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

The past few months have been tough for US renters who have faced a combination of rising costs and low availability. Over the past year or so, average monthly rent demand is reported to have increased 17 percent, with at least 10 metro areas registering increases of 30 percent and above.

The venture-backed startups haven’t solved the cost and supply issues facing tenants, but they are scaling up some offerings that could make it easier to get a place. From services to low relocation costs to apartment comparison platforms to owner-centric software tools, funding for companies focused on the rental space goes to gang companies.

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

It considers that the basic drivers of demand for rents are positive and negative. On the positive side, there is a growing demand, particularly from the young and vacant population, due to the flexibility, amenities and maintenance-free lifestyle that rentals can provide. On the downside, there are a large number of rent-willing homeowners who have stopped renting because they are unable to purchase a home they can afford.

Either way, the net result is that rental-focused startups are an investment hot spot. Using Crunchbase data, we curated a list of 17 US rental-related companies that have raised project funding in recent quarters. Collectively, they have withdrawn more than $1.3 billion in the past nine months.

It’s a diverse group of companies, but to put things into perspective, we’ll focus on a few general topics, including financial offerings, utilities, and technology-enabled property management.

Fintech-like startups for tenants

Recently, companies that provide financial services to tenants have been particularly popular among investors.

The latest big run along those lines went to TheGuarantors, a New York-based startup that covers escrow deposits for a fee and acts as a guarantor for the lease. The company recently announced that it has secured $50 million in a Series C investment led by Portage Ventures.

Launched in 2015, the company is offering as a way to reduce initial rental costs. In exchange for a fee (usually 6 to 33 percent of your monthly rent), the company will cover the security deposit. It also provides rental guarantees for landlords, for which tenants pay a fee, in an effort to open up leases to potential tenants who may not meet the usual qualifications.

Meanwhile, two of the most funded startups are focusing on renters on the way to home ownership. Divvy, which has raised $370 million to date, offers a platform for rent-to-own home purchases. Up & Up, a startup that enables renters to see financial gains from their rental homes, closed at $275 million in the November round.

For tenants worried about getting rent on the first of the month, meanwhile, Project-backed Jetty offers a “rent now, pay later” service.

Amenities, facilities and more amenities

Many people spend a significant portion of their income on rent. Given this reality, it’s not entirely surprising to see start-ups working on ways for tenants, especially high wage earners, to get more interest for their money.

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

Other companies are expanding offerings that, according to Peters, “blur the lines between hotel accommodations and rentals.”

Luxury furnished apartments with flexible rental options are part of this trend. Blueground, which offers short, long-term and on-demand apartment rentals, attracted $140 million in its Series C round for the month of September. In a similar vein, Landing, which offers furnished apartments at flexible rents, has raised $45 million in Series B.

Technically Enabled Property Management

Startups that provide technology and tools to rental property owners and managers are also seeing a fair amount of funding.

The list of companies that have closed their investments in the past few months include Mynd, a tech-enabled property management company, Funnel, a tool for handling leases and tenant communications, and RentRedi, a mobile app for landlords.

Notably, property management software was one area we identified nearly a year ago as a hot spot for seed deals. Within a few quarters, many of the companies in the space that were already in the starting stage then closed larger rounds.

The rental route is ahead

Where is all this headed? At the moment, it is perhaps too optimistic to expect big exits. With the IPO market effectively shutting down and money losing out on the fave markets with investors, it’s possible that rental-focused startups can continue to stay private for the time being.

Public markets do not look very welcoming. For one in the field that ventured into the public market via SPAC — a luxury apartment and Sonder network for short-term rentals — the outcome has not been so good so far, with shares down nearly 60 percent since the start of the year.

Of course, while stocks have been going down, the one thing companies in the rental space probably care about — rents — isn’t going anywhere but going up.

Illustration: Dom Guzman

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