The 530+ ConTech ventures mentioned in the sampled "best of” lists and “market maps” from 2016-2021 [open-source]
⬛ Notion database (caution: long loading times)
🟩 Google Sheet
Crunching the numbers …
1/ Early or late to the party?: % of total capital raised before
and after mention
2/ Making or missing winners?: Total capital raised; firms
mentioned 3 times or more vs. firms least-mentioned but raised $20M+
3/ Substance or hype?: % of total capital raised in last 18 months;
firms mentioned 3 times or more vs. firms least-mentioned but raised $20M+
4/ Earning or burning?: “If these lists were a fund that invested
at time of list”: Estimate of hypothetical fund return
Findings and call-to-action to ConTech founders
ConTech “best-of” lists and “market maps” can waste your time: The data is clear – many pundits are late, bad pickers, and promote hype instead of substance. Reasons are also clear – lack of insight, no proprietary view about operator performance, and hidden incentives.
Adverse selection, anyone?: Alright, get this – out of our top 15 financially-performing companies, only one (1) was ever on a list or market map in its first four years after founding. Let that sink in. Of course correlation is not causation – I am not saying being on a list or map will make your ConTech firm average. But what I clearly see is the correlation between being heads down and under the radar while you build a product and a business with your customers, and your long-term substantial performance in Construction-Tech. Hype does not sell, PR does not sell – only product and substance does, to the no-BS world of construction and architecture clients.
The company you keep: You likely don’t know the past and performance of your peers you get lumped together with on a list or market map. Do they do well? Do they have a good reputation behind the scene? Do they maybe have bodies in their closet? You likely don’t know, and that’s a risk for you. Because your customers and investors might know – they tend to have talked to and looked at many more folks in the space. By accepting to be on a list or market map, you might unknowingly associate yourself with company you don’t want to be mentioned in, and your customers or investors might take notice of such associations. This happens all the time.
I could keep going, but this post already got out of hand.
Let me just close with this call-to-action to you all ConTech founders:
The only stakeholders that matter in your early days are your customers and your talent. If you accept PR for your firm – do it only if it benefits you with your customers or with talent.
Do not accept PR about anything else, especially not investors. It’s an investor’s job to find you. We literally do nothing else the entire day. If this is the reason you accept PR, you are literally wasting your scarce time.
I am a huge fan of staying under the radar. I have seen first hand that ConTech firms can get dinged by old-school construction clients for being perceived as non-serious tech firms, while others who presented themselves as serious firms with no tech PR footprint at all grew quite fast. These are anecdotes, of course – but this general direction is solid advice.
For the last week I was working with a founder team in the construction cash flow space. It triggered me to look deeper into the payables, receivables and cash disbursement workflows in the construction industry in the US and UK markets.
As for material supply invoices, I was unable to find a good source. So I’ll have to run with a total guesstimate here – let’s say each sub-contractor makes 20 distinct materials purchase orders (POs), and each general contractor makes 200 materials POs. Let’s further assume each PO leads to 2 partial incoming invoices from materials suppliers. That gives 22x20x2 + 200×2 = 1’280 incoming materials invoices for an average project. Let’s round it to 1’300.
Now, let’s go to the contracting invoices themselves. We have an educated guess that each sub-contractors works for ca. 3 months. That makes 4.4 sub-contractor equivalents over 15 months project (22 / 15 x 3 = 4.4)
Let’s assume that the subs as well as the general contractor write outgoing invoices (or applications for payment, for that matter) twice per month per project. That gives (4.4 + 1) x 2 x 15 = 162 outgoing invoices upstream. Let’s round it to 200.
So overall, on an average 15 month project, we could be looking at 1’500+ invoices and money transfers.
Now: because each invoice creates a payable and a receivable, and requires them to be closed after cash is received we actually look at 6’000+ book entries per project.
Now let’s extrapolate to the number of construction projects:
Let’s assume non-residential projects carry 10x larger spending per project. That means there could be 7M / 10 x 2 = 1.4M non-residential construction projects per year globally. Again, let’s round down to 1M.
In total, that would give 8M construction projects worldwide p.a.. (Broken down to the US, for example, that would be ca. 1.2M projects per year – sounds directionally right)
The 1’500 invoices and 6’000 book entries mentioned above happen over a 15 months timeline. We need to scale them down to 12 months:
1’500 / 15 x 12 = 1’200 per year per project
x 8M projects worldwide
= 9.6 billion invoices p.a. worldwide in construction (let’s round up to 10 billion)
The truth is likely somewhere in-between these 10B and the 55B.
4’800 book entries per year per project
= ca. 40 billion book entries p.a. globally in construction (and could be as much as 200B)
That’s a lot of cash flows and paper. Here’s a few big issues with this many invoices and book entries:
Massive working capital. Because the various construction stakeholders are traditionally financed from within the same supply chain, one party has to front cash to pay the other party. Incoming and outgoing payments don’t happen on the same day. The difference is the working capital required for construction.
Developers are at constant risk of a general contractor default. The more sequential invoices from sub to GC to developer, the bigger that risk.
Ugly accounting and treasury overhead
We know that construction is a $10 trillion global market. Let’s say on average, there’s 30 days of working capital in the construction system. That would amount to $10T / 360 x 30 = $830B of construction working capital.
