses or filing false reimbursement claims.
“This gives security and control back to finance teams in a way that was never before possible,” he said.
It also helps companies in their quest to save money by using corporate credit cards in the first place, Glyman added.
“For example, they can restrict spending to businesses or companies that they have discounts or preferential pricing with,” he said. “It’s another layer of enforcement for finance teams.”
The process was not an easy one since understanding and clustering unique identifiers to be able to identify merchants was “technically complex,” according to Glyman.
For its part, Ramp counts “thousands” of businesses as customers, with well into the tens of thousands individuals using its cards.
“We’re powering into 9 figures monthly and over $1 billion in spend,” Glyman said.
The company must be doing something right.
Since raising the credit line earlier this year, Ramp has seen continued growth, more than doubling volume over the past three months.
While Glyman declined to reveal specific revenue figures, he said Ramp grew by over 6,000% in 2020, compared to the year prior and has grown over 1,000 over the past 12 months. Customers are typically fast-growing startups as well as small businesses. Some of its more well-known startup customers include Ro, Sleep Eight, ClickUp, Marqeta, Candid, Better, Truebill and Nuggs.
While Ramp makes money mostly by interchange fees, Glyman said the two-year-old startup thinks of itself as a SaaS operator.
“Our long-term strategy to develop great software,” he said.
More than 100,000 business owners got help from the relief effort, but 265,000 were turned away — some after awards were rescinded.
Blueacorn and Womply processed one-third of all Paycheck Protection Program loans this year, stepping in when big lenders wouldn’t.
Crème and Cocoa Creamery survived the pandemic. But like many small businesses in New York, its future is hardly secure.
A Pennsylvania man was facing bank fraud and money laundering charges over Paycheck Protection Program loan applications when he submitted another one, U.S. prosecutors said.
Labor and small business were once natural allies against big business. They should join forces again.
Business leaders warn the mayor that an influx of aid could be squandered on short-term programs that won’t help the unemployed.
Approvals for thousands of Restaurant Revitalization Fund applicants were rescinded after court orders struck down a policy that favored historically underserved groups.
As nuptials were canceled across the country, wedding planners have downscaled — and in some cases their new offerings will stick.
The pandemic has caused huge job losses among women. A program called Selfmade aims to help by teaching entrepreneurial skills.
Often ignored in conversation about the booming resale industry is a long history of clothing thrifted by necessity, because of racism.
From on-demand video libraries to rooftop classes, boutique workout spots broadened beyond their tight spaces.
For many Americans, having enough marijuana was as essential as stocking up on toilet paper. And suppliers found a way to get it to them.
Traditionally a federal backwater, the agency has stumbled while shepherding $1 trillion in emergency aid. Its leader vows “a more customer-first approach.”
Embracing technology, scaling down costs and general flexibility have helped them through a difficult time.
New research finds a big rise in new businesses despite the pandemic, particularly in predominantly Black neighborhoods.
Overwhelmed lenders and panicking borrowers are in a frenzy to grab the remaining money in the small business relief program.
A sprawling system meant to police trillions of dollars is showing signs of strain as watchdogs warn of waste, fraud and abuse.
HoneyBook, which has built out a client experience and financial management platform for service-based small businesses and freelancers, announced today that it has raised $155 million in a Series D round led by Durable Capital Partners LP.
Tiger Global Management, Battery Ventures, Zeev Ventures, 01 Advisors as well as existing backers Norwest Venture Partners and Citi Ventures also participated in the financing, which brings the New York-based company’s valuation to over $1 billion. With the latest round, HoneyBook has now raised $215 million since its 2013 inception. The Series D is a big jump from the $28 million that HoneyBook raised in March 2019.
When the COVID-19 pandemic hit last year, HoneyBook’s leadership team was concerned about the potential impact on their business and braced themselves for a drop in revenue.
Rather than lay off people, they instead asked everyone to take a pay cut, and that included the executive team, who cut theirs “by double” the rest of the staff.
“I remember it was terrifying. We knew that our customers’ businesses were going to be impacted dramatically, and would impact ours at the same time dramatically,” recalls CEO Oz Alon. “We had to make some hard decisions.”
