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PeakSpan’s Thesis for Leasecake

Apr 26, 2022


The PeakSpan team is thrilled to have led a $12M Series A growth financing in Leasecake, a leading provider of lease and location management solutions for multi-location commercial real estate operators. PeakSpan is joining existing investor, Las Olas VC, in recognizing the opportunity to build a central repository of lease and location-related data points for proactive decision-making and real-time insights into critical business events. From day one, it has been staggering to learn from Taj and his team how millions of commercial establishments attempt to manage multiple leases on static Excel spreadsheets and other disconnected systems, particularly as evolving regulatory standards make compliant financial reporting an even bigger headache! Leasecake is addressing this pain point in an elegant fashion — informed by a long list of direct customer feedback that have referenced the material financial impact of missing a renewal date as well as a litany of mission-critical events for their locations.

The Leasecake partnership marks PeakSpan’s inaugural step into the PropTech sphere, an arena characterized by digitizing our physical environments to transform a user’s experience of space. Meanwhile, Leasecake is embarking on a Blue Ocean strategy — inventing a new category of software through differentiation and low cost, opening up a new market and creating new demand. The Company is positioned within a fragmented commercial real estate ecosystem as constituent groups have grown accustomed to outdated tech stacks (e.g. DropBox, Excel, and calendar reminders) that no longer meet the complex demands of operators and hinder awareness of lease information. Conversely, the Company’s platform enables stakeholders (namely landlords, corporate tenants, franchise, brokers, and real estate investors) to maintain a firm grasp on their current obligations. In addition to offering a robust suite of management tools, Leasecake provides lease accounting automation to make back-end reporting straight-forward and accurate. This is particularly front of mind for lessees that are grappling with a transition into the world of ASC 842 — FASB’s new regulatory standard that mandates operating leases be accounted for on balance sheets. The regulatory shift has sparked a dire need for granular journal entries and amortization schedules. Today, Leasecake serves 220+ customers across the CRE ecosystem, seeing strong product-market fit within the tenant segment that has long been neglected amidst the overflowing PMS tools at the disposal of landlords. To date, the management team has remained hyper-focused on their core mission — providing their ICP with a robust suite of tools to streamline rent schedules, lease clause tracking, critical date notifications, lease accounting / reporting, and permits, licenses and warranties. The PeakSpan team is energized to support Taj Adhav, Dave Schrader, and the rest of the Leasecake team in realizing their mission to serve as the ‘Operating System of Location Management.’

Market:

The lease management market has been around for 20+ years — originally encompassed within the broader integrated workplace management system (“IWMS”) space. This segment is home to legacy vendors that came to market with a facility management suite to complement PMS systems that were tailored towards landlord-specific workstreams (e.g. rent payments, maintenance requests, and move-in/out scheduling). IWMS vendors offered tenants the means to streamline key operational pain points such as space utilization, property tax exposure, common area maintenance (“CAM”), OpEx tracking, and license management. Lease management was historically a small component of the broader offering of these vendors and helped keep track of changes to a tenant’s lease obligations. The concept of lease accounting was always a feature of lease management modules, yet the impact of their embedded automation became table-stakes with the enactment of ASC-842. This change gave way to the emergence of lease accounting point solutions that built out granular, compliant automated accounting products with built-in lease administration workflows to offer exportable accounting schedules.

The lease management market has been around for 20+ years — originally encompassed within the broader integrated workplace management system (“IWMS”) space. This segment is home to legacy vendors that came to market with a facility management suite to complement PMS systems that were tailored towards landlord-specific workstreams (e.g. rent payments, maintenance requests, and move-in/out scheduling). IWMS vendors offered tenants the means to streamline key operational pain points such as space utilization, property tax exposure, common area maintenance (“CAM”), OpEx tracking, and license management. Lease management was historically a small component of the broader offering of these vendors and helped keep track of changes to a tenant’s lease obligations. The concept of lease accounting was always a feature of lease management modules, yet the impact of their embedded automation became table-stakes with the enactment of ASC-842. This change gave way to the emergence of lease accounting point solutions that built out granular, compliant automated accounting products with built-in lease administration workflows to offer exportable accounting schedules.

