What Latch’s IPO Tells Us About The Proptech Market

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Access control and building software provider Latch officially went public this morning, as it completed its merger with Tishman Speyer Properties-owned SPAC TS Innovation Acquisitions Corp., and its common stock and warrants began trading on the Nasdaq Global Select Market. Founded in 2014, Latch is an enterprise SaaS provider to buildings and residents which claims to have booked over 300,000 units across more than 35 states, with one in ten new multifamily apartments in the United States built with Latch in 2019. The company has raised $327 million to date from investors including Camber Creek, BlackRock Private Equity Partners, Chamath Palihapitiya, and Fidelity Management and Research. According to a statement released by the two companies in January of this year, the deal has an equity value of $1.56 billion, and Latch has received approximately $453 million in cash proceeds from the transaction and additional private placement of common stock.

As the proptech market continues to grow and mature, both thanks to the natural acceleration in its cycle and the boost given it by the Covid-19 pandemic, sizable exits such as today’s IPO will become ever more common. I had a chat with Casey Berman, General Partner at proptech venture fund Camber Creek, which was Latch’s first VC investor, to discuss this news and the outlook for the sector.

Camber Creek bet on Latch early on because the startup fit their three main selection criteria: vision, team, and execution. Berman explained that, for every startup they consider investing in, Camber Creek not only runs a market due diligence but also beta tests the solution with its limited partners, to understand exactly how well the founding team works together, their execution strategy, and how well-positioned their vision is. In Latch’s case, Berman shared that, “when we first looked at them, in 2014, we had a thesis that the digital lock, which we had started to see in the consumer space, was going to move into the enterprise and multifamily sectors. We did our due diligence on Latch and believed they had the clearest vision with the most mature product at the time. I liked their design-led perspective and company mission. Today, they’ve fulfilled that mission, which has given them market leadership not just in the hardware space but in software thanks to Latch OS.”

According to Berman, Latch OS streamlines control within apartments, as it integrates with other solutions (eg. your thermostat) directly or via API. Rather than using six or seven different apps, Latch drives everything through its OS, and has “a higher engagement with multifamily residents than any other company, which is a very powerful narrative with so much value to unlock.”

Camber Creek favors investing in companies that build a great business with plenty of options for growth and expansion, and Berman reckons that Latch is one such company with lots of options. Going public was an excellent way for it to access capital to expand into more market verticals, faster. Latch recently announced they will expand into the office space, which is a natural extension to their current business though in certain ways a completely different market. Berman believes it should be relatively simple to manage the transition, as in his view multifamily properties are more complex to manage.

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Berman also thinks there will be a great fit with Tishman Speyer, as both companies view the tenant as a central piece of their strategy, meaning that their corporate culture and long-term vision are aligned.

Lastly, I asked Berman what’s next for the proptech market. His view is that the entire real estate industry finally realizes that it needs technology to be successful. Previously, real estate always ranked bottom for technology adoption, but Covid-19 acted as an accelerant for it. Today, the next frontier is “real estate tech 2.0”. According to Berman, the first generation of proptech solved point problems for real estate owners and operators, for example by providing software to streamline marketing or other workflow issues. Now, proptech 2.0 puts the customer (eg. residents, tenants, etc) front and center. In Berman’s own words, “the amazing thing about 2.0 is that it will make the customer experience so much more efficient, and we are seeing this across the board in all asset classes.”