But the resilience of HoneyBook’s customer base surprised even the company, who ended up reinstating those salaries just a few months later. And, as corporate layoffs driven by the COVID-19 pandemic led to more people deciding to start their own businesses, HoneyBook saw a big surge in demand.
“Our members who saw a hit in demand went out and found demand in another thing,” Oz said. As a result, HoneyBook ended up doubling its number of members on its SaaS platform and tripling its annual recurring revenue (ARR) over the past 12 months. Members booked more than $1 billion in business on the platform in the past nine months alone.
HoneyBook combines tools like billing, contracts, and client communication on its platform with the goal of helping business owners stay organized. Since its inception, service providers across the U.S. and Canada such as graphic designers, event planners, digital marketers and photographers have booked more than $3 billion in business on its platform. And as the pandemic had more people shift to doing more things online, HoneyBook prepared to help its members adapt by being armed with digital tools.
“Clients now expect streamlined communication, seamless payments, and the same level of exceptional service online, that they were used to receiving from business owners in person,” Alon said.
Oz and co-founder/wife, Naama, were both small business owners themselves at one time, so they had firsthand insight on the pain points of running a service-based business.
HoneyBook’s software not only helps SMBs do more business, but helps them “convert potentials to actual clients,” Oz said.
“We help them communicate with potential clients so they can win their business, and then help them manage the relationship so they can keep them,” Naama said.
The company plans to use its new capital toward continued product development and to “dramatically” boost its 103-person headcount across its New York and Tel Aviv offices.
“We’re seeing so much demand for additional services and products, so we definitely want to invest and create better ways for our members to present themselves online,” Alon told TechCrunch. “We’re also seeing demand for financial products and the ability to access capital faster. So that’s just a few of the things we plan to invest in.”
The company also wants to make its platform “more customizable” for different categories and verticals.
Chelsea Stoner, general partner at Battery Ventures, said her firm recognized that the expansive market of productivity tools to serve small businesses and entrepreneurs was “a market of discrete and separate productivity tools.”
HoneyBook, she said, is a true platform for SMBs, “providing a huge array of functionality in one cohesive UX.”
“It unites and connects every task for the solopreneurs, from creating and distributing marketing collateral, to organizing and executing proposals, to sending invoices and collecting payments,” Stoner said. “The company is constantly innovating and iterating in response to its members; we also see a lot of opportunity with payments going forward…And, due to Covid-19 and other factors, the company is sitting on pent-up demand that will accelerate growth even more.”
Landlords cut small retailers a break on rent during the pandemic, but stores are still struggling because too few office workers and tourists have returned.
A wealth of stores and studios in Connecticut and upstate New York offer lovely handmade wares that you’ll have forever.
The Small Business Administration’s earlier announcement that applications would open on Saturday was met with a deluge of criticism.
Being “online” in the pandemic, many chefs learned, meant much more than having an Instagram account.
New programs for restaurants and live-event businesses will soon start taking applications as the Paycheck Protection Program winds down.
The world’s traditional growth engine is expected to report a double digit first-quarter jump. But consumers and small business aren’t fully sharing in the spoils.
On the first day nightclubs, movie theaters and other arts organizations hurt by the pandemic could apply for $16 billion in federal aid, the system malfunctioned. No applications got through.
The small, family-run businesses hope a new government aid package will bring the relief that one in 2020 didn’t provide. They say their skills are at stake.
A year after the Paycheck Protection Program started, studies show how its design hurt Black- and other minority-owned businesses.
Child-care centers improvised during the pandemic, scrambling to stay open with razor-thin budgets and little government guidance. How long will the short-term solutions last?
The pandemic made remote work and on-demand delivery normal far faster than anyone expected. Today, as the world beings to emerge from the pandemic, location doesn’t matter like it did a year ago.
As shocking as it sounds, we could be entering a much better era for small, local businesses.
Modern society produced superstar cities filled with skyscraper office and residential buildings. Now, the populations that once thrived in these urban centers are deciding how to repurpose them for a post-pandemic world.