Leasecake focuses on the longer-tail of commercial leases, which are typically folks that do not feel their lease portfolio warrants a broad and expensive IWMS platform but are struggling with keeping all of their lease obligations organized in a singular pane of glass. It started as a simple question: “If everyone in business owns or leases a location, where’s the app for that?” Moreover, Leasecake also targets commercial brokers as the ‘gatekeepers’ to a wide array of tenants. PeakSpan has estimated a ~$6B US-based market opportunity across franchises, corporate tenants, brokers, and landlords with the largest addressable market coming via corporate tenants. This encompasses 1.7M US corporations that are commonly managing multiple CRE leases — representing a largely greenfield number of locations that are primed for a lease management vendor. The below market drivers further support Leasecake’s market opportunity:

1. COVID-19 Impact:

a. Emergence of workplace/workforce mobility and understanding all meaningful clauses within commercial leases (e.g. force majeure clauses)

b. Heightened awareness of renewal cycles given the CRE pricing environment

2. CRE/Tenant Digitization:

a. Incumbent vendors that address landlords (e.g. rent payments or maintenance requests) but very few that organize all pertinent location information for multi-location tenants

b. Efficiencies gained through network effects and connectivity across major constituent groups — tenants, landlords, brokers, accountants, attorneys, insurance, and lenders

c. Need for integrations across financial/accounting systems

d. Knowledge silos waste employee time and give way to human error

e. Need for clean reporting cadence from Franchisee to Franchisor

3. Franchise ICP Growth:

a. Franchise brands drive 1.8x higher sales than comparable non-franchise establishments, provide 2.3x as many jobs, and pass their success on to employees in the form of higher wages and benefits (typically paying 2.2% — 3.4% higher wages)

b. By end of 2021, franchising is estimated to have recovered to nearly 2019 levels in business growth, employment, and contribution to GDP: A net gain of 26K businesses

c. Alleviates fears and unknowns associated with starting a new business from scratch

d. Economies of scale cost advantages obtained through opening up additional locations

4. FASB ASC-842 Compliance:

a. Movement of all lessee and lessor lease obligations of RE and equipment assets with lease terms of more than 12 months onto balance sheets

b. Need for net new journal entries and amortization schedules

c. Real-time data tracking that reflects current lease clauses and terms

5. Impact of Lease Abstraction Services:

a. Digitization of lease information requires specific lease knowledge / skillset that is rare

b. Diversity of lease agreements and corresponding wording across jurisdictions and firms

c. With fast-approaching deadlines for complying with new lease accounting standards, the need for cost-effective professional services comes to the forefront of agendas

Below is PeakSpan’s Thesis for Leasecake:

Leasecake is attacking a strikingly antiquated and underserved segment of the commercial real estate world head-on. Specifically, the Company’s ‘secret sauce’ is delivered via a dual-pronged approach across both i) lease and location management and ii) lease accounting. Leasecake is equipping their ICP with a lightweight and easier-to-use alternative paired with a top-notch customer support team that assists customers with onboarding a dense set of commercial leases. The value proposition felt by customers is strategic and far-reaching with the opportunity to create a flywheel effect across the CRE ecosystem as constituent groups gain access to the sole source of lease and location truth. While Leasecake has historically been in the ‘Answer Business’ with a focus on proactive notifications and access to information, 2022 marks a watershed moment for the business in moving into collaboration and action –the ‘Getting Stuff Done Business.’ The near-term product roadmap is centered around task and deal management, strengthening the product’s collaboration and communication suites to delegate work responsibilities across organizations. Additionally, this product expansion will open the GTM doors to the broker community that represent a network of tenants looking for commercial space. Once onboarded, Leasecake’s platform is extremely sticky aided in no small part by a hyper-valuable lease abstraction process coupled with meaningful analytics extracted from a customer’s lease repository. There is a logical upsell path as operators open additional locations, upgrade their bundle onto higher tiers (incl. additional lease / location abstraction and customer support), and opt to pay for lease accounting automation to comply with ASC-842. Leasecake is sitting at the basecamp of a trek towards category leadership with few hikers on the trail alongside them. PeakSpan believes this opportunity is among the next PropTech segments primed for digitization and is proud to invest alongside a world-class organization leading the way.

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