Cento Ventures’ new fund to tap growing proptech sector

By Amy Tan / EdgeProp Singapore | February 15, 2019 1:00 PM SGT
Every week, Pauline Chong, principal at Cento Ventures, looks at some 10 different proptech companies for consideration for inclusion in the early-stage investor’s new $50 million proptech fund. Based in Singapore, Cento Ventures is a Series A venture capital firm focused on under-invested emerging digital markets in Southeast Asia.
Chong joined the company at the end of last year with a specific focus on proptech. Loosely defined, proptech is the use of technology to create or render services in the real estate sector to buy, sell, rent, develop, market and manage properties in a more efficient way.
Managing a generalist fund, the company is now targeting opportunities in Southeast Asia’s growing proptech sector. “What happened was pretty organic. There was just an increasing number of proptech or property-related start-ups that started contacting Cento,” she recounts.
Given the breadth of the scope, Cento has narrowed its search to proptech companies that are developing technologies around data analytics and customer experience. These include tech-enabled brokerages that are working to streamline the sales, tenancy and leasing process. “We are also focused on things like productivity tools that foster customer and tenant engagement in the ecosystem,” says Chong.
Pauline Chong of Cento Ventures (Credit: Samuel Issac Chua/Edgeprop Singapore)
Evolving sector
Initially, the companies in this space were mainly property portals that took the form of digital marketplaces offering real estate listings. However, Chong is now seeing an evolution in the proptech space with more start-ups looking to address the needs in facilities management. “This is a segment that is typically plagued by high volumes, administration processes and low margins,” she says.
This segment has also seen a rise in solutions from hardware providers which are leveraging the Internet of Things (IoT) to perform functions like environmental monitoring, improving energy efficiency and even providing alternative energy sources like rooftop solar. The IoT is a network of devices that contain software that enables them to connect and exchange data.
Some start-ups are also working on reducing the administrative process for sellers and buyers by providing valuation of properties and indicating the right documentation to use. There is also an increase in tech-enabled brokerages that allow users to close a sale online or make bookings and payments as part of the process.
One of the reasons why proptech innovation in Asia has accelerated is its low barriers to entry. “Right now, proptech is at such a low base that everything will see growth. It’s just how it grows and what’s the future,” she says.
Fragmented real estate markets
While venture capital firms typically look at growth when considering a start-up’s potential, Chong emphasises that Cento is not just focused on growth when shortlisting companies for its fund. Instead, it places importance on the viability of its business model.
“If you look at just growth, you will start eliminating things like property management start-ups because these are not very sexy,” she says. “It’s just organising labour to show up at a place, clean and maintain it. These businesses are not going to see high margins or fast growth.”
On the other hand, if a business “can bring together highly qualified players delivering a service”, Chong would consider it as it would have overcome the challenge of bringing together a fragmented marketplace where participants are not just real estate companies, buyers and sellers, but also legal services firms and banks.
The Asian proptech sector faces the additional challenge of being heavily regulated by governments, observes Chong. As a result, business models that may be viable in one country will have to be adapted and tweaked to succeed in another.
For now, Cento has not finalised the portfolio of companies for the proptech fund. Chong has instead amassed a database of “several hundred potential companies across the Asia-Pacific excluding China and India”.
Corporates driving innovation
Chong asserts that even with the increase in new entrants, the proptech sector may expand even faster in the current bear market. According to her, in the past decade, real estate corporates in Asia have not been keen to invest in technology to improve efficiency. She attributes this to the low salaries in the region. This encourages corporates to employ more labour instead of adopting technologies.
“This is now quickly changing across all the major real estate markets in Asia. We are seeing rising interest rates and increasing pressure for real estate developers to perform so this is a wake-up call for businesses. If they didn’t want to deal with technology in the past, now is a good time for them to reposition and address the issue and see how they can improve their offerings,” she reckons.
Some corporates have set up their own corporate venture arm and are leveraging venture capital firms to drive innovation. The involvement of corporates could potentially help to grow the proptech ecosystem.
Chong reckons that it could take just one real estate conglomerate to drive change. She points to the recent $11 billion merger and acquisition of CapitaLand and Temasek’s wholly-owned subsidiaries under Ascendas-Singbridge. “If the new entity decides to adopt a certain technology, it may actually become an industry norm,” she says.