I caught up with ten top investors who focus on real estate property technology to get a sense of how they’re betting on the future.
They are optimistic overall, because the typically glacial real estate industry now sees proptech as essential to its future. However, they are the most unsure about the office sector, at least as we knew the concept before the pandemic.
They expect remote work to be part of the future in a significant way and foresee ongoing high housing demand in the suburbs and smaller cities. They are especially positive about fintech and SaaS products focused on areas like single-family home sales and rentals. Many are continuing to invest in big cities, but around alternative housing (co-living, accessory dwelling units) and climate-related concepts.
Most surprisingly, some investors are actually excited about physical retail. I examined the latest evidence and found myself agreeing. As shocking as it sounds, we could be entering a much better era for small, local businesses. Details farther down.
(And before we dig in below, please note that Extra Crunch subscribers can separately read the following people responding fully in their own words, with lots of great information I wasn’t able to explore below.)
When the office is more of a luxury
The pandemic combined with existing trends has made office renters “more akin to a consumer of a luxury product,” explains Clelia Warburg Peters, a venture partner at Bain Capital Ventures and long-time proptech investor and real estate operator.
Landlords who have “largely been in a position of power since the 1950s” now have to put the customer first, she says. The “best landlords will recognize that they are going to be under pressure to shift from simply providing a physical space, to helping provide tenants with a multichannel work experience.”
This includes tangible additional services like software and hardware for managing employees as they travel between various office locations. But the market today also dictates a new attitude. “These assets will need to be provided in the context of a much more human relationship, focusing on serving the needs of tenants,” she says. “As lease terms inevitably shorten, tenants will need to be courted and supported in a much more active way than they have been in the past.”
The changes in office space may be more favorable to the supply side in suburban areas.
“Companies are going to have to offer employees space in an urban headquarters,” Zach Aarons of Metaprop tells me. But many will also want to offer ”some sort of office alternative in the suburbs so the worker can leave home sometimes but not have to take a one-hour train ride to get to the office when needed.”
“If we were still purchasing hard real estate assets like many of us on the MetaProp team used to do in previous careers,” he added, “we would be looking aggressively to purchase suburban office inventory.”
Most people thought that remote work was here for good and would impact the nature of office space in the future.
Adam Demuyakor, co-founder and managing director of Wilshire Lane Partners, is generally bullish on big cities, but he notes that startups themselves are already untethering from specific places. This is a key leading indicator, in TechCrunch’s opinion.
“Something that has been interesting to watch over the past year is how startups themselves have begun to evolve due to newfound geographic flexibility from the pandemic,” he observes. “Previously, startups (especially real-estate-related startups) felt pressure to be ‘headquartered’ near where their customers, prospective capital sources and pools of talent were located. However, we’ve seen this change over the past few months.”
In fact, a recent report by my former colleague Kim-Mai Cutler, now a partner at Initialized Capital, highlights these trends in a regular survey of its portfolio companies. When the pandemic began, the Bay Area was still the number one place that founders said they’d start a company. Today, remote-first is in first place. Meanwhile, the portfolio companies are either going toward remote-first or a hub-and-spoke model of a smaller headquarters and more far-flung offices. Those who maintain some sort of office say they will require significantly less than five days a week. Nearly two-thirds of respondents said they would also not adjust salaries based on location!
That’s a small sample but as Demuyakor says, “Startups (a) are frequently the most adept at utilizing the types of technology necessary for effective remote work and (b) simultaneously have to compete ferociously for talent. As such, I think we may be able to infer what the ‘future of work’ may look like as we observe what startups choose to do as the pandemic passes.”
Some landlords (with big loans) and large cities (with big budgets) are making a push to repopulate their offices quickly, and some large companies are loading up on office space or reaffirming their commitments to current locations.
Maybe efforts like these, plus the natural desire to network live, will bring back the industry clusters and pull everyone back to the old geographies? Maybe something close to 100% of what we saw before? What does that look like?
