Faisal Butt wasn’t expecting to run his eighth accelerator programme from his kitchen table. But that’s what the Pi Labs founder and chief executive has found himself doing during these strange times. In fact, it sounds like his children are taking part in the three-month programme too.
“During dinner time we leave Speaker Series on [every Wednesday evening, an accelerator alumni tells their story to the new cohort of start-ups] and I’ll sometimes chime in and ask a question. Sometimes my kids will ask a question. So it’s a very different accelerator, but we’re making it work.”
It was touch and go as to whether Pi Labs was going to go ahead with the programme. The widespread lockdowns that have occurred globally as a result of the Covid-19 pandemic meant there was no way that the programme, which had selected five companies from the UK, Bulgaria, Romania and Finland, could run in its usual format.
“It’s a very hands on three-month period and the physical space element has historically been an important component,” Butt says. “We’ve ran seven accelerators, and [during] the eighth, we’ve been hit by this.
“We thought: ‘Oh my God, are we going to delay it, are we going to cancel it this year?’ We very quickly had to pivot and turn it into a digital accelerator programme. It’s working really well.”
Investment during coronavirus
Aside from the five start-ups taking part in the accelerator programme, which have all received seed funding from Pi Labs as part of the course, is the proptech VC still investing during such unprecedented times?
Butt says Pi Labs is “open for business”, having invested into a German proptech start-up and two other companies during the Covid-19 crisis. However, the VC is erring on the side of caution.
“We’ve done our first close on our third funds, but we do have to be more cautious in this environment,” he says. “One of our key concerns for any new investment we’re looking at is whether the business is going to be able to withstand the short-term crisis and be able to have cash for the next 12-18 months, so we’re being a little bit more conservative in our diligence in underwriting investments.”
He has noticed that, in general, the pandemic has created a tougher fundraising environment for start-ups.
“It may be the case we are providing 50% of the capital the start-up needs to close their round,” Butt says. “What is happening is that start-ups may struggle to get the other 50% from another investor. Weeks will be dragged out and [fundraising rounds] will take longer.”
Health of start-ups
As VC funding dries up, start-ups are starting to gear up to fight for their lives, according to research by the UK PropTech Association.
In a survey of its members on the impact of Covid-19 on their businesses, the UKPA found 43% of proptech companies are planning for survival over the next quarter, 25% are preparing for stagnation, 6.3% fear closure and a quarter remain bullish and expect growth.
Butt says start-ups entering the Covid-19 crisis with a weak balance sheet will have to fight harder to survive. “There were start-ups that came into the crisis with a strong balance sheet which had recently raised capital – they are fine and they are stable… because of the strength of their balance sheet,” he says.
“There will be other start-ups that went into the crisis already in a weak position and it’s going to be tougher for them because they may just have three months of runway left. This crisis might take six months before the fundraising markets really open up and go back to normality.”
Butt advises struggling start-ups to turn to their original investors for help during these times. “Most VCs, from an investor perspective, are prioritising investments into their existing portfolio companies.
“The approach that they’re taking is: before we start making new investments, let’s look after our existing portfolio companies that have consistently performed but have run into temporary difficulty, we have to make sure we support them and get them through this difficult period.
“So my advice would be to go back to existing investors and get them to support you as you are their priority now.”
Emerging from lockdown
There will be a time when we all emerge from lockdown and don’t have to work at the kitchen table anymore. But what does life for proptech look like after coronavirus, according to Butt?
“I think there is an immediate and short-term headwind on proptech and all sectors,” he says. “In the medium term for proptech, I believe there is going to be a tailwind, and the reason for that is that Covid-19 has put real estate into a strange position where professionals across the industry, who were traditionally tech unsavvy, are having to use tech tools and solutions in order to collaborate and operate digitally and remotely.”
Lockdown has proved to the industry that tech is critical for business survival, and it is this revelation that could be the silver lining to the pandemic. “I think in a strange way, Covid-19 is going to accelerate the adoption of proptech in the real estate industry,” says Butt. “What would have taken 10 years in adoption will now take a couple of years.”
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