How Reliable Are The Proptech Valuations Running Into Millions?

DealMakerz examines two lettings platforms at an early stage in their development both of which claim values in excess of £3m.

There has always been an element of smoke and mirrors about tech start-ups with punchy ambitions, and particularly so when it comes to their valuations.

A tech-based business idea with the backing of either angel investors or a reasonably successful crowd-funding round can claim to be worth millions even if they’re at a very early stage of development.

The most famous example of this is Snapchat, now known as Snap Inc. From its early days the company relied on punchy valuations to grab the public’s imagination.

Prior to its IPO the company was valued at between $20 and $40 billion after raising $3 billion from various funding rounds, a valuation based largely on those investments rather than other business metrics.


Quick takeaway

  • Many proptech firms in the UK have adopted a model of using valuations to help grow their business
  • The concept is an American construct of which Snap Inc, the owner of Snapchat, has been the most famous example
  • Two student lettings platforms that have recently soft and hard launched both claim to be worth £3m+

And many proptech firms have followed this model. Like Snap, such high-profile valuations are usually based on private or public investors’ confidence in their future performance.

This includes their potential to scale quickly and grab market share off more traditional businesses or create new markets. But as true business valuations they are questionable.

“‘The valuation of a business at seed stage is not a science,” says OpenRent investor and CreditLadder CEO Sheraz Dar.

“Founders want to raise money and have no doubt have sacrificed many hours unpaid on something they believe in, and investors are always looking for the next big deal.

“Typically, seed valuations have settled between £1m to £2m but this isn’t a valuation for just an idea, this is typically where interest in the product or service has been proven to some extent.

“The start-up will want to take advantage of this and requires further capital to grow and expand. At this very early stage, by definition, you are looking at potential – there is no guarantee and therefore my advice is founders need to set their expectations accordingly and not put potential investors off with lofty valuations.

“Start ups raising capital at this stage will also be at different stages, and a sensible valuation should reflect this.”

It’s all part of proptech firm’s understandable needs for media coverage and naturally, such huge figures make for great headlines and tweets. But what is the substance behind these proptech start-ups?

DealMakerz has spoken to a pair of early-stage proptech lettings platforms to quiz their young CEOs, both of whom says their businesses are each worth in excess of £3 million.


What is a pre-money valuation

‘Pre-money’ is a difficult if not labyrinthine concept for the mathematically challenged but is essentially the value of a company recalculated after an investment is made in it, based on the number of existing and new shares issued by a proptech business.


The highest claimed valuation is Accommodation.co.uk, which has been in start-up mode for 14 months and is due to go live in January 2019.

Its CEO Aaron Short, who only graduated from the University of Lincoln this year, says his investors have put a valuation of £3.75 million on his company. Challenged on how he came to this, Aaron says he can’t yet reveal the investment formula that has generated the value, but will soon.

Whatever the Dragon’s Den style deal he’s signed turns out to be, it’s probably based on the fact that Accommodation.co.uk has that intoxicating but intangible mixture of scalability and simplicity that investors love.

Aaron and his friend Matthew Meakins – who left university earlier than Aaron to start the business up – have created what they claim is a fully automated online property and tenancy management platform.

“While at Lincoln I bought my own property and let that out to students and consequently got talking to local agents and landlords, and realised the market was broken so I looked at it from the outside in with fresh ideas,” he says.

“We looked at the renting process and realised that it could be automated – and looked at the rest of the market and realised there weren’t that many people doing it.”

Timely launch

Whether you think lettings platforms like his will be embraced by landlords or not, Aaron’s launch of his online lettings portal (as he describes it) is timely.

The reduction in tax allowances for landlords and the high running costs the tenants fee ban may force landlords to pay will play into his hands.

“There’s no way smaller letting agents are going to survive after the tenant fees ban,” he says.

Aaron says his platform’s low overheads mean it will break even with just 200 properties and already has 100 ready to go. At launch it will charge landlords the “lowest standardised management fee” in the market and scale quickly from there, growing income streams via commission from insurance and other third-party services.

He says he will be targeting self-managing landlords who he believes make up 40% of the private landlord landscape.

Viewings are to be conducted by Viewber personnel while maintenance issues will be reported by tenants directly from an app to a panel of maintenance contractors, and key management will be via online ‘key safe’ firm KeyNest.

Bubble economics

Felix Henderson, who is CEO of student accommodation tech platform BubbleStudent.co.uk, is more candid about how his firm came to its multi-million valuation.

That’s because he can afford to be. In August Bubble Student raised £430,000 via an oversubscribed crowdfunding offer for 11.76% of the company, giving it a ‘pre-money’ valuation of just over £3 million.

‘Pre-money’ is a difficult concept for the mathematically challenged but is essentially the value of a company recalculated after an investment is made in it, based on the number of existing and new shares issued by the business.

Bubble Student’s model is easier to understand, happily. Felix has built a platform that brings together students on an app and website and then enables them to communicate with letting agents and landlords directly, making his business essentially a lead generator.

The proptech company has ‘ambassadors’ on the ground in the two main cities it operates within – Newcastle and Manchester – while tenants are rewarded financially if they introduce agents and landlords to Bubble Student.

Felix is ahead of Aaron as Bubble Student has 10,000 registered users and a similar number of properties to rent.

“Communication is the missing bit in the usual student lettings set-up, because students want to talk to property providers on their own terms,” says Felix. “Also, the speed of the market means traditional channels are difficult to deal with, particularly when students are trying to rent in cities they are not familiar with.”

Both Aaron and Felix are running businesses that have a long way to go before they become viable, gain significant market share or generate wholly sustainable turnover revenues. But with money to burn and claimed multi-million-pound valuations, it’s a strategy both are eagerly banking on.

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