To cross-check whether this number sounds directionally right: that would be ca.:
$830B x 33% / 7M = $40K working capital per residential project
$830B x 67% / 1M = $550K working capital for a non-residential project
While these numbers won’t be accurate, they are in the right ballparks.
Now imagine you could eliminate one pass-through party in the construction invoice chain, and find a way to pay suppliers more directly. Thus you might be able to reduce the invoices and wires by as much as 50%, which would reduce the working capital by proportionate 50%, or as much as $400B globally, $60B in the US or $20K+ on an average residential project.
10B – 55B construction invoices (and cash transfers) per year
40B – 200B accounting book entries p.a.
$830B working capital
$40K working capital on a resi project and $550K on non-resi
$60B of working capital in US construction could be saved if someone could eliminate one pass-through party in the invoice chain
What I find interesting in this context is: Who bears the burden of these numbers? While the usual answer is the sub-contractor, I actually begin to think the long tail of developers bear the biggest pains. And their pains from these numbers are more painful the…
more different GCs they have to work with on their projects
smaller the GCs they work with
more volume and no. of projects per year they develop
That’s why I have become enamored with solutions fixing invoices and wires in the cash flow chain starting with real estate developers downstream to sub-contractors.
Let me begin my thesis by using a unique metaphor:
Imagine your body needs chronic treatment. Let’s say Diabetes. And folks tell you that you need insulin to treat it and function well.
There’s a dealer (not saying who) who has the reputation for always having insulin. You get it from him. But he sold you insulin at a teaser rate.
And he’s mixing some nasty stuff into your insulin which makes you addicted and dependent. You find it very hard to go to another dealer, because this guy’s insulin is just really hard to switch away from.
In the foreseeable future, his teaser rate will run out.
Now, the dealer comes to you and says “hey, this other drug goes super nicely with the insulin i’m already giving you, it’s great for your body”.
But really, what it does it creates even more chemical dependency of your body so that you can never get out of his insulin.
And you look at your wallet and you think: “hold on, when my teaser rate runs out, all the money in wallet will go to my one dealer. WTF”
“Now he wants to make me even more addicted?”
“No way; i have to get off his $hit, get my life in order and find a less abusive way to get my insulin. And while I’m rethinking it all, I should find an insulin that is not mixed with some of his nasty addictive stuff !”
“Oh, if I am making that huge life change anyway, I should also never again be dependent on a single dealer.”
Now, at this point in your realization, imagine there’s someone who tells you they actually got away from the dealer and since then built their own insulin stack. They tell you they began sourcing the different chemical components from trusted sellers and brewed their own insulin inhouse into the mix that is BEST FOR THEIR body.
That would be perfect, wouldn’t it?
You’d like to do that. You’ll probably need good support from others who are on the same journey as you. But because the vendor has left so many clients unhappy and addicted, you can easily find a huge group of people who have the same issue as you and you can consult each other and team up so you can all brew our own mix and become our own producers.
Within this metaphor, we find five interesting components:
the need for a great product to fulfill life-critical functions (”control my blood sugar”)
the product stack
the vendor’s incentives
the pricing model
Before double-clicking on them: I find it noteworthy that most “pundits” or investors out there think about the feature set, when they think about disrupting the dealer in the above metaphor. And it is a key component – if I can’t offer a decent substitute product, I can’t compete. But: the key to change in this metaphor also lies in working with the system’s incentives, pricing, structure and community.
Let’s bring the metaphor into 3D design and work through the components one by one:
Attack vector 1: Life-critical functions
The drug (insulin) in the metaphor can be equivalent to many tools used in the 3D design stack, but probably the most critical one in the stack of 3D designers and architects is their central CAD/BIM authoring tool. Without which the users couldn’t fulfill their core functions.
The attack vector here is not a more feature rich authoring tool (i.e. an insulin that consists of more chemical components, for that matter). The required feature set is sophisticated, but very clear.
Rather, the attack vector in terms of enhancing the life-critical functions that I see is:
Concurrency: The ability to manipulate and process elements in the same model at the same time.
atomic distributed version control aka git: The ability to store the state of every atomic object of the model at any point in time (and not just time snapshots !) from n-number of users and thus give a complete historical trackability of edits, branches and commits to the 3D model.
n:n multi-player: The ability to have n-number of users collaborate in n-number of distributed software from different vendors, without having to have one central vendor (or server) participate (which would not be n:n).
AI-ready streaming of my proprietary data: The ability to normalize, ringfence and distribute a firm’s or team’s model and model history, so that the team can build their own large language model based on their ringfenced but huge amounts of proprietary data without having to share their data outside their team.
Unfortunately for decades-old legacy authoring tools (the insulin), the above functionalities cannot be easily added on top of an age-old stack. They form a very different core stack around which to build an authoring tool from the ground up, starting with the database and data query architecture. Any legacy authoring tool will have a high development effort to switch to a modern stack that supports the above functions, plus the effort to convince and retrain their users over time.
And that is the attack vector here. Modern software for the 3D design stack built on modern technologies that allow concurrency, git, n:n and AI-ready streaming, offering not a 1:1 substitute but a drastically improved alternative to the drug fix currently on offer.
