houses
Illustration: Christopher T. Fong/Protocol

The proptech market is reeling from rising interest rates

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: rating the proptech market, betting on cannabis banking fees, and another SEC crypto case.

Off the chain

Cannabis banking is slowly taking off despite the federal obstacles to adoption. One backer you might not have expected is Jackie Reses, the former Square executive who recently became chair of Kansas City’s Lead Bank. Lead has been in cannabis banking for years. One attraction, despite the regulatory challenges, may be the sky-high charges banks willing to serve this sector can get away with. Some Vermont cannabis businesses report paying thousands of dollars in monthly fees, according to VTDigger.

— Owen Thomas (email | twitter)

Rate this proptech opportunity

With mortgage rates at a roughly 15-year high and home sales slowing, proptech startups that feasted on a red-hot housing market last year are now cutting costs and jobs to stay afloat. The latest cuts came at Divvy Homes, a San Francisco-based startup that offers rent-to-own arrangements. The company laid off about 40 employees Tuesday, as The Information first reported, about 12% of its staff.

This has been a year of layoffs in proptech, particularly for players in the residential market. Divvy Homes raised $200 million at a $2 billion valuation in August 2021 from a list of investors that included Tiger Global and Andreessen Horowitz. Now it’s braced for a market shift.

  • In an emailed statement, the company said inflation and high mortgage rates forced a reduction in its head count.
  • "Although we recognized these macroeconomic challenges in late summer 2022 and took steps to substantially reduce our cost structure in response, it unfortunately was not enough," spokesperson Kyle Zink said in an email. "Realistically, the macro environment is likely to remain volatile and challenging for the foreseeable future. As a result, we needed to adjust [head count] to reflect the new reality today."
  • It is certainly not the only company facing that reality. SoftBank-backed brokerage Compass last week conducted its second round of layoffs this year, cutting an undisclosed number of jobs, largely from its technology division; SoftBank reported a $500 million loss on its investment in August.
  • Troubled mortgage lender Better.com has conducted four rounds of layoffs in the past nine months. The firm also recently extended the deadline to go public through its SPAC deal from September 2022 to March 2023.
  • Home-buying service Reali raised a $250 million round of stock and debt financing in August 2021 ... and announced it was out of business a year later. "Due to the challenging real estate and financial market conditions and unfavorable capital-raising environment," the firm said in its announcement, "Reali determined the best course of action is to close."

Sentiment within the sector is at an all-time low. Or at least since venture firm MetaProp began polling investors and founders twice each year on their overall confidence in the sector in 2016, according to a report released Wednesday.

  • The firm’s proptech investor confidence index fell to 5.8 out of 10, compared to 9.3 six months ago. Proptech founder confidence fell to 4.2 from 8.3 one year ago. A majority of founders surveyed expected it to be harder to raise funds in the next 12 months, while most investors expected mergers and acquisition activity to increase.
  • "Proptech has been a shining star in the tech landscape for some time," said Aaron Block, co-founder and managing partner at MetaProp. "This goes to show that when tech as a whole is getting hit hard, proptech will too."
  • On top of the slowdown in general tech funding, proptech firms that rely on transaction revenue of home sales or mortgage originations are feeling the sting of uncertainty that has caused consumers to pause decisions on whether to buy or sell, Block said. Refinancings have also slowed.
  • Investors expressed greater confidence in startups addressing the multifamily housing market overall (hello, Adam Neumann). And Block said there is still a strong market for startups that help real estate operators reach ESG goals.

A midyear proptech market report from Houlihan Lokey noted that forecasters still expect existing single-family home sales this year will be in line with the historical 10-year average. "While transaction volume is certainly down relative to 2021, we’re still operating in a market that’s healthy on a relative basis," said Chris Gough, a managing director in the firm’s technology group, in an email. That will be a challenge for transaction-focused proptech businesses, he added, but subscription-based service providers for real estate companies will still be in demand. But with Federal Reserve officials vowing for more rate hikes to tame inflation, the mood in the proptech world could stay sour for some time.