In such a scenario, some pandemic-era changes will persist, says Christopher Yip, a partner and managing director at RET Ventures. “A populace that has become sensitized to public health considerations may well gravitate toward solo forms of transportation (cars and bicycles) instead of mass transit, and parking-related and bike-sharing tech tools may likely thrive. From a real estate management perspective, technology that makes high-density living more comfortable and healthier will also increase, as consumers will become increasingly attracted to touchless technology and tools that facilitate self-leasing.”
Here’s the other scenario that he lays out “if a large number of jobs remain fully remote.”
“In theory, retail and office properties could structurally continue to suffer, and there has been some talk from government officials in certain regions about converting office properties into affordable housing,” he details. “If market-rate vacancies in cities remain high, there will be increasing demand for short-term rental platforms like Airbnb and Kasa, which enable landlords to gain revenue from hotel-type stays even in a market where residential demand is not strong.”
Vik Chawla, a partner at Fifth Wall, sketches out a middle-of-the-road scenario. “We believe that major cities will continue to attract knowledge workers and top talent post-pandemic,” he says, “though we expect remote work to become an increasingly critical component to the work economy, meaning that there will be increased flexibility in terms of time spent in the office versus elsewhere.”
This would still mean some sort of long-term price decline. “At a city level, this means that rents should taper relative to pre-pandemic levels due to lesser demand,” he believes. “That said, the real estate ecosystems in cities that have experienced growth throughout the pandemic will enter a period of innovation, and with it, see an increase in housing density, ADUs and modular building techniques.”
Andrew Ackerman, managing director of UrbanTech for DreamIt Ventures, also sees a gentle deflation of commercial office prices over time, followed by some complex space-management questions.
“[T]he return to work will likely result in more flexible work arrangements rather than the demise of the office which, as leases renew over the next 5-10 years, will lead to a gradual meaningful-but-not-catastrophic reduction in the demand for office space. The question is, what then happens to the excess office space?”
“Office to residential conversion is tricky,” he elaborates. “Layout is a major constraint. Many modern offices have deep, windowless interior space that is hard to repurpose. But even with narrow layouts, the structural elements are often in the wrong place. Drilling thousands of holes in structural concrete so you can move plumbing and gas to the right places is a heavy lift.”
This might just lead to new types of still-valuable uses? “One of the areas that I’m still investigating is whether co-living or microunits might be a more attractive conversion option. Turning an office break room and interior bullpens into a shared kitchen, dining area, and recreation or work flexspace may be a better way to repurpose deep interior space without a very costly retrofit. And if you don’t have to reroute too much plumbing, it may even be possible to convert (and convert back!) individual floors as market demand for office and residential space fluctuates over time.”
All respondents saw proptech being a core part of the next era of big cities (of course), however bullish or bearish they may be about the office itself.
A new equilibrium for residential
Housing availability has become even more limited in most places during the pandemic, with many more people looking to buy and fewer people wanting to sell. This is even though the previously hottest cities have seen major rental price drops.
Demuyakor of Wilshire Lane is staying focused on the housing problem, and solutions to it like co-living. “Despite the pandemic, it is still difficult for millennials and Gen Z to afford to live in the most expensive cities (New York, San Francisco, Los Angeles, etc.) at current wage levels,” he says. “As such, we believe that we will continue to see demand for products and solutions that can continue to help alleviate costs and burdens of living in major cities. For example, we think that at its core, co-living is an economic decision. Solutions that continue to help people live where they want to live more easily (ADUs are another example of this) will continue to thrive.”
Casey Berman, managing director and general partner of Camber Creek, thinks that “cities will continue to attract people to live, work and play because they offer density and opportunities for experiences that people crave even more now. To the extent all of this is true, there will be renewed demand for urban spaces and properties to take advantage of that demand.”
He says that the firm has been investing in products to make dense living safer and more convenient and “we expect those solutions will become increasingly popular. Flex allows tenants to pay rent online in easier-to-manage installments and in the process makes it more likely that landlords will receive payment on time. Latch’s access control devices are in one out of 10 new multifamily buildings. A lot of people purchased a pet over the past year. PetScreening makes it easy to manage pet records and confirm when a pet is a service or support animal.”