Which brings me to the entire stack.
Attack vector 2: Product stack
The dealer in the metaphor benefits from the fact that his client cannot home-brew a superior or otherwise better or cheaper insulin himself.
The same thing happened for decades in 3D design. A vendor would offer the most complete authoring software or the most sophisticated specialty tool. A client could never rebuild the same software in house. But worse – a combined stack of tools was not available that – when stacked together – would be a superior solution.
That’s what’s rapidly changing now. Architecture firms and design clients around the world are in the process of re-evaluating their IT spend. What they realize is that that one vendor will soon eat up their entire IT budget. We are talking 2025-2027 here. So soon.
While the largest clients are developing some lighter parts of their stack inhouse (eg. Testfit tools), the most sophisticated parts of the 3D design stack are just not feasible to be built by AE firms or design firms. Inhouse is not an option for the most sophisticated parts of the software stack.
Fortunately for them, these clients begin to actively go into the market, and look for new vendors that fulfil parts of the “dealer’s” software. These clients are willing to stack different softwares together, which do their part of the stack more excellently that the “we-try-to-do-it-all-in-one” software from the untrustworthy vendor.
That’s the attack vector that the dealer does not have an answer to. AE and design firms re-stacking their toolset with software that is individually superior in specific functions, and thus re-building the entire stack of their firm one by one.
Now, the dealer has no reason to participate in this, because: incentives…
Attack vector 3: Vendor’s incentives
In the metaphor, the vendor has the incentive not to heal the patient, but to keep them addicted. Being addicted means coming back for more, eternally. Every time you come back, the vendor needs to sell the patient more per dose, because doses hit resistance. A vicious cycle.
A very similar dynamic plays out when a vendor has maximum market power and market share in a 3D design software product that is ultra core to the user’s company (eg. an architecture firm) and is very complex to learn. The more the designer uses the product, the more the designer stores their data in the vendors software, the higher the addiction.
The vendor then has the incentive to keep adding more and more addictive features, and never let their clients come out from under.
Fortunately for the architecture and 3D clients, though, this is exactly the attack vector here:
Because clients are aware of these incentives (it’s an open secret and visible to the naked eye), the vendor has no credibility of ever meaning well for the clients. Even if the vendor has a change of heart – the hurt is already done. The only reason his clients stay with him is because there is no superior alternative. He abuses them. The moment the vendor faces true superior competition, his reputation is so hurt that whatever he claims he wants to do right by his clients – his clients know that he abused them.
Therefore, any alternative vendor (ventures, for that matter) offering superior substitutes can credibly claim to mean much more well for the vendor’s clients and structure their product and pricing model in a way that demonstrates credibly a good-natured alignment to the client’s benefits (and not to the dealer’s). All you have to do is to structure your product and license in any way that tilts to the benefit of the client, eg. in terms of length of commitment, service, flexibility in using the software, and pricing model. And the existing vendor has no way to defend against this attack vector because he created a systematic issue for himself.
Which brings me to pricing.
Attack vector 4: Pricing
The vendor/dealer in the metaphor is used to a steady and constantly expanding revenue stream from his clients. It will be very hard to change the pricing in a way that tilts in the favour of clients, because (a) “why would I” and (b) the vendor would take home less money where everyone has gotten used to that steady stream and pile of cash. How does the vendor explain that at home?
He doesn’t, or at least not without major discussions and convincing.
That’s the attack vector here. New entrants being able to offer pricing models much more aligned with client outcomes.
Instead of prohibitive seat-based licenses for 3D software, and a hard crackdown on clients who “over-use” according to the vendor – new entrants can offer pricing models that allow them very fast growth and allow architecture and 3D clients much more flexibility and independence. For example:
Pay for volume tiers, don’t pay for unexpected usage spikes
Pay for unlimited use, don’t pay for over-use
Pay for higher-tier features, don’t pay when features not needed
Pay for service level access (especially great in combination with open-source software), don’t pay for custom development and support
Attack vector 5: Community
All clients source their product from the same vendor. That’s why they share the same pain, and they know they share it.
The moment a few of them start building their own product stack, and ask around who can help with sourcing the parts needed, collaborating together to re-engineer a solution – the movement begins. Because the pain is so high and the trust in the vendor is low.
The vendor’s incentives, of course, are to avoid that movement. Control the communication, make sure they don’t speak with each other and make sure that no collaboration happens outside the control of the vendor.
That’s the final attack vector in my list. Activating a nascent yet vibrant community, and unleashing a movement that is brewing under the surface. Arm them to re-stack their toolkit.
3D design has one of the most amazing technical communities out there. Made up from game developers to aerospace engineers to architects – they all build in 3D, and many of them code. They organize online, they exchange ideas and learnings.
And new entrants – especially those that have a credible open-source strategy – are the ones that will be in the position to channel the power of community through this attack vector on the dealer.
My thesis is that through these 5 five attack vectors, 3D design clients can unshackle themselves from the dealer in the metaphor.
So much, for now.
Coming next: In Part 3, I plan to write how I see the attack vectors currently form in the shape of specific company examples – which I deem most exciting to be dealer killers.
