Fifth Wall's $135 Million Atoms Bet Signals Proptech's New Shape

By Grace Kim

Fifth Wall just put $135 million into Atoms, a real estate company that most proptech funding trackers won't count as proptech at all. That's exactly the point, says Brendan Wallace, co-founder, CEO and chief investment officer of the Los Angeles firm, who argues the sector's headline funding numbers are missing its biggest checks.

Fifth Wall, founded in 2016, manages roughly $3 billion in commitments and counts CBRE, Hines, Hilton and Marriott among its investors. Its portfolio spans Procore, OpenDoor, Blend and Hippo. Exits include ServiceTitan, which went public in 2024, and Industrious, which CBRE took full ownership of in January 2025 at a valuation above $800 million.

What's wrong with the proptech funding numbers?

Crunchbase News' recent analysis showed proptech capital on pace to roughly match or slightly exceed last year, but spread across fewer deals. Wallace reads that differently.

"My sense is that statistic might belie the actual amount of funding flowing in, because what was previously characterized as proptech in the narrowest sense is probably representing a smaller share of where proptech investors are deploying capital," he said in an interview with Crunchbase News.

Two categories escape the definition, he said. The first: horizontal software. Fifth Wall's growth fund recently made a large investment in Higgsfield, a visualization company most people associate with film rendering. Feed it blueprints for an unbuilt home, and it builds the entire scene, puts your family inside and lets you walk through it — capability Wallace says surpassed the industry-specific visualization tools that would count as proptech.

The second: full-stack businesses that build and operate real estate themselves. That's the $135 million Atoms investment. "I would be surprised if that fell under the definition of proptech," Wallace said.

How much is AI driving the shift?

A lot. Wallace's logic is blunt: software a tenant could once buy is now easy to replicate.

"No real estate company can build the kind of visualization software Higgsfield has. I don't believe they ever will," he said. "But a tenant engagement app they might have previously purchased and rolled out to their assets, they can now replicate over a long weekend."

Simple application-layer startups are feeling it. "Anything where the intellectual property moat is not extremely defensible is very challenged, and I think it will be for some time," Wallace said. Point solutions are becoming less financeable because large labs can build them as interfaces, or companies can build them in-house.

One wrinkle: bespoke AI development shops are filling the gap. Fifth Wall backed Antares, which Wallace calls "kind of like a Palantir for real estate." Antares embeds with Fifth Wall's strategic limited partners, builds AI intellectual property specifically for each organization and leaves it behind — a fee-for-development model rather than IP licensing.

Wallace also suspects foundation models are quietly capturing proptech dollars. "No one would characterize Anthropic as a proptech company, but it might be taking a significant amount of the upstream proptech dollars," he said, guessing the industry is at or near the inflection point where spending on foundation models passes spending on proptech applications.

Are domain-expert AI startups still defensible?

Less than founders hope, in Wallace's view. He points to the gap between ChatGPT in 2023 and Claude today — same basic product, totally different sophistication in memory, personalization and natural-language instruction.

"I think that moat collapses over time. You might be on a treadmill," he said. "What you're saying is true today. It's less true than it was, and it might become even less true in three years."

Is construction tech still on Fifth Wall's list?

Barely. Wallace said the firm's performance has favored pure software businesses and full-stack businesses, and that "construction tech broadly is probably the biggest graveyard in all of venture." It still attracts megafunds, he acknowledged, because construction efficiency is "one of the largest markets on earth."

What should founders build now?

Wallace's answer is capital-R real estate. "You can actually build new real estate companies," he said — for example, a better approach to buying multifamily assets, stripping out costs and running operations with AI. "That's something I think is eminently fundable today by Fifth Wall and many venture funds. I don't think that would have been the case five years ago."

His second target: data. Real estate runs on opaque data in a way most large financial markets don't, and Wallace sees generative AI enabling quantitative capital-allocation models that securities markets have long had.

Beyond AI, Wallace is watching financial engineering that decouples land ownership from building ownership. And he predicts three catalysts — AI, robotics and autonomy — will spawn new real estate asset classes, the way e-commerce built industrial real estate, cloud computing built data centers, mobile phones built cell towers and genome sequencing built lab space.

Does proptech have a future as a category?

Fewer vertical funds, Wallace expects, with funding continuing to decline for industry-focused consumer and enterprise software. The inverse trend is steeper: "Venture capital funding real estate businesses themselves. I think that's about to explode."

If he were founding a company today, he'd start with housing. "Housing drives everything," Wallace said, citing the U.S. affordability crisis. Mortgages remain "painful, archaic, slow and too expensive," and despite a decade of proptech, "housing has gotten more expensive, not less."