Interviewed on May 14, 2020
Interviewed by Yingying Zhu
Clelia Warburg Peters recently joined Bain Capital as a Venture Partner. Clelia is working across Bain’s Proptech portfolio to develop new investment themes, invest in companies at the forefront of innovation in real estate and serve as a thought partner for the founders. In 2015, Clelia co-founded MetaProp, a Proptech accelerator that evolved into a $40 million seed-stage venture fund focused exclusively on real estate technology. Clelia also serves as President of Warburg Realty, where she works closely with her father, CEO Frederick Warburg Peters, in managing one of New York's oldest and most respected real estate brokerages. Prior to Warburg, Clelia worked in partnership with noted business leader Sallie Krawcheck on a technology-enabled business concept focused on work opportunities for women, and was a Management Consultant with the Boston Consulting Group. Clelia is passionate about inclusion and believes strongly in the power of women to shift paradigms of leadership and success in the 21st century. Clelia holds an MBA from Columbia Business School and a BA from Yale University.
Congratulations on joining Bain Capital as a venture partner! Can you talk about how you made the decision? Thank you. I feel really lucky to be working with the team at Bain Capital Venture. Not just because of their strong track record as investors, but because they are lovely people who take a really thoughtful approach to investing. Above all, I wanted to be in an environment where I could learn from people that I really respect. In our PropTech practice, I get to work with Matt Harris and Merritt Hummer every day, who, as investors, both combine strong sector knowledge with real rigor. It’s a pleasure to work alongside them. In my role, I am looking to leverage both my real estate operator and PropTech investing experience to continue to help both real estate incumbents and disruptors move the industry forward.
How did Bain Capital Ventures become interested in Proptech and what is your investment strategy today? Bain’s initial interest in the Proptech space, like that of many generalist venture firms, grew out of the overlap between Fintech and Proptech. Initially, I would say that there were two different kinds of Proptech companies that generalist venture firms sought out. The first was in the residential consumer home shopping experience, which primarily encompassed portals such as Zillow and Trulia. More recently, there has been a lot of interest in products that have impacted the residential consumer transaction experience, such as Ribbon, which provides a variety of financial services to facilitate the home buying process. These investments were made through the lens of Fintech, based on the concept of SaaS (Software as a Service). Forward-thinking funds like Bain have now moved significantly beyond that to invest in the broader opportunities in Proptech, particularly around commercial opportunities in the B2B space, such as IoT, construction tech, building operation as well as tenant experience management.
What are the investment theses that you will be focusing on at Bain? While Bain Capital Venture is a multi-stage fund, most of our Proptech investing efforts are focused on growth stage companies, i.e. Series B and above, when investors are able to see the trajectory of the company’s growth, and how the team makes decisions about growing and spending. There are several hundred companies that are at that point of growth. We do not need to have a specific thesis so that we can filter down to a manageable number of companies. That being said, Proptech as an industry, is seeing a more rapid growth of “class size” on a year-over-year basis, and more importantly, very high quality founders tackling the growing potential in the market. We are starting to develop some theses on companies that we want to watch for the purpose of knowing the field. We have recently spent time thinking about construction tech, and particularly post-COVID-19, the technological application in property management. The property management solutions can be both very practical — such as touchless entry, occupancy monitoring, energy management — but also more visionary as we rethink the way we use office, retail and other mixed use space. Of course, we also remain interested in the disruption of the residential transaction and in particular in the integrated sale of secondary products (title, mortgage and home insurance).
What is Covid-19’s implication on the Proptech industry? We are going to see tailwind in a variety of different sectors. Some of the obvious ones include building security, occupancy monitoring, facilities management and construction site oversight. In addition, we may see an emergence of more financial products as a result of more distressed situations. Some financial products may allow people to complete a sale or financing transaction more quickly, even if at a greater cost, or allow people to sell equity or finance their homes in more creative ways. The pandemic lockdown raised a lot of questions in the long term around how we use space and whether or not it makes sense for most people to have a dedicated desk for five days a week, as opposed to using space on an as-needed basis. Technology tools that facilitate flexible work may see more demand in the future. Flexible space operators such as Convene, Knotel and Industrious in the commercial space, and Airbnb and Sonder in the residential space, are inevitably facing short-term challenges, and in some cases, we’ve seen formerly strong companies in this space fail during this period. However, I have to say I am bullish on this space in the long term as both companies and consumers seek out more flexibility.
“WeWork could have been a good starting point for capital markets to grapple with the idea of a Prop+Tech hybrid, but… they missed an opportunity to even start to tell a story to the public markets about the tremendous value innovation can create around the use of real estate assets.”
Speaking of flexible office operators, people have had questions about how to value hard asset-based Proptech companies, such as WeWork, Convene and others alike, compared to the SaaS based companies. What do you think? The evolution of Proptech is going to force us to think about how we invest in innovation in the built world and what type of returns we should expect. We have to remember that, even Silicon Valley, where an enormous amount of capital is currently focused primarily on SaaS models, started as an engine for innovation in the aviation industry in the 50’s. Venture capital didn’t and doesn’t have to always invest in SaaS concepts, although their margin is typically incredible given their cost structure. Companies that have exposure to underlying assets can generate very good returns too, which can still meaningfully beat the stock market. The valuation expectations for some Proptech investments should probably sit in between a REIT and a pure technology VC fund. We are in the early stages of defining Proptech investing and are still currently developing a proper vocabulary to describe those Proptech companies with underlying asset exposure, and I think we have not necessarily figured out how we might raise funds to finance their growth. It will take us some time to think about what tech models can exist to invest in and fuel innovation in the built world and educate our equity and debt investors about how to fund their growth rationally. WeWork could have been a good starting point for capital markets to grapple with the idea of a Prop+Tech hybrid, but unfortunately, because of the governance issues, they missed an opportunity to even start to tell a story to the public markets about the tremendous value innovation can create around the use of real estate assets.