Germany has a stock of 20 million residential buildings, plus millions of commercial buildings.
While the initiative has its merits, and is commendable from a carbon reduction perspective – it leaves many building owners in Germany (B2C and B2B) with a lot of uncertainty what it might mean for them.
On top of which, many commercial owners of buildings are already dealing with complexity from the EU’s taxonomy to reduce their buildings carbon footprint.
This uncertainty for building owners is best met with facts about their building’s real substance and thermal footprint.
That’s exactly what building energy audits do, and why they are growing like crazy in Germany (and Europe).
Think of the building energy upgrade cycle in terms of 3 eternally-repeating phases:
Assessing, which consists of capturing the building substance, running complex normed calculations, prioritizing upgrades, and designing them, and also benchmarking the building on a granular level
Installing, from procuring material and labor to carrying out the upgrade project and assuming the risk for the project
Operating, incl. capturing the building’s power and thermal footprint, monitoring variable prices and making operational adjustments
The installation phase will be fixed soon by an abundance of players
Today, the installation phase is severely bottlenecked by a lack of tens of thousands of skilled workforce to carry out the upgrades, such as retrofitting insulation, windows, heat pumps or rooftop solar. The good news in this phase is, though, that a bunch of players have recognized this demand overhang opportunity. Lots of players have raised capital to build asset financing companies for solar (eg. Enpal), for gas boilers and more recently heat pumps (eg. Thermondo), or to bring efficiency to retrofit insulation (eg. Varm – highly recommended to put on your watchlist) or even for generic installation workforce serving the above mentioned players B2B (eg. Installion). Also, OEMs of boilers and heat pumps try to play a big role in this phase.
So, fortunately, the installation bottleneck is getting solved.
However: The problem with players in the installation phase is that they need to put their workforce into work. They need utilisation. And they know their own product, their one solution. Which means: they are not credible in providing the right merit order of upgrades that is specific to an owner’s building.
Should it be solar first? Well, if you ask the solar players, of course !
Should it be heat pump first? According to heat pump players, you bet !
(in reality, in many instances it should be insulation or windows or something else first, so you see the problem)
The operating phase does NOT capture the physical substance
In the operating phase, we have utilities, meter operators, building management systems and price comparison portals who all have a role to play to manage the building’s power consumption. However, it’s limited. For one, their help with heat consumption is not on par. Secondly, the monitoring of power consumption is spotty, at best. Smart meters are still not widely adopted in Germany and larger parts of Europe (I researched and wrote about smart meters almost twenty years ago …). And finally, even if you monitor the level of power consumption, IT DOES NOT TELL YOU ABOUT THE BUILDING SUBSTANCE and why the losses PHYSICALLY occur.
Bringing technology into the assessment phase is the missing link
That’s why there is the assessment phase. It covers the things an owner needs to know about the physical substance and ongoings in her or his building. Unfortunately, the assessment phase is equally (if not more) plagued by skilled workforce shortage. Today, Germany has ca. 7’000 – 8’000 people trained, certified and active to conduct a building energy audit and create the roadmap for upgrade measures, of which many only do this part-time. These highly trained people are called “energy consultants / Energieberater”. They often come from a first life as an architect or engineer, and take on tens of hours of additional training to be certified as energy consultant and be allowed to create the audit documents.
The audit documents are no slouch. They contain 20-40 pages with the building’s specific physical substance, followed by complex normed calculations, followed by an individual upgrade roadmap (what I call the merit-order of upgrades). The merit order tells the building owner what is the most efficient upgrade to do now, to do after, to do later.
And apart from being just really insanely useful – the audit documentation also serves as a purpose to access grants/subsidies and bank financing.
That’s why the building energy audit is really awesome, but complex.
And unfortunately, that’s why a lot of owners want it. If you are a consumer, and you want your single family home audited, it’s quite normal that you wait 6-9 months for your building energy audit.
Now imagine, you are the owner of ten buildings, or hundreds, or thousands. You need a scalable solution – a one-stop shop that uses technology.
Enter: Enter !
Enter has established itself as the leading building energy audit provider in Germany, with more than 3’000 projects completed as I write this. They grew in 600% in the last months. Their secret to achieving such scale recently is that they built a suite of proprietary technologies that allows them to capture building data from owners extremely hands-off, and run the audit calculations and merit-order supported by technology. In the end, it even helps the owners access grants/subsidies by running the process for them. Thx, technology !
What’s equally important to succeed in this market, though, is the positioning and model.
Enter has no workforce to utilize. It is not an installer. As I wrote above, there’s plenty out there that Enter partners with and there’s great synergy. But because Enter doesn’t have to put their own workforce into work, it has no conflict of interest. Enter is in the position to freely recommend any upgrade measure in the order that’s best for the building owner.
Because Enter has a 360° view of the physical substance of the building, its recommendations are based on facts specific to the building. Not beliefs that maybe solar is always best…
And all of this allows Enter to be the preferred partner to owners as well as lenders, since they look to Enter to underwrite the upgrade measures for financing and the actual execution of those measures in the end.
