Merritt Hummer says she was first drawn to proptech through her 2017 investment in Ring. (Amazon’s $1 billion acquisition the following year might have helped that interest along.) Since then, she’s watched this category evolve into a true trend, dovetail with the explosion of embedded marketplaces, and put industries like brokerage and construction under siege.
In this Q&A, the Bain Capital Ventures growth investor talks through what she sees as key opportunities in the space and shares insights she’s gathered over the course of her work with startups like Material Bank, SmartRent, Ankorstore, Pleo, Mirakl, Ribbon, and more.
Tell us about your entry to the real estate space. What’s drawn you to this sector and how has your perspective evolved from spending time with founders here?
I was first drawn to the proptech sector in 2017 through an investment I made in a smart home company called Ring. At the time, the word “proptech” didn’t exist. But sometime in the last few years, proptech entered the lexicon as a successor to and complement of fintech. I don’t think that’s a coincidence: many of the early proptech companies were fintech companies. It was only after several of them emerged that it became clear that proptech is a sector unto itself.
You wrote recently about the emergence of “embedded marketplaces” as a continuation of Matt Harris’s coinage of “embedded fintech.” Having led Bain Capital Ventures’ investments in some of those examples—Material Bank, Ankorstore—how did you and the teams at those companies come to see this trend emerging and lean into it? Can you say more about why this works particularly well in the real estate / construction space?
Matt’s work on embedded fintech made me think a lot about other business models that can be built into software. 1.0 software businesses used to be built upon recurring SaaS revenue; now, software companies have a wide range of monetization avenues available to them: payments, lending, insurance (capturing the embedded fintech trifecta) or take rates on marketplaces, data monetization, and more.
I am particularly intrigued by the embedded marketplaces movement because I think we will see more and more software platforms adopt a marketplace as a monetization strategy. Software companies that have an installed base of users who rely on the software for day-to-day workflows should be able to sell those users goods and services in the context of their daily tasks.
Construction is a great use case for embedded marketplaces. If a general contractor uses a mobile app to manage the construction site, shouldn’t he or she be able to place orders for materials and other supplies from the same workflow app?
What other trends are you watching closely right now? (Particularly ones that relate more specifically to proptech and real estate.)
We are very interested in changes in the residential real estate world. Traditional brokerages are under siege right now. Startups like Opendoor, Side, and Orchard are disrupting how consumers buy and sell homes. If you look at the tiny market share of these companies, it’s clear we’ve just seen the first pitch of the first inning.
We are also closely watching the construction world. People love to cite the fact that the construction sector has seen the least productivity improvement of all industries in recent decades. Lots of startups are trying to change that.
What do you especially look for in early-stage real estate founders and startups? What kinds of characteristics are particularly required for building category-defining companies in this industry?
I look for founders who have some “unfair” advantage in building their business. The advantage can take many different forms but there has to be a clear answer to the question: why is this person uniquely well suited to build this business?
I look for markets that desperately need reinvention, which isn’t hard to find in the real estate world, combined with receptivity of the buyer audience to new solutions. I think about inevitable end states: if we fast forward ten years, does it feel inevitable that a market will look a certain way or some technology will be mainstream?
As a growth investor, I also look for some evidence that the business is working and that it can scale. Has the founder been able to attract customers? Have those customers stayed with the platform? How was their experience? Do we believe there are thousands more customers out there to go acquire?
What’s a key piece of early advice you’d want to give a new founder in this space?
Pick a really big, ambitious problem to solve, but break it into baby steps. The best founders can bounce between a grand vision and the tiny details.