Robin Godenrath and Julian Roeoes, partners at Picus Capital, generally share this viewpoint and describe how new living arrangements in cities could allow for more radical changes to how people live.
“Flexible living solutions will allow remote workers to spend time across different cities with a fully managed, affordable and safe rental option for short-to-long-term urban living,” he says, “while commercial conversion to residential will play a key role in driving down per square foot prices enabling long-term returning residents to afford less densified space. Although co-living densifies multifamily buildings, we believe it will remain an interesting sector as the continued shift to remote work will make living communities increasingly important considering the reduced social interaction on the job.”
But modern proptech is also making the suburbs and beyond more appealing in the long run, according to many. Great new technologies for living can exist anywhere you are.
Proptech has also helped fuel the new suburban boom. “There is an ongoing trend of reverse urban migration causing an uptick in the demand for suburban-style living,” he says. “Proptech companies have played a significant role in enabling this shift, specifically via digitizing the home buying, selling and renting transaction processes (e.g., iBuyers, alternative financing models and tech-enabled brokerages). Additionally, proptech companies have played a key role in reducing physical interactions through remote appraisals, 3D/VR viewings and digital communications thus enabling homebuyers and sellers to efficiently and safely transact throughout the pandemic.”
Ultimately, the same technologies that could make cities more affordable will also help out in the suburbs. “We strongly believe that the acceleration of the digitalization of the home transaction process coupled with the significant increase in demand for suburban-style housing and evolving buyer profiles (e.g., tech-savvy millennials) opens up a multitude of opportunities for proptech to significantly impact suburban living across construction, access and lifestyle. This includes companies focusing on built-to-rent developments, modular homebuilding, affordable housing, community building and digital amenities.
Many investors who we talked to highlighted the single-family rental market trend. Here’s Christopher Yip again from RET.
“One of the unheralded trends of the past decade has been the rise of the single-family rental (SFR) market,” he says “with a significant number of major investors moving into this asset class. The SFR space is poised to benefit from the migration from cities, and the tech that supports SFR will likely have positive ripple effects across the industry.”
“SFR portfolios are particularly challenging to operate efficiently and at scale; compared with a multifamily property, they have more distinct unit layouts and are more spread out geographically,” he explains. “Technology has the ability to streamline operations and maintenance for SFR operators, with smart home tools like SmartRent facilitating self-touring and management of these distributed portfolios. We’re bullish on this space and are keeping a close eye on proptech tools that serve this market.”
Andrew Ackerman of DreamIt agrees. “Single-family has been neglected, slowly growing more interesting both from an asset and proptech perspective for some time. For example, we invested in startups like NestEgg and Abode who service this ecosystem … prior to the pandemic. COVID has been good to these startups and brought more attention to the opportunities in single-family in general.”
Stonly Baptiste and Shaun Abrahamson, co-founders of Urban.us, already see a world of options unfolding across geographies, with choices like co-living and short-term rentals letting people find new lifestyles. “Portfolio companies like Starcity are really thriving as co-living doesn’t just solve for cost, but also for a key overlooked issue — access to community. We also see room for more nomadic lifestyles. A lot of the discussion about Miami is about people moving there, but it seems like a more interesting question for a lot of places is maybe whether or not people will spend a few months of the year there. So for remote workers this might mean places near specific activities like mountain biking, surfing, snowboarding etc. Starcity makes it easy to move between city locations and Kibbo takes this far beyond the city by building communities around van life.”
Here’s how all these changes are adding up for the suburban market, as mapped out by Clelia Warburg Peters of BCV.
“The residential transaction disruption is now settling in three core categories: iBuyers (who buy homes directly from sellers and ultimately hope to own the sell-side marketplace), neobrokers (who generally employ their agents and use secondary services such as title mortgage and insurance to increase their revenue) and elite agent tools (platforms or tools focused on the top agents).”
This combination of innovations are changing residential real estate as we know it. “[C]onsumers are increasingly open to alternative financing tools, including home-equity-based financing models (where you sell a stake in your home, or you buy into full ownership in a home over time). The growth and proliferation of these new models are consolidating the whole residential market so that brokerage sales commissions and commission from the sale of mortgage, title and home insurance are now functionally one large and intertwined disruptable market.”