I am convinced that with this round, Enter is scaling not just to a huge financial success – more importantly, Enter is now scaling to decarbonize 20M homes in Germany as fast as possible because owners now finally know what their building’s physical substance is, and what’s the right merit-order of thermal upgrade measures.
almost all vertical operating systems start with a best-in-class wedge product that creates a system of record around the foundational customer unit. And then, from that initial foothold, the company launches other products and services that capture more and more of the employee workflow.
Good timing, because I believe we are seeing the Vertical Operating System for SMB contractors in Europe. And it coincides with a major new round announced today.
While a wide range of solutions for the financial stack of SMB contractors has emerged in the US – eg. Adaptive, Briq, Flashtract or Flexbase – the European markets had remained starved for strong venture-backed solutions.
Until Graneet’s new round.
What is Graneet ?
Graneet is the financial operating system for small and medium-sized construction companies. Contractors manage quotes, invoices, project financials and margins, cash flows and payments with Graneet’s software. Key financial workflows are automated, and numbers become transparent across dashboards in real-time.
A useful analogy from other industries is Pennylane – in a super dumbed-down way, you can think of Graneet as the Pennylane for Construction.
Why verticalized ?
If you wonder why a horizontal or multi-vertical financial OS such as Pennylane wouldn’t be better suited to also serve construction, I don’t blame you. Fair question, especially if you have never looked into the specifics of the construction sector.
Construction contractors deal with a bunch of specifics in their financial workflows that no other sector has – not retail, not ecommerce, not logistics, not manufacturing etc.
For starters, financials are arranged around projects, not orders or products or months (I call this the smallest unit of aggregation, SUA). Contractors need to manage their margins on a project level, i.e. their SUA is a project. A project can consist of many milestones and pay-gates, which themselves are made up of orders, applications for payments, partial invoices etc. A financial-OS needs to facilitate these workflow specifics around quotes, (partial) invoices, and margin reporting.
Secondly, projects – and its associated revenues, COGS and cash flows – often run over multiple months, not just one or two. This means that you carry bookings for a long time, while having partial realized revenue in various different months booked against the project, while you carry the remainder of the booking. A horizontal financial-OS which allows an SMB to run their firm around a monthly view only will significantly distort a contractors financials and unit economics. A financial-OS for contractors needs to allow managing your financials not only around projects (see above), but additionally manage across 3+ months of realized revenue, to manage the contractor’s business model.
Thirdly, construction quotes and invoices contain a lot of specific terminology and units. Both quotes and invoices typically have to be broken down to super-specific line items, and line items contain different quantity-units – eg. one being hours, a second being tons, a third being cubic meters, a fourth being distance, and so on. While in retail, ecommerce or services, the units usually are the same and a quote contains anywhere between 1-5 line items, construction contractors routinely offer 50 to 500 line items because it is required by law or by procurement policy from their clients. A financial-OS needs to allow easy quote/invoice creation, editing and summing with multiple different units and hundreds of line items. Also, not unimportant: only a consolidated view of invoices, receivables, project execution milestones (!) and payments will allow instant invoice-financing.
This list of construction-specifics could go on for much longer – just to mention other construction-specific items:
ESG appendices to quotes/invoices and supply chain documentation
applications for payment
insurance certificates, compliance documents, liens
early payments discounts and materials financing solutions
procurement of materials from preferred construction suppliers and inventory-keeping
This is the reason why horizontal players prefer going after many many many other verticals first, before they adapt their software to construction. And it’s why a vertical financial-OS wins.
Why not a US venture-backed financial OS for Europe?
US and European SMB markets have fundamentally different mechanics:
Expense cash flows: US market is credit-card (and cash) based, Europe is wire-transfer based.
Labor and payroll: US SMB contractor market has a lot of roaming/freelance and at-will labor with weekly or biweekly payroll, not seldomly on a cash basis and hourly wages. European SMB contractors have a higher share of fixed employees with fixed base salaries paid via wires, and more often than US on a monthly basis.
Compliance documentation: US and European markets can both be heavy on compliance documentation, but what documents are required differs massively. For example, US contractors need to show a lot of insurance documentation, while European SMBs often need to provide documentation from their workers that they were paid minimum wage. Very different set of compliance docs.
Again, this list goes on. Both are mature markets, but organize their financial workflows quite differently. That has implications for the transferability of software from one continent to the other in the early days.
(NB: UK workflows tend to be closer aligned to US markets than mainland Europe, but still different to US)
Cool – so why will Graneet win ?
Amazing product, amazing team, amazing growth. Three out of the biggest criteria for any VC investor.
Graneet’s month-on-month growth has been consistently at 15%+ in 2022.
But such growth can more often than not be bought with expensive and un-scaleable sales motions.
Therefore, let me focus here on a fourth criterion that is quite unique to the firm and prepared Graneet for exceptional scale: its sales efficiency and product stickiness.
When I looked at their 2022 numbers and compared them to best-in-class SMB SaaS benchmarks, this came out:
Sales cycle: Top percentile. To give you an idea: Graneet is measuring its sales cycle in days…
WAU/MAU: this might be the craziest number I have ever seen for an SMB SaaS. Top percentile doesn’t even do it justice. Suffice to say – customers have an insane recurring usage of the software.
