Alchemy is the research lab of Mandalore Partners. Below is the preview of our research report on sustainable agendas.
For more information please contact us at research@mandalorepartners.com
For more information please contact us at research@mandalorepartners.com
Alchemy is the research lab of Mandalore Partners. Below is the preview of our research on operating resistance, health & wellness, sustainability & climate change, and emerging risks.
For more information please contact us at research@mandalorepartners.com
For more information please contact us at research@mandalorepartners.com
In this article, we explore trends in the field of human capital. It focuses on concepts of “alternative workforce” and remote work which are now frequently debated due to the current pandemic event, despite these being recurring themes over the years for companies looking to boost their operational efficiency. We also explore how organizations can measure the impact of such an event in terms of ESG and human capital.
Alternative workforce is commonly divided into three groups: freelancers and independent workers (individuals who extend the core employee workforce and are paid by a unit of time, such as per hour or day), gig workers (individuals who are paid by the task to complete a specific piece of work), and crowd workers (individuals who compete to participate in a project and are paid only if they are among the top participants in a competition)[1]. These types of workers were initially applicable mostly to the IT sector but can be nowadays seen across a variety of industries, including financial services. Over the past years, there has been a significant growth in the alternative workforce. In 2016, the global market size of outsourced services, which is a proxy for the alternative workforce market, was USD 76.9 billion and in 2019 it reached USD 92.5 billion, which represents a CAGR of 6.4%. Moving forward, we expect the alternative workforce to continue to remain important as the majority of businesses, including those focused on financial services, feel positive about their outsourcing partners and financial services executives outsource a part of their services[2].
Increasingly, companies are starting to rely on outsourcing services that require more technical knowledge and a higher level of skills, which in turn create a greater impact on their performance metrics. Consequently, the global knowledge process outsourcing market size, which is a subset of the broader outsourcing market for more specialized and analytical type of work, is projected to grow from USD 28.94 billion in 2016 to USD 124.29 billion by 2025[3], which represents a CAGR of 17.6%.
Working remotely has been a trend that COVID-19 has largely accelerated, leaving no choice and forcing digitalisation. It is too early to say what are the exact impacts on businesses, but it is clear that the trend is here to stay. According to Matt Mullenweg[4], Chief Executive Officer of WordPress and Tumblr and owner of Automattic, the culture that allows work flexibility is long overdue and “this might be a chance for a great reset in terms of how we work”.
Remote work trend has been growing steadily before COVID-19 outbreak
There is no doubt that the COVID-19 is having a huge effect on businesses and the workforce. Organisations are already counting innumerable losses not only in terms of profits, but also in terms of human capital, and many are forced to lay-off employees and pause their expansion plans. While it is easy to quantify the financial losses incurred, it is more complicated to track the social impact of the pandemic on organisations. Even if it cannot protect the workforce, it can help better understand the situation and prepare for future critical situations. While overall impact or ESG (Environmental, Social and Governance criteria) measurement in companies is still in its development phase, there are various solutions and free tools proposed by impact measurement platform in the context of global solidarity specifically for tracking and understand the implications of COVID-19.
Socialsuite, an Australia-based impact measurement company, has made their surveying tool available for companies to measure the social impact of COVID-19, whereas Truvalue Labs, US-based ESG Data provider, has made their ESG dataset available for free.
Such data can later serve as a basis for a better crisis preparation, re-examination of business needs and the evaluation of employee wellbeing.
Sample Dashbord of the free COVID-19 Social Impact Assessment by Socialsuite
The dissemination of technology experienced in the past two decades has allowed individuals to effortlessly access enormous amounts of information, and to share it almost instantly. This has rendered physical distance a non-problem in a professional context and, in turn, allowed companies to have access to the best resources, whether these are in the office next door, or a thousand miles away.
Many enterprises, previously sceptical of the alternative workforce concept, were now forced to adopt new ways of conducting their business and creative ways have been conceived to mitigate the previously perceived issues of working remotely.