The surprising revival of neighborhood retail
Humans seem to love the concept of a traditional Main Street full of bustling, walkable local businesses. But the hits have kept coming to the people trying to successfully operate independent retail storefronts.
E-commerce began cutting into traditionally thin margins with the rise of Amazon and the 90s wave of “e-tailers.” More recently, art galleries, high-end restaurants and boutiques became a harbinger of gentrification in many cities. Many commercial retail landlords in these locations aggressively priced rents as more residents moved in who could afford higher prices, ultimately contributing to gluts of empty storefronts in prime locations.
The pandemic seemed to be the final blow, with even the most loyal shoppers turning to order online while local businesses stayed closed.
And yet, a range of investors are strangely optimistic. Even though the pandemic upended social and economic activity for more than a year, most agreed that IRL retail experiences are an essential aspect of modern life.
“Humans are fundamentally social animals and I think we will all be hungry for in-person experiences once it is safe to return to them. Additionally, I think the shift away from working five days a week in the office is going to create a greater desire for ‘third spaces’ — not home, not a formal office environment,” said Peters.
“I do think we will continue to see more ‘Apple store’-type retail experiences, where the focus is less on selling inventory and more on creating an environment for customers to physically interact with goods and experience the brand ethos beyond a website. Because I anticipate that retail rents are going to be meaningfully lower at the end of the pandemic, I actually think we will see even more experimentation than we did pre-COVID. It will be a very interesting period for retail.”
Many others held views in this direction, whether they are investing specifically in retail-related tech or more generally in third-space ideas.
“It’s true that retail has been in flux for more than a decade; the list of common e-commerce purchases has expanded from books and clothing to prepared meals and groceries. It’s also true that the pandemic has accelerated e-commerce’s growth, to the detriment of brick-and-mortar retail,” says RET’s Yip. “But people are still human and crave in-person experiences. Even if cities never bounce back fully, major metropolises will still have enough foot traffic to support a fair amount of retail, and innovative models like pop-up shops can be brought in to help address vacancies. It should also be noted that the public markets still have some confidence in the retail space. While the major REITs struggled in early to mid-2020, many have recovered substantially, and several have actually surpassed their pre-pandemic figures. It has been a bad decade for retail — and a very bad year — but it is just too soon to close the book on the sector.”
Godenrath and Roeoes of Picus say movie theaters are just one example of a retail sector poised for success when public life resumes at scale post-pandemic.
“Cinemas, many of which are key shopping center anchor tenants, were already reinventing the traditional theater experience by offering a more holistic experiential solution (e.g., reserved seating, 4DX visuals, in-theater restaurants, cafes and bars) and the pandemic has led to an expansion of these offerings (i.e., private theater rentals and events). We have the opinion that this trend will continue to expand across the entire retail real estate industry from restaurants (immersive culinary experiences) to traditional retail (integrated online and offline shopping experiences) and believe that proptech will play a defining role in helping retail real estate owners identify potential tenants and market properties as well as in helping retailers drive in-store customer engagement and gain key insights into the customer journey.”
The internet is also a friend these days, surprisingly! “We also see a lot of potential for hybrid models combining online and offline experiences without friction,” they say. “Taking the fitness sectors as an example we can imagine a new normal where in-studio courses are broadcasted to allow a broader participant group and apps tracking fitness and health progress throughout in-studio visits and at-home workouts.”
I have a few additional reasons to believe in the future of retail that I didn’t hear from any of the investors I interviewed.
You can also see how retail intersects with many other solutions investors are betting on, particularly to improve the appeal of cities and solve for macro problems like climate change.
“Cities have some massively underutilized assets, perhaps the biggest being public spaces that are allocated to cars,” Baptiste and Abrahamson say. “So one change we think will become permanent is reallocating parking spaces away from private vehicles to micromobility (bike/scooter/board lanes, parking, etc.). We’re seeing a lot of demand for portfolio companies like Coord (manages curb space starting with commercial vehicles and smart zones), Qucit (manages bike and scooter share operations in many large cities) and Oonee (secure bike/scooter/board parking).”