Sales burn multiple: Top decile, profitable
In Graneet’s case, what blew my mind is the quite insane customer love coupled with a motion that scales and a very high dollar retention in the SMB segment.
It’s rare to see a vertical SaaS with such excellent metrics poised for capital-efficient growth.
Now that Graneet has loaded up on cash, with a product that is loved by a wide range of contractors, a European market starved for a great venture-backed solution, and possibly one of the greatest vertical SaaS investors of all time (Point Nine), I believe the firm has the ingredients to scale very rapidly.
Over the next weeks, I will be sharing a series of posts explaining our view why the 3D design stack is not just ripe for disruption – but why it is already in the middle of it – and what our thesis is.
To begin, it’s important to pin down the problem.
And no better way to show you the problem than visually.
In this initial post, let me use just 10 pictures.
This is AutoCAD – a software from 1982
This is Revit – a software from 1999.
This is Sketchup – a software from 2000
This is BricsCAD – a software from 2002
What users think of legacy software firms
Autodesk has by far the most reviews, hence using them as an example, but they do not seem to be a singular exception in this regard.
How users are treated
Anecdotal, but you find more of these anecdotes… do your own research.
Incumbents are in the business of buying,sunsetting and closing-off software – do they also build software ?
You can’t read the whole damn list ? Yeah, that’s because incumbents buy a lot of independent software…
What employees at incumbents think of their strategies
Seems that life’s good at these legacy software vendors. Employees appear to think the product and strategy work just fine for them…
What users think of the incumbents’ “innovation” strategies
Again: anecdotal, but you find more of these anecdotes… do your own research.
Meanwhile, in the UI/UX design stack:
In my opinion:
Incumbents’ 3D and CAD software have a huge problem. They are built on older stacks. When I look at it, I see clunky, swiss-army-knife style software that requires a ton of training time and locks users in by making any switch away as hard as possible.
On top, legacy CAD firms treat users not like kings. Prices seem to get hiked, license structures changed, service seems mediocre.
And users take notice. It seems they took notice for a long time. And they vent. A lot.
Legacy CAD firms don’t seem to care much. It looks like they double down on their strategy. By buying, and buying, and buying more independent software firms, sunsetting software, and closing it all off.
The disconnect seems real. Employees at legacy CAD firms seem to love their life and strategy.
Users not so much.
Meanwhile, the UI/UX design stack has delivered the blueprint for how the exact same situation has played out there.
One of our super exciting young bets of the last year had been Lun, who today announced a new €10M round with Norrsken, Lowercarbon and Partech, which they raised ultra quickly on the back of assembling one of the best management teams in the space in Europe and executing a super unique product (more on that below). We are proud to have led Lun’s pre-seed just 12 months ago.
For a bunch of folks out there the above Venn diagram might not make sense at first. What do design and workflows have to do with heat pumps. It‘s all about buying small shops, training some people, isn’t it?
No, it isn’t.
A lot of companies approach the thermal renovation opportunity across Europe from an Enpal-like angle (basically super-heavy asset-financing model). There’s Thermondo, 1KOMMA5 and many others with slightly different but fundamentally similar takes across Europe etc.
If you really break it down to first principles, these models resemble asset-financing businesses where they take some workforce constraints out. The workforce aspect is secondary though – when you read the P&L and Cash Flow Statements, you see that these models are asset-financing with some bolt-ons left and right.
The not so attractive part with that approach imo is (1) this is a model born out of a low interest environment, and the cash economics of such models are just not what I look for in firms (2) you cannot be a credible arbitrator of a merit order of renovation measures, cause you know, it has to be always eg. solar first (even if the building would benefit from another thermal upgrade first) because that’s where I need to put my OWN workforce into constant work and (3) if you look at reducing our CO2 footprint on the grandest of scales – we are talking 100M+ homes in Europe as fast as possible – these asset-heavy models just cannot move the needle. Only a software play that enables hundreds of thousands of installers can reach that scale and reach it quickly.
Therefore, my thesis is different:
100M+ European homes need thermal upgrades as fast as possible.
Not every building has the same merit order of upgrades. Some have the biggest initial impact from insulation first, some from heat pumps first, some from solar first, some from windows first, and so on.
One of the fastest growing upgrades will be heat pumps (the other will be insulation, by the way, but more on that in another post soon).
Heat pump upgrades suffer from a massive, massive demand-overhang / under-supply.
Material supply will get fixed more quickly than labor supply. Labor supply will remain the largest constraint.
Spec’ing heat pumps is more complex than rooftop solar or fossil boilers. Lots and lots of variables go into spec’ing it right, and the consequences of being wrong are much more economically and thermally significant than for other upgrade measures.
Installing heat pumps is also much more complex, and information is harder to come by than for rooftop solar.
Fortunately, we have a large pool of skilled craftspeople who know how to spec and install heat pumps.
But: they are severely capacity-constrained. 50% of their time is spent on admin tasks that software can help fix: on-site visits, writing quotes, writing invoices, chasing customers to convert and chasing them to pay, and procurement – and collating the various data points required to spec the heat pump, some from open sources and some from the building owner directly.
And: only 25-35% of quotes written by heat pump installers convert into orders. Software can help with this, too.