LGG Advisors and Odysseus Partners, with operational teams based in Portugal and France, respectively, support effective remote-based work solutions. For close to 3 years, both have been offering remotely a variety of services in finance and risk management to several companies in the financial services industry globally.
[1] Leading the social enterprise: Reinvent with a human focus, Deloitte, 2019
[2] https://fortunly.com/statistics/outsourcing-statistics#gref
[3] https://www.grandviewresearch.com/press-release/global-knowledge-process-outsourcing-kpo-market
[4] https://ma.tt/2020/03/coronavirus-remote-work/
[5] Veza Digital
Picture: Mark Koch
Impact investing landscape in Europe is still difficult to size due to limited consensus on the definition, lack of statistical data and absent impact measurement system
Welfare policy and economic development state - main factors determining the heterogeneity of European impact investing markets
Key market building driver: collaboration between public and private sectors
Next steps for scaling the impact investing market in Europe
Defined as an efficient blend of strong, positive, environmental and social impact alongside financial returns in an investment, Impact Investing is still considered to be a new trend in the investment world.
Investing in opportunities in both developed and developing markets to support the economic and social development of disadvantaged communities, in areas such as health, education, housing, and financial and economic inclusion, or supporting worthwhile social objectives or environmental objectives such as encouraging diversity, developing sustainable agriculture or clean technologies with an intention to measure and manage social and environmental impact, remains a peripheral sustainable and responsible investment (SRI) strategy to most investors in Europe.
Source: Eurosif
However, it’s importance is rapidly increasing: according to Eurosif, impact investing continues to grow registering a 6-year CAGR of 52% in period of 2011-2017.
Source: Eurosif
For 2019, market size estimates vary from as low as 11,8 billion Euros (Global Impact Investor Network, GIIN) to as high as 108,6 billion Euros (Eurosif), which shows that defining European impact investing market size unilaterally is challenging...
Source: https://impactdatabase.eu/read/
Limited consensus on the definition. One of the reasons for such radical difference between estimations is limited consensus among mainstream investors and specialized niche players on the definition of impact investing. The lines between different forms of Sustainable and Responsible Investing (SRI), ESG Investing and Impact Investing are still quite blurry, definitions and calculations vary, which demonstrates that the market is yet to mature.
Lack of reliable aggregated statistical data. That is a known weakness of the on the impact investing market in Europe. GIIN might seem to be one of the most reliable sources for Impact Investing market data, however, it only conducts annual surveys amongst its member list, which does not include all impact investors and not all those on that list might be dedicated to only impact investing. Other sources, such as Eurosif, do report on a broader SRI market, however, recent comprehensive studies on impact investing in Europe in particular are difficult to find.
Absent unified impact measurement system. Since there are no internationally standardized regulations for impact measurement in investments, it is quite easy to self-proclaim as an impact investor, or not categorise yourself as one, which makes it difficult to keep track of all impact investors.
Western Europe dominance. In Europe, impact investing markets vary greatly from country to country. Impact investors have more established presence in Western Europe compared to Eastern Europe due to older traditions of institutional investing, presence of well-established financial actors such as pension funds and insurance companies as well as more engaged action against social and environmental issues.
According to Eurosif, impact investing is notably increasing in Spain and Italy, with positive signs observed in Sweden, Belgium and the UK. In case of the Netherlands, the sharp fall in Eurosif study is “largely explained with a respondent gap rather than a shift in trends”. The country remains one of the most important hubs for developing and implementing the way forward for impact investing.
Source: Eurosif
UK’s leading position. In Anglo-Saxon countries with liberal welfare states such as United Kingdom, impact investing market has been developing much quicker and took a leading position with players such as Big Society Capital. In market since 2012, it manifested as an effort of the UK government to efficiently provide capital for the existing intermediaries and build the market; it remains one of the key British players in the field.
