What is a proptech software company worth?

A proptech software company sells software to brokerages, agents, property managers and the firms that serve them. Parts of what makes the product function may be borrowed rather than owned — listing data supplied under a licence, trust-accounting rules written by a provincial regulator, client records that belong to other businesses. What a buyer is pricing is therefore a bundle of permissions as much as a body of code. This guide covers the factors that bear on that bundle: what can add to value, what can reduce it, how earnings can be recast, and why two products that look alike on a pricing page can be worth very different amounts. It gives no multiples, because they date quickly and mean little without the facts below.

What a buyer is actually paying for

The contracts are the part of the business that can be read and tested, so they are a sensible place to start. Revenue committed under multi-year agreements with property-management firms or brokerages gives more certainty than the same revenue on a rolling basis, because the length of the commitment is known. The spread matters as much as the term: a book across many firms is a different proposition from one in which a single account dominates, an effect explained under customer concentration. Position in the client’s working day matters too. A product that holds the rent roll or the commission ledger may be harder for a client to remove than a lead-capture widget, so how likely each kind of client is to stay through an ownership change is worth asking.

The data licence is part of the asset

A proptech product may depend on listing or property data supplied under a licence from a real estate board or a similar body, rather than owned by the company. The terms are the grantor’s, so no general rule tells a buyer what survives a sale. If an agreement ends on a change of control, needs consent to assign, or expects the new owner to apply afresh, the value attached to that data may not exist the day after closing. A term like that is better found early than in a buyer’s review. An owner can learn a great deal by reading the agreement, and asking what the grantor says about ownership changes, before any buyer does.

Trust accounting turns a feature into an exposure

A module that handles client money, or records of it, raises particular questions. In British Columbia, trust-accounting duties sit with the brokerage: the Real Estate Services Act requires a brokerage to maintain trust accounts designated as such in its records and in the savings institution’s, leaves the detail to rules made under the Act, and limits what may be withdrawn from those accounts. Software that records the movements has to support the client’s compliance, and a defect could land on the client first. What it would cost to close any gap is therefore a question for the valuation. Other provinces have their own regimes, so a product sold across the country may have to meet several standards at once.

Supporting the trade versus performing it

Value also depends on which side of a licensing line the product sits. British Columbia’s Act defines real estate services as rental property management services, strata management services or trading services, and says a person must not provide them to or on behalf of another, for or in expectation of remuneration, unless licensed or exempt. Alberta’s Real Estate Council describes setting standards for licensees in areas that include property management, and Ontario’s Real Estate Council describes how brokerages report changes to their registration to the Registrar under the Trust in Real Estate Services Act, 2002. The question is whether the product is a tool licensed people use to do their work or a service the company itself provides to owners or to parties in a trade. As a product moves toward the second, the licensing question can affect its value, and whether a given product has crossed that line is a point for counsel in each province.

How earnings get recast

The owner’s profit can be rebuilt before it is priced, and in a business like this the adjustments may arise in a few places.

• Founder pay set well above or below what a replacement manager would cost.
• Development salaries capitalised as an asset rather than expensed, which raises reported profit until it is reversed.
• SR&ED tax incentives, claimed through the income tax return, which can be read apart from operating earnings; whether credits survive a change of control is a separate question from whether past claims were valid.
• One-off integration or onboarding fees that sit in the ledger beside genuinely recurring subscription revenue.
• Data, hosting or contractor costs carried by a related company, or by the owner personally, rather than by the business being sold.

Why two similar products price differently

Picture two property-management products with similar revenue. One has data licences that continue to a new owner, client contracts that assign cleanly, a trust module its clients’ accountants have examined, and customers spread across many firms. The other leans on a single brokerage whose contract can end on short notice, and on a licence nobody has read for years. Code ownership separates them as well. Under the Copyright Act an employer is first owner of a work an employee makes in the course of employment, in the absence of agreement to the contrary, but an assignment is valid only if it is in writing signed by the owner of the right or the owner’s duly authorized agent, so code written by a contractor without a signed assignment can leave a company short of what it thought it owned. Buyer type adds a last layer: a brokerage network buying its own technology and a platform buying clients may value the same company differently.