29 Aug Prop Tech Projects for EB-5 with Umesh Harigopal of PropMix – Episode 84
As an industry, real estate technology is experiencing exponential growth. On this episode, Mona, Mark, and Hermione are joined by Umesh Harigopal to discuss his startup in the space, PropMix. Listen in for insight around how the Prop Tech space has evolved, how the convertible note structure benefits investors, and why Umesh is pursuing EB-5 funding for PropMix!
The real estate tech sector is exploding. In 2017 alone, venture capitalists deployed $12B in Prop Tech startups, and the space has produced two of the three most valuable new companies in the US, WeWork and Airbnb. So, how can EB-5 investors get involved in this growing industry? And how does Prop Tech differ from investing in a real estate development, for example?
Umesh Harigopal is the CEO of PropMix, a ground-breaking app development platform that enables the real estate ecosystem to consume and monetize data and build smart applications, and he has extensive experience in advising and running real estate and technology startups. On this episode of EB-5 Investment Voice, Umesh joins Mona, Mark, and Hermione to discuss the evolution of property tech and share the value proposition of his own startup in the space, PropMix.
Umesh explains why PropMix is pursuing EB-5 as opposed to angel or VC funding and describes the convertible note structure of the investment. Listen in for insight around the potential for job creation in Prop Tech and learn how companies like PropMix are leveraging EB-5 capital to develop AI and machine learning technology that automates the work done by real estate professionals.
The Evolution of Property Tech
- Property tech got its start in the early 2000s with websites offering homes for sale. This first iteration was driven by finding leads for real estate agents and brokers.
- Property tech 2.0 advanced to include real estate analytics. This evolution of the space allowed for home valuations and provided vital information to homeowners and banks.
- Driven by AI and machine learning, Prop Tech 3.0 automates some of the work done by real estate professionals so they can focus on high-value activity. This is the space where PropMix plays.
Why PropMix is Pursuing EB-5
- Tech startups typically raise capital through Angel or VC funding or loans. But EB-5 is attractive to PropMix because it functions as a debt instrument. As such, its equity remains undiluted.
- Raising capital through EB-5 allows PropMix to improve its valuation in the beginning and offer investors the option to come back and buy into equity at a high valuation at the end of the five-year loan period—at a highly discounted rate.
- This structure is a kind of convertible note, meaning that investor capital starts out as a loan and is later converted to equity. The amount of conversion is based on the company’s valuation after five years, while the predetermined discount is written into the PropMix project documents.
- This structure also reduces the risk for EB-5 investors, as they can wait and see how the company is doing at the end of five years. At that point, the investor can buy equity when the risk is much lower than what a VC would be taking today.
Job Creation in Prop Tech
- Due to job creation requirements, EB-5 investors prefer industries that naturally produce a surplus of roles. Prop tech generates jobs in operations like the support call staff and the sales and marketing team. Startups in this space also create jobs for software architects and developers.
- The cost of creating 10 jobs in Prop Tech is much higher than that of real estate development, as technologists make $50 to $60 per hour compared to $35 an hour for construction work. For this reason, it is much more effective to go through the Regional Center model for a tech investment—even more so than traditional real estate.
The PropMix Value Prop
- PropMix has been in business for 3½ years, and it is a cashflow-positive company. The team generates revenue from a number of Fortune 500 clients holding multiyear contracts.
- The key capabilities of the PropMix platform include image recognition and data from all the residential and commercial properties in the US. PropMix supplies insights to mortgage companies, agents, brokers and real estate investors.
- Umesh contends that Prop Tech ventures like PropMix reach far beyond a targeted employment area to have a wider impact than real estate developments. Because PropMix is a SaaS company working online, it supports real estate businesses across the country.