New impact investing hub - Paris. However, due to Brexit taking place, more impact investors are seeking to establish their presence in the continental Europe. Paris, for example, has become an important hub for Impact Investing, with many impact related events taking place in the French capital. Paris Impact Investing Association has taken efforts to create an ever-evolving ecosystem map encompassing at least 30 active impact funds in Paris and beyond further fortifying its position as new impact hub.
Largely unexplored Eastern and Central Europe. While the iron curtain is long gone, the difference between stages of development in impact investing market between Western and Eastern Europe are showing that its effects are still felt. According to the last GIIN Annual Impact Investor Survey (2019), we observe that the number of headquarters of impact investing funds in Eastern Europe combined with Russia and Central Asia reach only 1%. While that is not an indicator of a market size, it does demonstrate that local impact investing market has hardly started to form, as the main investor focusin this region has been economic growth in the past decades.
Eastern Europe, Russia & Central Asia combined: 1%
Source:https://thegiin.org/assets/Sizing%20the%20Impact%20Investing%20Market_webfile.pdf
That does not mean, however, that the market is non-existent. Deloitte has taken on an effort to measure market readiness in Eastern and Central Europe by introducing its Social Investment Leveraging Index. It has indicated that “the highest score was calculated for the Baltic States (50.3), compared with 40.7 in the Balkans and 50.1 in the group in which Bulgaria, Moldova, Romania, and Ukraine were included.” (Deloitte). Such scores show, according to Deloitte,that venture philanthropy and social investments would be worthwhile.
While it seems that public sectors are often lagging behind andinnovation is largely driven by the private sector, there is great interest for public sector to engage in facilitating impact investing market growth as it contributes not only to the economic development and drives metrics such as GDP up, but also solves social and environmental issues. Increasing public sector efforts have been observed across Europe not only on the national level, but also EU-wide.
France. One way to explain the boom of impact investors in Paris, for example, is the push from the French government.Article 173 of the Loi n°2015-992 of August 17, 2015 related to the energy transition for green growth imposes impact measurement for bigger institutional investors. This law has indeed driven more investors to report on their impact, however, gaps are still noticeable: since no official methodology has been proposed, the quality of impact reports varies greatly, according to Novethic.
Germany. Development of impact investing market has been slower in countries with strong welfare state tradition such as Germany due to “the fact that mutual adaptation between SII (Social Impact Investing) and existing state-sponsored social welfare ideals has yet to take place.” (Bertelsmannstiftung). Nevertheless, we can observe recent market-building initiatives resulting out of the cooperation between public and private sectors. According to GSG research, Germany’s nascent impact market is gaining momentum: “existing funds have raised more capital, foundations have become active impact investors, existing intermediaries are developing new investment products, impact-driven organizations are increasingly securing investment and the market has stabilized.”
Germany’s challenges such as a small investor base, few intermediaries and little diversification, a limited number of investment products, few investment-ready impact-driven organisations are being actively tackled by a growing network of supporters and advisors, positioning it as an opportunistic growing market to be watched in 2020.
Europe. New EU regulatory efforts such as EU taxonomy for sustainable activities will undoubtedly stimulate EU markets,including the very youngest ones like Eastern Europe. But it will take more than EU’s efforts for these markets to fully mature: stakeholder coalitions and ecosystem building efforts by local entrepreneurs, investors and supporters are necessary for these markets to become investable.
There is no doubt that impact investing is becoming a very important part of the traditional investing landscape. With increasing amounts of proof that purpose-driven projects have increased financial value (Forbes), more and more institutional investors are turning towards investing in such enterprises. However, for impact investing market to flourish, few key market building milestones must be passed.
According to PlusValue research, key priorities for impact investing agenda are, unsurprisingly, establishing common framework for impact measurement, increasing public engagement in impact investing and defining of impact investing itself. This can be achieved by a closer dialog between private and public sectors, awareness raising and active participation of all stakeholders. This would lead not only to accelerated market development in the under-tapped areas of Europe, but also scale it further all over the continent.
