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

The past few months have been challenging for US tenants facing a combination of rising costs and low availability. Over the last year or so, median monthly rent reportedly increased 17 percent, with at least 10 metro areas seeing increases of 30 percent and more.

Business-backed startups haven’t solved the cost and supply issues renters face, but they are expanding some offerings that could make the process of landing a place easier. From services to lower moving costs, apartment comparison platforms, and owner-centric software tools, financing for rental-focused businesses is becoming a big hit.

Search less. Close more.

Increase your revenue with all-in-one prospecting solutions powered by the leader in private enterprise data.

“It’s definitely a trend that more people are renting than in the past,” said Clelia Warburg Peters, managing partner at Era Ventures, an investor in proptech and related sectors.

She sees the main drivers of rental demand as both positive and negative. On the plus side, there is increased demand, especially from the young and empty nesters, due to the flexibility, amenities, and maintenance-free lifestyle that rentals can offer. On the downside, there are a lot of would-be homeowners who are stuck in rent because they can’t buy a home they can afford.

Either way, the net result is that rental-focused startups are a hot area for investment. Using data from Crunchbase, we curated a list of 17 US rental-related companies that have raised venture capital in recent quarters. Collectively, they have raised more than $1.3 billion in the last nine months.

It’s a diverse set of companies, but to put things in perspective, we’ll focus on a few general topics, including financial offerings, services, and tech-enabled property management.

Fintech type startups for tenants

Companies that offer financial services for renters have been especially popular with investors lately.

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

Launched in 2015, the company presents its offer as a way to reduce the initial rental costs. For a fee (usually 6 to 33 percent of monthly rent), the company will cover the security deposit. It also provides lease guarantees to landlords, for which tenants pay a fee, in an attempt to open up rentals to prospective tenants who might not meet the usual requirements.

Meanwhile, two of the most funded startups are targeting renters on the path to homeownership. Divvy, which has raised $370 million to date, offers a platform for the purchase of rent-to-own homes. Up&Up, a startup that allows renters to see financial gains from their rental homes, closed with $275 million in a November round.

Meanwhile, for renters concerned about receiving their rent check on the first of the month, venture-backed Jetty 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 renters, particularly high-paying ones, to get more for their money.

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

Other companies are expanding offerings that Peters says “are blurring the lines between staying in a hotel and renting.”

Luxury furnished apartments with flexible lease options are part of this trend. Blueground, which offers custom-furnished short- and long-term apartment rentals, raised $140 million in a September Series C round. Similarly, Landing, which offers furnished apartments on flexible leases, raised $45 million in a February Series B.

Technology-enabled property management

Startups that provide technology and tools for rental property owners and managers also receive a good amount of funding.

The list of companies that closed investments in recent months includes Mynd, a tech-enabled property management company, Funnel, a tool for managing leases and tenant communications, and RentRedi, a mobile app for landlords.

In particular, property management software was one of the areas we identified almost a year ago as a hot space for seed trading. Within the span of a few quarters, several early-stage companies in the space have already closed larger rounds.

The rental road ahead

Where is everything headed? For now, it’s probably too optimistic to expect big outflows. With the IPO market effectively shut down and money-losing growth stocks out of vogue among investors, rental-focused startups can probably rely on staying private for the time being.

Public markets do not seem welcoming. For a company in the space that ventured into the public market through SPAC (the short-term luxury apartment rental network Sonder), the bottom line hasn’t been good so far, with shares down around 60 percent since beginning of the year.

Of course, while stocks have been down, what probably matters most to companies in the rental space, rents, have gone nowhere but up.

Illustration: Dom Guzmán

Stay up to date with the latest funding rounds, acquisitions, and more with Crunchbase Daily.

Add Comment