"The construction industry is conservative".

Andreas Strasser from venture capitalist Kompas talks about the potential of the proptech market, why the industry has struggled with transformation so far, and what he expects after the interest rate turnaround.

Investments in the real estate sector have actually been a safe bank for years. But now a phase of higher interest rates is beginning and the market is already cooling down. Andreas Strasser isn't worried about that, even though he works at venture capitalist Kompas, which is active in the proptech sector. Strasser, who has been on board since the summer, is tasked with looking for suitable startups, especially in the DACH region. And he is certain that sustainably oriented proptechs in particular will continue to have good opportunities in the future.

Mr. Strasser, you and your partners Sebastian Peck and Talia Rafaeli run a VC fund for sustainable proptechs. However, neither of you comes from the construction or real estate industry. How does that fit together?

We all met in the automotive industry, which has undergone a dramatic transformation in the last decade. The construction and real estate industries have long dragged their feet on their responsibility to sustainably reduce CO2 emissions. As investors, we see a massive need for innovation. We can profitably use our experience from the transformation of the automotive industry to finance new technologies to market to drive change in the construction and real estate industries. The key technologies are the same, only the fields of application differ. In addition, through our industry contacts we have a large network of experts that we can access at any time.

Nevertheless, the question remains: why are three auto-managers going into the proptech industry?

We have all observed and helped drive the transformation in the car sector from the combustion engine to the electric drive. But it was also clear to us that the auto industry alone cannot manage the transformation to a sustainable economy. The construction sector in particular is responsible for a great many emissions, but at the same time relatively little is being done here. That's where we saw an opportunity to really make a difference.

Why do you think the transformation of the construction sector is progressing so slowly?

The reasons are the same as those that have held back the automotive industry for a long time. Both are rather conservative industries that have high capital requirements. It is precisely because of this high capital requirement that the willingness to experiment is not really pronounced.

German proptechs and startups are very tech-driven.

Andreas Strasser, Kompas

What starting points are there at all for putting the construction and real estate industry on a sustainable footing?

We see many starting points. One big factor, for example, is materials. Concrete and steel account for a large proportion of emissions, thanks in part to their costly production. They can reduce this in two ways: First, they can make the manufacturing process more sustainable, which is what is increasingly happening with green steel. And they can use software to make the construction process more efficient, so that fewer materials are used from the outset.

Recycling is a big issue, especially when it comes to building materials.

Absolutely, that's also on our radar. But in the short term, that won't be the decisive factor. After all, in the case of existing buildings, we often don't even know what's been used. It will be a long time before building materials are recycled on a large scale.

What are the levers that can be used beyond the material itself?

One of them is modular construction, which is generally much more resource-efficient than conventional construction methods. That's where our investment Modulize comes in. They've developed software to make modular construction easier. This would also help to create more affordable housing. With Makersite, on the other hand, we have a company that makes supply chains transparent, something that is far from being standard for many construction companies.

So far, they still invest little in the German-speaking world. Is the sector underdeveloped in this country?

No, that's more because I only joined Kompas this year in June. So I don't want to deny anything about the German market. But what is certainly true is that German proptechs in particular and startups in general are very technology-driven, but they don't care much about marketing, unlike in the U.S., for example.

What do rising interest rates mean for the proptech industry? The real estate market as a whole already seems to be cooling down.

We're seeing that decline, too. In the next twelve to 18 months, it will become increasingly quiet, especially in new construction. But there will continue to be a lot of activity, especially in the existing stock, i.e. in refurbishment and renovation. High energy prices are driving the demand for energy-efficient homes. Of course, this also goes hand in hand with the issue of sustainability.

Thank you very much for the interview.

Personal details: Andreas Strasser joined Kompas VC in June 2022 from the Austrian investment company Smartworks. Prior to his time in venture capital, Strasser worked for carmaker Volvo for eight years, most recently as investment director of the Swedes' VC arm. Strasser studied economics in Hamburg.