Procore’s $600M+ IPO is a big deal (no pun intended!). It’s one of the biggest PropTech IPOs ever and a bellwether moment for the entire PropTech industry. The transaction continues to build on the momentum Thoma Bravo’s acquisition of RealPage started earlier this year (and which I wrote about here) ushering in a new age of deca-corn level proportion and shining a spotlight on an industry that has traditionally lagged other areas of the global economy in software adoption.
The IPO came as no surprise, but given the lack of historical SaaS PropTech listings, buyers and investors really didn’t know what to expect. And for good reason! Real estate is the largest asset class in the world so it naturally touches many different trillion-dollar industries. These markets are complex, involve myriad stakeholders, and have traditionally operated offline in paper, pen and spreadsheet environments, resulting in higher costs and lower productivity. Those dynamics historically created a lower willingness to pay, which led to longer sales cycles and slower growth – not exactly conducive to creating deca-corn type value. As a result, PropTech and more particularly ConTech have been consistently met with skepticism from investors.
To be fair, in the years leading up to the pandemic the real estate industry had already been experiencing a transformational shift from offline to online, albeit more slowly than other areas of the economy. However, COVID-19 changed the way buyers thought about PropTech and turned a “nice to have” into a “need to have”. Centralized organizational structures became distributed overnight. As a result, construction firms quickly needed cloud native, integrated solutions to support their newly remote workforces and optimize previously offline workflows. This new demand flipped the historical PropTech sales paradigm on its head leading to increased willingness to pay, shortened sales cycles and expedited growth.
Procore is a direct beneficiary of this shift. Although its core technology platform was already experiencing strong growth prior to the pandemic, the increase in software adoption allowed it to grow even faster at top quartile speed. As a result, it’s been amazing to watch the company scale to $400M+ ARR while growing at ~40% y/y and optimizing its cost structure and expanding margins at the same time. That’s no small feat!
What makes this performance so remarkable is that Procore is just getting started. The broader IT industry has shown that software markets are much bigger and growing faster than anyone imagined. Procore proves the same is true for real estate. PropTech is bigger, growing faster, and producing much larger companies than anyone expected. Although Procore has already reached great scale, it is just scratching the surface of one of the biggest markets in the world that is only at the beginning of its technology adoption curve. More specifically, Deloitte estimates 1.5% of global annual construction revenue is spent on IT compared to 3% in other major industries. This implies meaningful room for growth and a lot of potential revenue up for grabs. In addition, as Procore continues to ride that wave and layer additional business models such as marketplaces (e.g. labor) and FinTech (e.g. financing, insurance, payments, etc) on top of the incredible SaaS foundation it’s already built it’ll be fun to see how the business continues to evolve.
This is exciting news for PropTech founders and investors because Procore is an example of just how much untapped potential PropTech markets have, and how much value there is still left to create. Procore represents a ‘big’ win but is actually quite small relative to market size and future potential. We’re hopeful its initial success combined with new favorable market tailwinds inspire more founders to build more game changing PropTech that makes the world a better place. As a result, we expect many more successful companies will be minted in shorter time periods from the PropTech space in the near future.