That’s just the start of the virtuous cycle they foresee.
“As [car removal] happens, the use cases like logistics can shift to electric micro-EVs. Similarly, parklets or seating areas increase social spaces. The EU is setting the pace for banning cars, but overall reduced access to streets for cars is going to be a big change. And likely will make cities attractive — yes, you give up private living space, but you’re going to get a lot more common/social space. This is also likely to drive more co-living so you can decrease the cost basis for being in a city, but get a lot more from shared spaces, which have no real comparison in lower density communities.”
Demuyakor of Wilshire Lane is betting in the same direction.
“One of the key tenets of our overall strategy has always been a focus on space utilization and identifying the best ways technology can monetize underutilized spaces. This can be seen clearly with many of our newest investments: Stuf and Neighbor (monetization of basements, parking garages and other vacant spaces), MealCo (monetization of vacant kitchens), WorkChew (monetization of restaurant seating areas, hotel lobbies and conference rooms), and Saltbox (monetization of empty warehouses). We believe that landlords can certainly use these types of strategies to help mitigate increased levels of vacancies that we’re seeing across the real estate industry today in the medium term.”
If this thesis pans out, retail may become more about shared spaces. “With WorkChew in particular, which just announced funding this week, we’re seeing a ton of demand for their product both on the demand side and the supply side. Hotels and restaurants are excited to partner with them to monetize their less-utilized spaces and infrastructure,” said Demuyakor. “And of course, employers and companies love [it] as an easy amenity that can be offered to their hybrid workforces that increasingly want to spend more time out of the HQ office.”
I have a few additional reasons to believe in the future of retail that I didn’t hear explicitly from the investors I interviewed.
- First, millions of new businesses have been created during the pandemic, to the surprise of even economists and policymakers. A large portion appear to have a very local angle, whether food delivery (cupcakes) or services (on-site haircuts) or internet-first products with strong local followings (much of Etsy). These entrepreneurs went internet-first and now, as commercial rents plummet, they have sufficient revenue to support a physical presence.
- Second, most local business that have sustained themselves during the COVID-19 era figured out how to succeed on the internet. To see which ones in your vicinity are weathering the storm, just open one of your preferred on-demand delivery and services apps and place an order.
- Third, as noted by respondents and available data, landlords are already starting to drop prices, creating a renter’s market for the first time in decades.
- Fourth, there are whole new types of financing opening up to more traditional businesses that could enable any company with a successful online side hustle, hobby (or perhaps larger project) to get funding for expansion. (This reason is perhaps the most speculative, but we are trying to figure out the future here at TechCrunch.) For example, Shopify has just invested in Pipe.com, a new “platform for trading recurring revenue.” Although the companies are not saying much now about the relationship, it’s possible to imagine a bunch of successful small(ish) businesses on Shopify suddenly getting a new kind of capital infusion right as the math is suddenly much better for a storefront location.
If you roll all of this up with other broader shifts in how we think about cities, like making them more climate-friendly through allowing density and bike lanes, you can start to see a world emerging that sounds a lot more like the fantasies of a New Urbanist than the world before the pandemic.
At the same time, these concepts are being deployed across smaller cities, suburbs and towns: All will compete to offer the highest quality of living — unless the old network effects of industry clusters return miraculously.
And let’s say the industry clusters don’t cluster like they used to. It’s possible that many landlords, lenders and city budgets will have to retrench soon, creating a drag on the economies of otherwise-attractive cities.
Even in this case, you can imagine a rebirth for places like New York and San Francisco focused around housing, retail and amenities. Maybe one day, we’ll look back at recent decades as the bad old days before we collectively bottomed out during the pandemic and had to decide on the right answers for the long-term.
And with that, I invite readers to go check out the full sets of responses from the investors I interviewed. Each person offered a lot more than I was able to fit into this already-too-long article and is worth reading in detail. Extra Crunch subscription required, so you can support our ongoing coverage of these changes.
I’ll be covering the future of proptech and cities more soon. Have other thoughts about all of this? Email me at firstname.lastname@example.org.
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