Hike funding

As rents rise, so does funding for rental-focused startups

The past few months have been difficult for US tenants facing a combination of rising costs and low availability. Over the past year or so, the median monthly asking rent would have increased by 17%with at least 10 metropolitan areas posting increases of 30% and more.

The venture-backed startups haven’t solved the cost and supply issues facing tenants, but they’re expanding some offerings that could make the process of securing a place easier. From move-in cost-saving services to apartment comparison platforms to landlord-centric software tools, financing for businesses focused on rental space is taking its toll.

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“It’s definitely a trend that more people are praising than in the past,” said Clelia Warburg Petersmanaging partner at Era Venturesan investor in proptech and related sectors.

She considers the main drivers of rental demand to be both positive and negative. On the positive side, there is increased demand, especially from young and empty nests, due to the flexibility, amenities and maintenance-free lifestyle that rentals can offer. On the negative side, there are a large number of budding homeowners who are stuck in renting because they can’t buy a home they can afford.

Either way, the net result is that rental-focused startups are a hot investment area. Using data from Crunchbase, we’ve compiled a list of 17 U.S. rental-related companies that have raised VC funds in recent quarters. Together, they have raised over $1.3 billion over the past nine months.

It’s a diverse set of businesses, but to put things into perspective, we’ll focus on a few big themes, including financial offerings, amenities, and tech-enabled property management.

Fintech-like startups for tenants

Companies offering financial services to tenants have been particularly popular with investors lately.

The most recent funding round in this direction went to Guarantors, a New York-based startup that covers security deposits for a fee and serves as a lease guarantor. The company recently announced that it had secured $50 million in a Series C investment led by Portage Companies.

Launched in 2015, the company pitches its offering as a way to reduce upfront rental costs. In exchange for a fee (usually 6-33% of the monthly rent), the company will cover the security deposit. It also provides lease guarantees to landlords, for which tenants pay a fee, with the aim of opening up rentals to potential tenants who may not meet the usual qualifications.

Two of the most funded startups, meanwhile, focus on tenants on the path to homeownership. Divvywhich has raised $370 million to date, offers a platform for lease-to-own home purchases. Top Topa startup that lets tenants see financial gains from their rental homes, closed at $275 million in a November round.

For tenants concerned about getting their rent check on the first of the month, meanwhile, backed by venture capital pier offers a “rent now, pay later” service.

Amenities, amenities and more amenities

Many people spend a large portion of their income on rent. Given this reality, it’s not entirely surprising to see startups working on ways for tenants, especially high-paying ones, to get more for their money.

Alfred is one of the most funded players in this field. The company, which offers an app-based personal assistant service for tenants, raised $125 million in a funding round in March.

Other companies are ramping up offers that Peters says “blur the lines between staying in a hotel and renting.”

Luxury serviced apartments with flexible rental options are part of this trend. blue background, which offers short- and long-term custom-furnished apartment rentals, raised $140 million in a Series C round in September. In the same order of ideas, Landingwhich offers furnished apartments with flexible leases, raised $45 million in a Series B round in February.

Technology-based property management

Startups offering technology and tools to rental property owners and managers are also receiving significant funding.

The list of companies that have closed investments in the past few months includes Mynda technology-driven property management company, Funnela tool for managing leases and communications with tenants, and RentRedia mobile application for owners.

Notably, property management software was one of the areas we identified nearly a year ago as a hot space for seed trading. Within a few quarters, several space companies that were in the seed stage have already closed larger rounds.

The Road to Rental Ahead

Where is all this going? For now, it’s probably too optimistic to expect big releases. With the IPO market effectively closed and money-losing growth stocks no longer trending with investors, rental-focused startups can likely bank on staying private for now.

Public markets don’t look welcoming. For a space company that ventured into the public market through SPAC – luxury apartment rental and short stay network probe— The result has not been good so far, with shares down around 60% since the start of the year.

Of course, while inventory has fallen, the one thing rental space companies probably care about most — rents — has only gone up.

Drawing: Dom Guzman

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