Source: PlusValue
Research by @OdysseusPartner / @MortaKaz / @Minh_Q_Tran
For more information, contact: minh@odysseuspartners.com / @Minh_Q_Tran
Find below a mapping of the Insurtech market by Insurtech Capital. The map is divided into four main categories:
Create & Design (Insurances and product-like items)
Compare & Distribute (Comparators and brokers)
Control & Optimize (Operation efficiency processes)
Claim & Indemnify (Customer management and servicing)
Find below Odysseus’ mapping of European players in Wealthtech.
The map is built in 5 main sections:
Investment tools
Digital brokerage
Data analytics
Robo-advisor & portfolio management
Software
Startups are also categorized depending on their maturity levels and their business model (B2C, B2B2C, or B2B).
Proptech Capital, a new venture capital fund and accelerator in Europe launched by Odysseus, shares its view on the Proptech market today through a mapping of various startups involved in Proptech. This mapping is built mostly through Proptech Capital’s network and dealflow, and from the attendees of MIPIM 2018 & 2019. The geographical scope is mainly Europe, North America and Asia. The startups represented operate both in the commercial and residential real estate markets.
A definition of Proptech given by CB Insights is the following: Proptech (also referred to as property technology or real estate technology) is a set of cross-industry technologies changing the way we research, rent, buy, and manage property.
The map is divided in three main areas: Search, Supervise and Sell. These three concepts refer to the different steps in the commercial or residential real estate customer journey, both for real estate professionals and end-customers.
This article first provides explanations on each area and sub-area, and then gives further insights from Proptech Capital on some solutions of particular interest to the fund. It also gives a brief overview on some of the use cases Proptech Capital built on these solutions, and for which it is looking for strategic partners – contact Proptech Capital for detailed information.
I/ Proptech Venture Map
1. Search Phase
The Search phase corresponds to activities related to searching for a property – for the end-customer to buy or for real estate agents to list them.
Brokerage Services: list and search activities carried out by an individual or a firm related to the sale or purchase of a property in exchange for a commission on the transaction.
Marketplaces: companies offering a platform designed to match two populations and make a transaction happen between them.
Data, Valuation and Analytics: companies whose activity consists of providing data, analytics and valuation tools to property managers and investors in order to enhance their opportunity-screening process and automate the valuation process, sometimes using Artificial Intelligence and data science techniques.
Virtual Viewing solutions: services dedicated at offering cutting-edge viewing technologies such as 3D and VR/AR/MR, to tour a property or improve the collaboration process in a development project.
Lease Guarantee and Financing solutions: companies offering innovative solutions to have financial access to a property, either by providing a lease guarantor or securing the financial deposit required.
2. Supervise Phase
The Supervise phase corresponds to activities carried out in the day-to-day activities of real estate professionals or related to the supervision of their core activities.
Investment and Crowdfinancing: this category includes platforms that allow individuals to invest in real estate, notably using blockchain, and also crowdfunding platforms that list investment opportunities for individuals to take a part in.
Manage & Operation solutions: companies in this category are providing products and services that help manage a property and supervise the relationship between landlords and tenants.
Space-as-a-Service and Smart Buildings solutions: this category includes startups building or operating a network of shared spaces – co-working and co-living, or offering smart building solutions using Internet of Things to improve one’s use of a building.
Agent tools: companies in this category are providing real estate agents with tools to assist them in their activity.
Project Management solutions: this category refers to startups that are building products designed to help construction stakeholders manage a real estate project by offering digital and technological solutions.
3. Sell Phase
The Sell phase corresponds to the last step of the customer journey, where a property is sold through different channels.
iBuyer solutions: the term iBuyer refers to online estate companies able to purchase a house in a quick period of time at a discounted price and then sell it through an online channel.