Given your experience managing and growing a residential brokerage firm, what trend do you see for the innovation in this sector? Within the broader real estate tech landscape, I think residential brokerage is probably the most advanced in true disruption. Redfin and Compass are now ranking in the top five for transaction volume nationally, and I think will continue to grow. I expect we will continue to see additional innovation in the brokerage industry and that it will come in in several “layers”. The first is about disintermediation or alternative models such as iBuying. The second is an integrated service model where brokerages act as the “Trojan Horse” for revenue sources such as title, mortgage and home insurance. Companies in this space include Orchard, Homeward, Knock and Flyhomes. The third is about the high end of the brokerage market and the top performing agents, where demand is still strong for personal service. Aside from Compass, companies such as Homelight or Zillow have premiere agent programs that focus on the top 20% of the agents nationally. And I sit on the Board of Side, which has a really innovative “Brokerage as a Service” which allows top agents to work directly with their customers using their own brand, with a fully digital back-end provided by Side.
What do you think of the notion that 2020 is going to be a consolidation year for Proptech companies? There has been a lot of discussion of consolidation in general in venture, not only in Proptech. There will continue to be a lot of capital available because of the size and number of existing funds. But VCs will definitely be more conservative about how they spend their money as they look ahead to a more competitive capital raising environment. As a result, I expect we are going to see a doubling-down on the companies that appear to be “great”. It is going to put pressure on companies that might have been “very good” but don’t yet have enormous traction around growth or profitability. A year ago, the venture community was more forgiving about those criteria. But in the next year or two, they are going to be way less forgiving. Only the strongest will survive and M&A will be accelerated.
Which Proptech companies will be the winners in the long run? The best companies will evolve from being single-product solutions to multi-product solutions, and ultimately will become end-to-end platforms. Most of the Proptech companies today started organically with a feature and then that feature evolved into a product. And then that product evolved into a company and sometimes that company can evolve into being a platform. It is extraordinarily difficult to bring a full suite of solutions to most customers. For apartment building owners, for example, there are siloed solutions for each of the distinct problems such as showing apartments, administering the leasing process, managing renewals and tenant relations and programming amenities. But that often means that a single commercial owner or manager could be dealing with five or six technology solutions, which is frustrating. Ultimately, an end-to-end platform that serves companies throughout the lifecycle of their interaction with the tenants will win. A great example of this evolution is VTS, which came in as a product-based solution but is well on its way to being an end-to-end solution for commercial owners. That has been done partially through acquisitions and partially through their internal development.
You co-founded MetaProp, one of the earliest dedicated Proptech VCs. What does that experience mean to you today? I feel so lucky to have been involved in MetaProp at the early stage, because we were early enough to help define the category. My former partner Aaron Block was one of the visionaries who saw the emergence of Proptech coming, and together, we dedicated a great deal of energy to getting people in New York excited about innovation in real estate. We started with the accelerator idea because it was our goal to bring together as many constituents in the marketplace to help facilitate change. People were initially skeptical but it ended up being remarkable, even for those of us who were instigators, just how rapidly adoption and excitement around Proptech grew. We were able to raise our $40 million fund, invested in dozens of startup companies and partnered with industry leaders as our strategic investors.
to this booming vertical.
“I had a partner who told me that I was not assertive enough at client meetings ... I was not going to do that because I believed that my way of operating, which is very relational and not about domination, also has value. Banging my fist on the table just isn’t me!”
What opportunities do you see for women in the real estate or tech industry? It is important for women in industries like real estate and tech, which have been historically dominated by men, to authentically seek our own professional journeys. These spaces were not made for us and almost every assumption around what power or success looks like were carved in a shape that is not our shape. We have to start to shift the definition of what power looks like for both men and women for subsequent generations. The difficult thing is to have the confidence to be authentic about who you are. When I was at BCG, I had a partner who told me that I was not assertive enough at client meetings and that I needed to go in and bang my fist on the table. I was not going to do that because I believed that my way of operating, which is very relational and not about domination, also has value. Banging my fist on the table just isn’t me! As opposed to apologizing for that, it is really important to own what works for you. The other thing is to push the system to reflect our priorities as opposed to accepting the status quo as we have inherited it. As a mother to two young children, I had a hard time fully springing-back after my second child was born. I felt a lot of shame at that time about not being able to stay on top of everything, but today I give myself credit for the fact that I have been able to advance my career as much as I have in the last five years while I grew and raised two little humans. I read recently that women are expected to work as if they don’t have children and mother as if they don’t work – I know I feel that pressure – and it just isn’t sustainable. We all have to take responsibility for changing things. There is no reason why we shouldn’t acknowledge the demands we face physically, mentally and spiritually and speak up for ourselves honestly. That can be as small as saying, “this doesn’t work for me at this time slot because I have XYZ responsibility at home.” and as big as taking the risk to find an environment in which you can authentically succeed and grow.
Edited and condensed for clarity.