Inside the Mixed Reality of Costar’s $1.6 Billion Acquisition of Proptech Startup Matterport

Last week, online listing real estate giant Costar announced an acquisition of publicly traded real estate immersive visualization tech firm Matterport in a deal carrying a $1.6 billion enterprise valuation. At first look, the move represents a much needed shot in the arm for the proptech sector, which has struggled to maintain a high volume of billion-dollar mark exits since a raft of companies, including Matterport, became public or were acquired at billion-dollar and higher valuations in the 2020-2021 period. At least half a dozen built world sector companies in that cohort, including Matterport, were brought public via special purpose acquisition companies, or SPACS, that rewarded acquiring company managers but left many investors feeling jilted as valuations sank after the IPOs.

In that light, seeing Matterport’s sale at a 212% premium over its recent trading price is indeed reassuring to investors who have watched other SPAC companies in the sector languish, such as 3D printing company Fast Radius, which ended up in bankruptcy. While it is a comforting signal to see an exit above the $1 billion level for a tech firm in the sector, it is also a far cry from the nearly $10 billion valuation Matterport approached in the early days of its IPO. Based on those visions of much faster growth in the past, it’s likely some investors expected more than a $1.6 billion exit, a mix of cash and stock, from the more mature but still highly valued Matterport.

So What Went “Wrong” With Matterport? The Transition from “Hard Tech” to Recurring Revenue Subscription Asset Management Business

Again, in most respects, building a company over a little more than a decade that exits at a $1.6 billion enterprise value based on truly pioneering a new way of considering built space has to be looked at as a success. From a venture investor’s standpoint, however, Matterport could be a case study in unmet aspirations despite attainment of unicorn status.

Back in 2013, Matterport announced it had raised $5.6 million in a series A round led by Silicon Valley heavy-weight VC Lux Capital and trumpeted the imminent launch of “the first-ever 3D camera and interactive viewing platform – allowing its community to create virtual models of any indoor space and access the resulting 3D image from a web browser or iPad – anytime, anywhere.” This funding came on top of a 2011 seed investment of $1.6 million closed in 2012. The company did introduce its camera and, as BuiltWorlds began covering proptech in 2014, we had multiple opportunities to meet with and feature Matterport representatives in our coverage in the ensuing years.

As late as the spring of 2018, when Matterport Sales and Business Development VP joined us and JLL representative Sam Kennedy to discuss the product, Matterport was still touting its proprietary camera technology. From drones to handheld, robot-mounted, hard hat mounted, crane-mounted and otherwise, the last decade saw a proliferation of proprietary IoT devices facilitating the gathering of ever greater amounts of project and property data, and Matterport had become a leader among these plays.

However, things shifted as the devices increasingly became viewed as commodities, and attention turned to the unique capabilities of solutions to help manage and interpret the data being gathered.  So, by the time of Matterport’s IPO, talk of a proprietary camera had been replaced and the 2021 full year financial report instead talked about “democratizing space capture” and growing recurring revenue from “spaces under management.”

 

 

If the Value Was Not in The Hardware or the Software, Where Was it? (Hint: Proprietary AI Requires Proprietary Data)

There are probably lots of analogies for what appears to have happened with Matterport. From the strategy of giving away the camera and making money off of selling film and processing photos to the story of Facebook paying $1 billion for Instagram, it appears that while Matterport may have failed to live up to investor’s dreams of fast-growing subscription revenue at a pace that might support a valuation in the many billions range, the firm may have succeeded in building a very strong pipeline into the aggregation of robust data about commercial buildings that would be difficult to replicate, and that trove of data-rich building information clearly represented an opportunity, and perhaps a threat, to Costar, a company that has seen its own market capitalization grow substantially over the past decade, reaching nearly $40 billion this year.

Some Bad, Some Good – But For the Sector, It is Mostly Good

While some may point to Matterport’s failure to reach the full promise of its IPO as an indication of weakness in the sector, the prevailing posture among investors seems to be that notching yet another exit at more than a billion dollars for a company in the space is an important signal that it continues to present attractive opportunities for investors. With its more than $30 billion market capitalization, Costar joins  a growing host of companies with the resources and the interest in making billion-dollar acquisitions in the sector.

Additionally, Matterport presents a slightly different value prop from the other companies in the space garnering billion-dollar valuations. As result, the transaction signals another opportunity for big exits, more buyers in the market and also increasing breadth of larger investment themes. It is a positive for the sector and particularly for the many companies that grew out of various IoT, data-gathering technologies and have since been evolving into powerful processors of that data.

 

BuiltWorlds Members can learn more about reality capture and other solutions via an expanding suite of Research Reports.  The Reality Capture Solutions report will be available for a limited time to subscribers to our Construction Tech Research Track.