Bonus: If you build the industry-standard software, a new generation of installers that gets groomed in the coming years can be powered by this software without being locked in to any single employer, and be their own employers. The term “business-in-a-box” applies.
Therefore, my thesis is that a B2B installer-centric design and workflow softwarefor heat pumps which helps with spec’ing and all the tedious overhead work and customer-centric and supplier-centric workflows in itself can free up 50% of installer capacity (i.e. double the current capacity) across Europe. And do this fast and at scale.
In other words: Scaling heat pumps to mega-scale is a design and workflow problem (because it requires skill and is highly varied).
There is precedent and a playbook to get inspired by from the US in rooftop solar – Aurora. And for heat pumps, this formula is even more relevant due to their complexity.
And that’s what Lun does for European heat pumps. No marketplace, no asset-heavy workforce – just amazing design + workflow software to enable installers.
Lun has assembled one of the very best climate-tech and software management teams in Europe. The next year could be fun, now that we stocked up with cash 🙂
P.S. some resources for my readers who love physics and who’d like to become heat pump geeks:
77% of freight transported in the EU is carried by trucks. That leads to about 6.2 million trucks circulating through the EU.
All of this truck freight directly links to gross domestic product. Less drivers, fewer road freight, less goods from the upstream supply chains arriving at their downstream destinations.
And no, increasing rail- and ocean freight do not solve this issue for us. The vast, vast majority of road freight is carried for less than 150 kilometers, which already accounts for the rail and ocean freight which carried goods further upstream.
The truck driver shortage is a big problem
In 2021 we were ±460’000 truck drivers short in Europe + Turkey. These unfilled jobs accounted for ca. 10% of the entire truck driver jobs in these markets.
The breakdown (ca.):
All others: 100’000
And the trend was not our friend: Truck drivers dropped by 10% in UK from 2020 to 2021. 40% of open driver jobs are unfilled.
It’s not like fleet managers do not see this problem (they do !). For example, in UK in 2021, drivers wages increased by +18% (this is before the Fed began acknowledging the spiralling inflation), but they do apparently not increase enough to rebuild the dwindling truck driver supply.
… getting much worse very soon
In 2021, 230’000 drivers had drivers license attestations from non-EU countries, of which many are Ukrainian or Belarusian. According to IRU, on top of the shortage we saw at the end of 2021, an additional 170’000 truck drivers may have left the jobs due to the Ukraine war since beginning of 2022.
If you add it up, just based on this, we are probably short 640’000 truck drivers in Europe + Turkey today.
Now here’s where it gets spicy.
The average age of truck drivers in Europe and Turkey is close to 50 years. 25% of truck drivers are older than 55 years – almost 1 million truck drivers !.
If you add this up to the already existing gap, we are looking at a 1.5M+ truck driver gap in the coming years !
The #1 issue cited by folks who know the road freight industry are: working conditions !
Fixing working conditions for truck drivers can be broken down into four pillars:
Increase time at home (very interested in such solutions !)
Decrease time pressure
Improve loading/unloading conditions
Improve hygienic conditions
If you fix all four, you might be building a very big business.
Specifically, I am looking for founders who use technology to source and train drivers, provide best employment, maximize earnings for drivers and, in doing so, increase time at home (eg. remote solutions instead of autonomy solutions).
(What’s missing on this list is level 4/5 on-highway truck autonomy. Every automotive engineering expert I am speaking to tells me the same thing: not in the next 10+ years. Truck drivers will be here to stay is my bet)
The European Central Bank raised interest rates a few weeks ago again, bringing the main lending rate to 3% and further closing the gap to the Federal Reserve.
I hadn’t had much time to write about it earlier, but I am deeply concerned from a societal perspective. How will thousands of families in Europe (and USA) continue to afford owning homes? Or is there a relief on the horizon?
(I’ll use German numbers below – many mature markets will show directionally similar dynamics)
50% of households have a net income of €2’900 or less. 90% have €6’500 or less net available.
I was interested to analyze how much home households across the spectrum were able to afford in a low-interest rate environment (1% mortgage interest rates were commonly available until 2021 in Germany).
Then I wanted to understand how that affordability of home prices changes as interest rates increase.
For this analysis I used rules of thumb and mortgage assumptions commonly used in Europe:
2% initial annual repayment of principal (norm in Germany)
at least 60% of net income needed for non-mortgage living costbut max. €8’000 per month (banking rule of thumb in Germany)
using a Financing of 100% of home price; transaction cost paid from cash savings (used for simpler calculation; more cash = more home)
Here’s how it looks:
As you can see, the affordability drastically decreases with rising interest rates. Between a 1% mortgage and a 6% mortgage, the home price that a household can pay is reduced by 63%.
If you now overlay the distribution of household incomes, you can make a very reasonable assumption that 90% of homes were purchased for €1M or less, the other 10% were possibly purchased above that.
Here is where it gets (depressingly) interesting:
Flip the perspective, and ask yourself – how many households were able to afford a certain home price in a 1% environment (aka market size for that home category) and home many households in a 6% (adjusted market size for that home category):
For a home that is put on the market for €460k:
50% of households could afford it in a 1% interest environment
3% of households in a 6% environment (you read that right !)
