LONDON — The news from the South African rental market is not good for either investors or renters. Rental growth continues to drop nationally from 5.39% in Quarter 4 of 2017 to 3.25% in Quarter 3 of 2018 according to the latest PayProp Rental Index. Added to this, is the statistic that more than a third of tenants are regarded to be high risk. For tenants low rental inflation may be good news, but they are still spending 24% on average of their salaries on rent, which rises to as much as 40% in the bigger cities. For many of these people, owning their homes are out of reach, especially for Millennials, also known as Generation Rent. There is a proptech start-up called Flow, which wants to help this generation and address the issue of high risk for landlords. They have managed to raise R20m; the biggest proptech seed investment to date. It is a mobile app that will reward tenants for good behaviour and if they are “fully in Flow, they can get up to 20% of their rent back.” – Linda van Tilburg
Local proptech startup, Flow, has raised R20m in South Africa’s biggest proptech seed investment to date. Flow, a mobile app co-founded by Gil Sperling, Daniel Levy and Jonathan Liebmann, is setting out to revolutionise the rental space by rewarding good tenant behaviour and empowering millennial renters (commonly known as Generation Rent).
Kalon Venture Partners is the lead investor of R10m, with co-investment of an additional R10m from an international VC, which is in its final stages. Funding will be used to accelerate the development of South Africa’s #1 app for tenants; to fuel growth and increase the base of tenants already using Flow; as well as to increase the range of rewards available to tenants.
With Flow, tenants get rewarded for registering, adding their property details, paying their rent on time, looking after their homes, and much more. Great tenants can earn thousands of points every month, increasing their Flow score and accessing incredible rewards. For these rewards, Flow has struck partnerships with a number of leading brands in the lifestyle, entertainment, homeware, fashion and travel space, including: Superbalist, Weylandts, SweepSouth, OneCart, plus a selection of airtime and electricity providers (with more to be launched in the coming months).
Tenants that are fully in Flow can get up to 20% of their rent back in rewards every month. That means thousands of rands in value, as well as a more seamless and connected rental experience.
The property industry – ripe for disruption
Gil Sperling, CEO of Flow, notes that the property industry, locally and globally, is one of the few verticals which has not seen much innovation, making it an industry ripe for disruption. “Compared with any other industry, the property industry – and in particular the rental market – is archaic and disconnected. There’s also a massive paradigm shift in how people should rent which is inspired and driven by their lifestyle choices, and is something proptech could and should leverage big time. People are used to being connected all the time and transacting digitally, in real-time; and they want transparency in their dealings with companies (including their landlords). These are some of the key factors that inspired the creation of Flow. Through scaling with technology and economies of scale, we can revolutionise the economics of rent, providing a more seamless experience and more value to tenants,” Sperling adds.
Globally, proptech is one of the fastest growing sectors. In 2017, Venture Capitalist’s put $12.6bn into the proptech sector, with WeWork and Compass leading in terms of funds raised. Softbank invested $4.4bn in WeWork and $450m in Compass. United States-based real estate tech firms comprised nearly $6.5bn (or 52%), of the venture capital funding raised in 2017.
Clive Butkow, CEO of Kalon Venture Partners, notes that the company invests in technologies that are disrupting their respective industries and have large target addressable markets – and that Flow fits this criteria perfectly. “In addition to this, Flow has also passed our most important investment criteria, being: the A-team; the three founders have all built incredibly successful businesses and have the ‘execution intelligence’ to grow a product into a large profitable enterprise,” Butkow adds.
As opposed to other tech companies, Flow has seen a gap in the market and is largely focused on a very specific subset of people: millennial residential property renters.
The demand for rentals among millennials is on the increase, and it’s easy to see why. In Deloitte’s 2018 Millennial Survey of over 10,000 people born between 1983 and 1994, the research found that freedom and flexibility were key workplace priorities for this age group. But this could be extended to the world of property too: because of this desire to have more freedom, millennials tend to settle down later and want a more transient lifestyle, which means they’re renting rather than buying. Property prices have also increased across the board, making home ownership increasingly unaffordable for younger generations.
Millennials have become increasingly familiar with using technology to meet their needs – yet when it comes to renting an apartment or a house, the entire rental process is still very manual; lacks transparency; and lacks clear communication while leasing and during a lease. Flow is setting out to drive the digital innovation that is desperately needed within the rental market.
A track record within property and technology
Sperling, along with co-founders Daniel Levy and Jonathan Liebmann, come from three very different backgrounds, yet they all have serious expertise in their respective fields. Sperling started his career as an engineer, and Levy as a lawyer. Together with a third partner, they founded Popimedia, an ad-tech and performance marketing company that partners with tech giants like Facebook (today, Popimedia is the largest buyer of Facebook media inventory in Africa). After exiting Popimedia to French based global communications group – Publicis – in the largest deal of its kind, they identified opportunities in the proptech space and joined forces with Liebmann, a property disruptor and innovator best known for creating the highly successful Maboneng Precinct in downtown Joburg.
For these three serial entrepreneurs, Flow is the vehicle that brings their various expertise together into one offering, and looks to be something that will disrupt the proptech market in SA.
Thanks to the big ambitions, passion, drive, and unique skill sets of the three partners, their hope with Flow is to collectively make a big impact and empower Generation Rent. By making the rental market in South Africa better for everyone – tenants and landlords – this should, in turn, have a positive knock-on effect on South Africa’s economy at large.