The demise of proptech startup Propzy earlier this month shocked the real estate market of Vietnam and beyond. Despite being known as a “shining star” which successfully raised $30 million over its lifetime, its creator was forced to admit that business development efforts over the past year or so had incurred significant losses.

“We were not able to recover from given the continual lockdowns in Vietnam. Our inability to raise funding amidst the backdrop of an uncertain global environment was the final jab of the knife in our young startup,” wrote CEO John Le in the official announcement to staff.

Propzy was on top of the proptech world in 2019 but, as with many startups, the pandemic damaged them beyond repair

Before Propzy, another well-known technology startup called WeFit also had to stop operating after it ran out of capital. Launched in 2016 by Khoi Nguyen, WeFit was an application that connected gyms, yoga classes, boxing trainers, and zumba centres with customers in order to save time and costs for users.

Fluctuations in cash flow, misuse of investment, gaps in management policy, and the inevitable pandemic difficulties eventually put paid to WeFit.

According to research data from CB Insights, the rate of technology startups that fail in their infancy ranges between 75 and 90 per cent. Up to 70 per cent of global tech startups fail eventually, often just 20 months after their first funding (with an average funding of around $1.3 million), it reported.

Aidan Wee, CEO of PropNex WeeReal analysed that, although the closure of Propzy will damage confidence in the real estate service industry, Propzy’s customers will unlikely be affected.

“The services that Propzy provided are not exclusive and can be easily replicated by other traditional real estate brokerages. Moreover, customers that engaged with Propzy are unlikely to have given them the exclusive rights to broker their real estate,” Wee told VIR.

As for Propzy’s investors and partners, they have just suffered an investment loss, but since Propzy was largely funded by big venture capitalists, it is highly unlikely to cause much financial damage to them. “It is, after all, just a business loss that needs to be written off because they made a bad decision regarding Propzy’s business model,” said Wee.

He added that in every business startup, the vision and direction of its founders are very important.

“They are the ones that have to work the hardest to drive the business and determine its success, instead of relying on hired professional managers. The professional background of Propzy’s owner was in finance and not real estate, explaining his connections in getting funding. Moreover, as he was from the US, there were also reasonable doubts of his understanding of Ho Chi Minh City’s real estate market from the ground level up,” Wee added.

According to experts, there are many reasons that can cause a startup to fail. One proptech founder in Ho Chi Minh City points out that an important factor determining the success or failure of a startup is the ability to manage, including financial and human resources management.

“In addition, enterprises will find it difficult to maintain operations if they lose their competitive advantages or do not know how to take and develop those advantages and know how to recognise and learn from the mistakes they have made,” the founder said.

Finally, if startups do not raise enough capital in time before reaching the market size at the break-even point, it will be difficult to succeed, he concluded.

Meanwhile, another property consultant, Nguyen Duc, believes that one of the factors determining the success of a technology startup is the way they approach and solve market problems, finding business models that fit their plan and vision.

“Creating an efficient, lean, and executable business model is not easy. Vietnamese people like to use services for free and many users meanwhile share the fee for a certain service the if there is no feasible solution from the beginning, services providers would bear risks in their businesses,” Duc said.

Nguyen Van Thu, an independent proptech investor, said that Propzy provided a relatively good service to its buyers. “However, in terms of the nature of a technology startup, it is necessary to make the most of technology and streamline personnel. Propzy was not going this way, and used too much staff with a not-too-unique tech system,” Thu said.

Huynh Minh Tuan, an investment analyst from Genesia Venture, added that Propzy’s incident would definitely partly affect capital inflows into Vietnam’s market.

“If there is one lesson from this case, it’s that startups should manage their cash flow more closely and practice disciplined finance, especially as the winter of fundraising is approaching, and the money source will not be as abundant as before. Growth at all costs and top-line growth is no longer relevant. Startups should focus more on the bottom line and pay attention to sustainability growth,” Tuan said.

Wee from PropNex WeeReal further analysed that the case has reaffirmed his belief that proptech will not be able to fully replace the traditional property brokerage business model in real estate transactions.

“Real estate is a big-ticket item and not many middle-class households can realistically undertake multiple real estate transactions in their lives. As such, they require very specialised skills and services from property agents that cannot be automated with proptech,” Wee said.

Wee believes that proptech can support the work of property agents and provide them with the critical tools to be more productive and enhance their ability in consulting real estate consumers. “Proptech businesses with the vision of trying to replace the work of real estate agents will face the same challenges that came about in this case,” he added.