Hybrid agents: this category gathers startups that are offering online brokerage services disrupting the traditional estate agency model, with no physical touchpoints and low-fixed costs to sell a property.
Insurance & Closing: startups in this category are offering insurance for homebuyers and legal services aiming at protecting the buyer against any risks during the selling process.
II/ Insights from Proptech Capital
From its investment theses and its convictions on where the highest growth and most innovative opportunities are, Proptech Capital has taken an interest in some of these sub-areas beyond the broader overview and done further analysis and research on relevant trends.
1) iBuyers
iBuyer solutions are one of these sub-areas.
As mentioned, the term iBuyer refers to companies able to make quick online offers at a discounted price for properties, and which then sell it at a profit through an online channel. Companies in the US such as Opendoor or Offerpad have shown that this offer could fill a gap in the market as they provided distressed sellers with a convenient and quick process to sell their property, while still having a price around 90% of the market value. They quickly gained exceptional traction and revenues, with investors confident that they would keep growing. Opendoor raised $400 million in funding in May of 2018, totalling a $1 billion dollars in equity funding, while Offerpad raised $150 million dollars in both debt and equity. Knock also raised $400m in 2018.
The iBuyer market started in the US in 2014, with the inception of Opendoor. In 2018, in the United States, iBuyer companies accounted for c. 15,000 purchases and c. 10,000 sales, for a 0.2% market share in the country. This figure comes, for a large part, from the very limited geographies in which iBuyers currently operate.
However, in Phoenix, currently the main market for iBuyers, these companies accounted for c. 6% of all transactions, showing the large potential of these companies in the US.
Their growth also led traditional actors like Zillow or Redfin to launch their own iBuyer solutions. Meanwhile, the exceptional traction of US iBuyers is contributing to the emergence of a similar trend in Europe.
Proptech Capital's analysis shows indeed that similar opportunities exist in Europe, where only few actors have this type of offer, often without having significantly scaled so far. Market trends show a growing demand for quick and efficient processes in real estate transactions, as an alternative to lengthy closes in purchases, as well as endless showings and negotiations, at a discount of 8 to 12%, which is well below those offered by traditional agents targeting "distressed" sellers. Indeed, selling a real estate asset through traditional means takes on average 4 to 6 months in Europe, with uncertainty that can make the process even longer, and a large part of sellers are ready to accept a moderate discount to avoid this. New valuation technologies using machine learning and data analytics algorithms are able to fill this gap and provide a meaningful competition to traditional real estate agents.
Below is a map summarizing the main existing iBuyers – or companies with a similar hybrid model, such as Nested – identified by Proptech Capital in the US and in Europe – i.e. a focus on the "iBuyer solutions" sub-area of the whole map:
In the context of Odysseus’ Asset Building approach, Proptech Capital is considering the launch of a real estate fund that could leverage this trend with investments in residential real estate assets at a discount. This fund could target the growing demand for quicker online processes, as well as for equity release, which is another growing real estate trend in Europe caused by the aging population and the projected growth in old-age dependency ratios. Equity release indeed offers new liquidity means to seniors, as it enables owners to access their property's value for more cash in retirement, and similarly to iBuyers, equity release platforms are appearing to answer this growing demand.
With the required funding, Proptech Capital could invest in European iBuyer and equity release platforms and co-develop its own real estate valuation algorithms and sourcing strategies with them, to build a real estate portfolio and ultimately conduct an IPO that would bring NAV premium returns to its investors.
2) Alternative real estate financing
Another trend Proptech Capital looks at with a particular interest is the alternative financing options for property investments, both on the supply side (property development and construction) and the demand side (mortgage loans), as well as the new valuation and investment methods relative to blockchain and real estate asset tokenization.
