Can proptech go with Adam Neumann’s Flow?
Good morning, and welcome to Protocol Fintech. This Tuesday: a16z’s big proptech bet, the messy Galaxy Digital-BitGo breakup, and a challenger to the big banks’ Zelle.
Off the chain
If you want to feel a little stupider today, I encourage you to read FTX CEO Sam Bankman-Fried’s recent attempt to explain “modern finance.” With every tweet in this thread, he digs himself a little deeper, trying to concoct a theory of capitalism as seen from someone who’s spent a little too much time reading Hacker News. It goes something like this: Startups take money from VCs, spend it on Facebook and Google ads, and Meta and Alphabet return it as dividends to those VCs. Or to some “ultimate investors” who then give it back to VCs. OK then!
It’s true that startups spend an outsized portion of their budgets on online marketing, much of it with Facebook and Google. But would it have taken little time to check to see if Meta or Alphabet had ever paid a dividend. (Narrator’s voice: In fact, they have not.) Instead of bailing out crypto companies, could FTX perhaps sponsor some continuing education for its boss?— Owen Thomas (email | twitter)
Money wants to flow
WeWork founder Adam Neumann has a record-breaking check from Andreessen Horowitz and somewhat vague plans to shake up the massive market for rental apartments, injecting a jolt into a sleepy venture investment market for proptech on Monday.
A16z announced yesterday its plan to back Neumann’s Flow, a startup "rethinking the entire value chain" of multifamily housing, as Marc Andreessen described it in a blog post (he’s also joining the board).
The numbers of the deal are eye-popping. Or eyeroll-inducing, depending on your view of whether Neumann deserves such a quick second chance after the made-for-TV collapse of WeWork’s IPO under his leadership in 2019.
- The $350 million round — at a $1 billion valuation, according to The New York Times — would mark the largest individual check the VC firm has cut to any startup.
- But what Flow actually does is still vague. Its website says only, "Live life in flow. Coming 2023," with an email sign-up link. Andreessen's blog post hinted that the company's vision involves looking at everything from “the way buildings are purchased and owned to the way residents interact with their buildings to the way value is distributed among stakeholders." Neumann has purchased at least 4,000 apartments across the U.S. in the past year and a half, according to the Wall Street Journal.
- Andreessen said his firm is backing Flow in part because the nation is experiencing a housing crisis, an awkwardly timed proclamation the week after the Atlantic reported that he opposed a plan to add multifamily housing in his ultra-wealthy Bay Area town.
The deal comes amid a proptech investing slowdown. Real estate-focused startups raised over $5 billion in the second quarter of this year, down 23% from the first three months of the year, according to the Center for Real Estate Technology and Innovation.
- Similar to other tech sectors, proptech deals are still getting done, but at a slower pace, according to Zach Aarons, a co-founder and partner at the venture firm MetaProp.
- "I don't know whether we can say that this deal is a signal that activity is going to pick up soon," Aarons said, "or if this is just an outlier with a big fund and a well-known entrepreneur."
- But the deal could show that there are still big opportunities in the market, according to Daniel Mishin, CEO of June Homes, which raised $50 million for its apartment rental platform in September. "It signals that proptech shouldn't be ignored right now," Mishin said, noting that national apartment rental prices have reached record highs.
Disrupting real estate is far from easy, whether it involves office buildings, houses or apartments. Neumann has even taken a swing at the rental market before through the WeLive co-living apartments, which WeWork eventually sold off.
- Other startups have focused on individual aspects of the multifamily market. Crunchbase News in April tallied up a list of 17 apartment-focused startups that had raised a collective $1.3 billion dating back to last summer.
- Those firms focused on providing amenities, software to property managers or rent-to-own arrangements, among other business models.
- Reading between the lines, Flow appears to be focused on a mix of each. Andreessen mentioned in his blog post the need for a system "where renters receive the benefits of owners" and "combining community-driven, experience-centric service with the latest technology."
The a16z investment certainly has people talking. Neumann was ousted from WeWork, which investors once valued at $47 billion, after the firm's failed IPO put his leadership decisions and the company's huge losses under the microscope. WeWork has since gone public through a SPAC and is valued around $4 billion. Andreessen seemed ready to chalk that up as a learning experience (a16z is also backing a blockchain startup co-founded by Neumann). "We understand how difficult it is to build something like this, and we love seeing repeat-founders build on past successes by growing from lessons learned,” he wrote. As long as Neumann doesn’t try to build too close to his new board member’s house, he’ll probably have a long leash.— Ryan Deffenbaugh (email | twitter)
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How cybercrime is going small time: Cybercrime is often thought of on a relatively large scale. Massive breaches lead to painful financial losses, bankrupting companies and causing untold embarrassment, splashed across the front pages of news websites worldwide.
On the money
Silvergate and other crypto-heavy banks have gone on a wild ride. Small banks have been more willing to take crypto firms’ fiat deposits, but that’s left them exposed to volatility.
Compass announced plans to cut costs after a disappointing forecast. The stock dropped after-hours as the online real estate brokerage reported second-quarter revenue that missed expectations.
The Fed is setting rules for giving fintechs access to its payment system. Companies that engage in “novel activities” will get deeper scrutiny.
Coin Center says Tornado Cash shouldn’t have been sanctioned. A smart contract can’t change its behavior, which is the whole point of sanctions, the policy nonprofit points out.
The EU is setting up an anti-money-laundering agency to oversee crypto. The Anti-Money Laundering Authority, or AMLA, could take years to implement.
Jack Henry & Associates bought Payrailz for Chuck, a cheaper alternative to Zelle. Like Zelle, Chuck operates in banks’ own apps and websites.
What was supposed to be a blockbuster crypto merger has morphed into a legal brawl. Galaxy Digital said Monday that it has terminated its $1.2 billion bid to buy BitGo, which it accused of failing to produce “audited financial statements."
BitGo quickly hit back, announcing that it plans to sue the crypto financial services company for “its improper decision to terminate the merger agreement.”
Galaxy Digital said it had “exercised its right to terminate” the deal, originally struck in May 2021, after BitGo failed to deliver 2021 financial records “that comply with the requirements of our agreement.” The company also said no termination fee has to be paid.
BitGo denied Galaxy Digital’s claim. R. Brian Timmons, a partner with Quinn Emanuel, which represents BitGo, said the company has “honored its obligations thus far, including the delivery of its audited financials.”email | twitter)
San Francisco-based underwriting service Truework raised a $50 million series C round led by G Squared. The company helps mortgage and other consumer-centric lenders verify borrowers’ income and employment.
Nigerian fintech TeamApt raised $50 million in a round led by QED Investors. Though the company did not specify which “series” the funding round was, TechCrunch reported it could be considered a pre-series C. It’s QED’s first investment in the continent.
Boulevard raised $70 million in a series C funding round led by Point72 Private Investments. The payments facilitator combines payments with scheduling, management and loyalty programs for spas and salons.
Indonesian digital wallet Dana raised $250 million from conglomerate Sinar Mas. Alibaba Group Holding Ltd.’s Lazada Group also contributed significant funding, and the company is partly owned by Jack Ma’s Ant.Seattle-based Risc Zero, a scalable blockchain, raised a $12 million seed round. Bain Capital Crypto led the round, while Cota Capital, Jing Wang of Optimism, Eva Beylin and Tegan Klein, Calvin Liu and several others also participated in the round.
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How cybercrime is going small time: People have been swindled since before man created monetary systems. These aren’t new crimes; just new ways to commit them. But as cybercrime increasingly goes small-time, those on the front lines will need new and more effective ways to fight it.
Thanks for reading — see you tomorrow!