Bootstrap Capital for New PropCos

Early stage $10-30mm PropCo checks are scarce, but the market is here and growing. A Q&A with Sandor Valner of PTB.

While innovations in how we design, build, and operate real estate projects capture headlines and venture dollars, innovations in how we capitalize these projects are the key to moving the real estate ecosystem forward.

While there have been several notable $100mm+ commitments by major players like Starwood and TPG to VC-backed OpCo-PropCos in recent years, getting to that point can be a challenge as earlier-stage PropCo capital is scarce.

Typically, a new real estate business model requires capital for both the operating company and the properties. Because the profile of risk/size/return are very different for OpCo than PropCo, there is no one-size-fits-all for this funding. OpCo funding has traditionally come from friends and family and venture capital, but venture capital is not appropriate for OpCos that are unlikely to deliver the 10x returns VC funds need.  

PropCo investments, on the other hand tend, to be larger in size and lower in returns—a natural fit for real estate-focused investors.  But, in the early stages of an innovative business, the checks are too small for a private equity real estate fund and the risks are high.

Now, there is a growing cohort of institutional investors providing “bootstrap” capital—the first $10–30mm—to emerging sponsors with innovative operating companies and/or niche strategies to begin proving out their track records.

This week we spoke with Sandor Valner, Co-Founder and Partner at PTB, a boutique investment bank serving innovative real estate companies. We discussed:

• The types of firms making bootstrap capital commitments;

• How these capital commitments are being structured;

• Three different sponsor profiles attracting bootstrap capital today;

• The importance of track record, and what to do if you don’t have it;

• The difference between joint ventures and service level agreements;

• Why the future of capital raising is moving online.

Read on for more…