Proptech Capital mapped the main European actors in these three areas below - i.e. a focus on the "investment & crowdfinancing" sub-area of the whole map. This mapping focuses exclusively on Europe.
a. Real Estate Asset Tokenization
The rise of blockchain, tokenization of assets and smart contracts can facilitate the development of real estate investment platforms and reduce transaction costs, making such investment more accessible. Most of the applications of blockchain in Proptech focus on using blockchain for data management or applying it for transactions.
Proptech Capital observed that there is a growing base of users that are more eager to have access to real-estate investment. On the business side, similarly to iBuyer trends, there is an incentive for real estate stakeholders to make transactions directly to reduce the cost structure in the distribution process of a real estate product. Blockchain thereby enables users to trade directly real estate assets using tokenized assets.
Meanwhile, smart contracts allow fast, secured and recorded transactions in a digital ledger that cannot be hacked, drastically reducing the number of required intermediaries.
b. Mortgage Loans
Proptech Capital noticed a growing number of real estate debt platforms which facilitate mortgage loans for individuals or companies with debt capital from alternative financing sources, such as crowdfunding, P2P lending, or non-bank institutional debt funds. These individuals back their loans on the property they are purchasing it with or on a property they already possess. Lenders invest in these loans with flexible amounts, fast processes and low fees.
A growing demand trend for these products is based on the buy-to-let approach, for individuals seeking to increase their rental portfolio and willing to secure a bridging loan in order to purchase a property. Some platforms, such as Landbay, are specialized in these buy-to-let mortgage loans.
Indeed, traditional credit actors are increasingly selective in their mortgage financing offers for individuals or companies looking to purchase real estate assets or make property-backed loans, offering an opportunity to these platforms.
This trend is especially attractive to Proptech Capital, which identified around 10 of these alternative finance mortgage credit platforms in the EU and mapped the main ones of the graph above.
Some of the mapped actors focus exclusively on mortgage loans, while others, such as LendInvest or EstateGuru have them as one of multiple offers.
With the necessary funding, Proptech Capital aims to aggregate some of these platforms and co-develop a build-up strategy in credit mortgage with them in Europe, to accelerate their growth and to create business synergies through tech integrations and consolidations.
c. Property Development Credit
Many actors have identified a need for property development credit and have developed platforms to provide that. Their observation is that traditional credit actors have become very rigid with credit to SMEs in construction or property development after the 2008 crisis and many of these property professionals struggle to find credit options.
These platforms provide professional property developers with access to equity and debt capital coming from private institutional investors, P2P lending and/or crowdfunding finance, depending on the platforms. As for mortgage loans, amounts are usually flexible, processes aim to be as fast as possible and fees are reduced to a minimum, in order to provide a convincing alternative to traditional investment options for investors, and to traditional liquidity means for borrowers.
As summarized by Wellesley Finance, the applications for these credit loans include:
New residential construction/developments
Commercial / mixed-use developments
Medium to heavy refurbishment
Permitted development rights
Bespoke Bridging opportunities
Structured finance
Similarly to credit mortgage, this opportunity could lead Proptech Capital to adopt a built-to-scale strategy with strategic funding partners, by investing with an SPV in this vertical and enabling these property development loan platforms to scale together in the European market.
About Proptech Capital
Proptech Capital was launched by Odysseus Partners, an Asset Builder that provides emerging businesses with access to both equity and alternative finance investments.
Proptech Capital identifies and invests in technology companies that positively impact the property environment, either through their business model or product innovation.
The Fund sources, secures and manages investments into early-stage technology ventures in Europe and across the continent, supported by a team of investment management executives with deep sector expertise and venture capital experience.
For real estate corporates willing to kickstart a VC arm to innovate in Proptech outside their organization, the Fund has been designed to complement their innovation and venturing strategies.
As a result, benefits for corporates as limited partners include exclusive access to best of emerging technology startups in Proptech and facilitating opportunities for active business partnerships.
Contact Proptech Capital to discuss a partnership or for more information:
Minh Q. Tran, minh@proptech.capital