— Ryan Deffenbaugh (email | twitter)

A MESSAGE FROM CIRCLE, THE ISSUER OF USDC

Fintech has made it easier to manage and move your money, but for merchants, financial institutions and other businesses, traditional banking infrastructure can still hold them back.

See how a Stablecoin infrastructure like USDC offers a fast, cost-effective alternative available today.

On the money

The SEC brought charges in another crypto case. The agency accused The Hydrogen Technology Corporation; its former CEO, Michael Ross Kane; and Tyler Ostern, CEO of market maker Moonwalkers Trading Limited of dealing in unregistered securities. The case brought attention to SEC officials’ citing of an airdrop as an attempt to get around federal securities law. Jake Chervinsky, the Blockchain Association’s head of policy, called it another example of “regulation by enforcement.”

Ether is slumping post-Merge. The price of the cryptocurrency has fallen 19% over the past two weeks, with Ethereum miners selling their holdings following the software upgrade.

Christie’s has launched an Ethereum NFT marketplace. The 255-year-old auction house is calling it Christie’s 3.0. We’re not sure what happened to Christie’s 2.0 either.

Silicon Valley is still the hottest fintech hub. A new ranking of fintech ecosystems is topped by the Bay Area, followed by New York, London, Singapore, and Hong Kong. But New York may be the center of the crypto universe.

Square is adding Tap to Pay to iPhones. Block said selected sellers can use Square’s Point of Sale app to accept contactless payments on iPhone from Apple Pay and other digital wallets.

Shopify is also expanding its point-of-sale offerings. The company has launched POS Go, a handheld tool with a barcode scanner, card reader, and inventory tracker.

Rho has expanded into treasury management for startups. Prime Treasury is a new, registered investment adviser subsidiary of Rho, the latest expansion in the ultra-competitive spend-management and corporate card space.

Overheard

You’d think Wintermute CEO Evgeny Gaevoy would be a fan of reversible crypto transactions, given that his market maker just lost $160 million to a hack. But no! “In my opinion, permissioned defi is an oxymoron,” he tweeted in response to a proposal by Stanford researchers to let some crypto transactions be rolled back. “Might as well get back to databases run by legacy banks.”

Crypto winter has not set in at the Bam Bam Beach bitcoin bar in Portugal, The New York Times reports. “People always doubt when to buy, when to sell,” said bar co-owner Didi Taihuttu. “We solve that by being all in.”

Moves and hires

Everette Taylor is Kickstarter’s new CEO. Taylor was previously Artsy’s chief marketing officer. Kickstarter's former CEO, Aziz Hasan, stepped down six months ago.

Steven Christie is the compliance chief at Binance. He was hired away from rival crypto firm Kraken.

Four senior leaders have left crypto brokerage Genesis. The group includes Matt Ballensweig, co-head of sales and trading. Genesis CEO Michael Moro stepped down in August, after the firm faced heavy losses for its exposure to Three Arrows Capital.

Robert Mitchell is group CFO for remittance company Zepz. Mitchell was previously CFO of Fast.

Voyager CFO Ashwin Prithipaul has stepped down after five months at the crypto lender. CEO Stephen Ehrlich will temporarily sub in for the role at the crypto lender, which filed for bankruptcy in July.

Disney is seeking an NFT lawyer. A job listing spotted by The Block shows Disney is looking for a transaction lawyer to explore emerging technology opportunities, including NFTs.

Assaf Ronen is chief platform officer for Payoneer. Ronen was chief product officer for SoFi.

ICYMI: FTX.US president Brett Harrison has stepped down, as has Alex Mashinsky, CEO of the bankrupt crypto lender Celsius. Chris Ferraro is Celsius’ interim CEO, while FTX.US now lists Zach Dexter as CEO of FTX.US Derivatives.

A MESSAGE FROM CIRCLE, THE ISSUER OF USDC

USDC offers cost-effective payments that can settle in seconds, near-instant transactions that can help take the process of paying suppliers from days to minutes, and digital dollars with global reach that enable merchants to expand their business to new markets.

Learn how businesses are taking advantage of these opportunities at Circle’s USDC Hub for Businesses.

Thanks for reading — see you tomorrow!

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