That means you have a 47%-points smaller market size for a home marketed at €460k between 1% and 6% interest rate.
And this is where it becomes a societal issue:
What you see here is that the change in market size happens in the low-mid home categories, by as much as -50%. While in the homes that households with upper-end net incomes can and will afford, you have practically no change in market size (0.5%).
Now, the first conclusion one could draw here is that home in low-mid price brackets could crash in price, while upper-end homes could be more stable in price. That is a reasonable conclusion.
But the story doesn’t end here. Consider the cost of new construction, which is the equivalent of creating new supply in the market:
Unfortunately, construction cost keep escalating. This comes down to skilled labor shortage and availability (and prices) of materials. Regulation doesn’t make construction easier, but more complex. Thus, experts expect construction cost to keep rising.
Which means, we cannot expect new supply to flood the market and create relief in the form of widely available, cheaper homes – at least not immediately.
And this is the very concerning part:
A large part of households signed mortgages at ±1%
When they need to refinance, will their homes be in a price bracket that could come under price pressure, as the market size decreased by as much as 50%?
Even if that doesn’t happen, can they refinance the same debt (from the home price paid in 1% environment) with higher interests?
The silver lining that happened in 2008 in large parts of the US was that home prices came down. The difference is that there was a very steady stream of new home construction in the US available back then which put homes under pressure. I don’t see this happening in Europe this time around.
Therefore, my fear is that we are already in the process of not just keeping new generations from owning homes (that’s already happening), but that former owners will be forced to become renters as institutional buyers are the ones swooping up the low-mid price brackets of homes with available liquidity.
(I focused this post on the US market; European and Australian markets will have different specifics but will be directionally same ballpark)
Construction & demolition waste increased by +340% compared to 1990. While – interestingly – municipal solid waste “only” icreased by +40%. We create disproportionately more construction trash than household trash.
The big 6 components that make up construction waste are:
Gypsum (from drywalls)
Bricks and clay
Metals (steel, copper, aluminum and others)
All other materials fall into the “any others” bucket. An example of “others” would be asphalt roof shingles.
Concrete makes up 70% of all construction waste. 22% are asphalt pavements and wood. Bricks, clay, gypsum, metals, and any others together make up 8%.
When it comes to “where does it all go”, brief time for definition:
Re-cycled means something is re-used in (broadly) the same way as before. For example, asphalt pavement re-used to build new asphalt pavement.
Down-cycled means something is not just dumped but used in an energetically lower yield than its prior use. For example, burning wooden doors as fuel.
Un-cycled means something is just dumped in a landfill. Here it’s not even used as fuel or as an aggregate to fill a hole for a new site.
To the numbers:
20% are re-cycled. The majority here is asphalt pavement. Some concrete is recycled. Some minor recycling of wood and metals.
56% are down-cycled. Vast majority is concrete (mostly re-used as aggregate). Some down-cycling of pavement, wood, gypsum, bricks and clay.
24% are un-cycled and just dumped. Again, a good share of this is concrete, but surprisingly much is wood. The majority of bricks, clay, gypsum and any others goes here. Reasons are diverse, but two of the bigger reasons are that separation is too costly or that adverse materials are contained.
What all these numbers tell me is that creating a stream of homogeneous supply of recycled construction materials is really difficult – and really key. The two biggest levers to improve our recycling rate are (1) concrete and (2) wood.
For concrete, someone has to fix the separation to be economically scalable.
For wood framing, I have seen approaches to remove nails – that is generally useful, but holes remain and since wood ages, the structural integrity decreases. That’s why it gets down-cycled.
For wooden door frames, hardwood floors, and similars: they have visual properties that lead to in-homogeneous supply at scale (every door looks a little different)
Who’s fixing construction waste at scale using technology? I.p. looking for robotics and software-led approaches
One common fix is when second-time founders – after they had made significant splash with a first exit – take 1-2 years and spend time on construction projects and in the supply chains themselves. This happens more often than you might think, for example:
Hence, want to focus this week’s post on some of the most unexpected and large hidden truths in construction I’ve learnt about as an outsider myself over the past years to give y’all a headstart of where to dig deeper. Not meant to be an exhaustive list, nor to provide the in-depth. Just to mark an X on your map, not going to do the digging for you. Below are some of my more favorite hidden opportunities I learnt about over time:
The mess on construction sites can be really that bad
1/ Document controllers
A lot of project sites still rely on offline paper to record information, allocate work, and keep an audit trail. Documents get wet, damaged, lost, confused. From customer invoices and signoffs to fuel expenses, site risk forms, and everything in between.
Did you know that there is a job (in larger projects) called a Document Controller? This person’s task is to make sure that the thousands of documents flying around the site are properly collected and distributed among the other members of the team, eg. for signatures, approval and validations, and get returned on time and with the proper input. This role exists because of the crazy amount of paper you need to run an auditable construction site.
2/ Thousands of versions of a project schedule
A construction schedule is the planned sequencing and timeline of tasks and milestones in a project. It can easily have tens of thousands of line items in larger projects. It’s not a secret anymore that optimizing schedules is a billion dollar opportunity, with several startups active in this opportunity space but with different angles and approaches. (eg. Alice, Nodes & Links, Foresight, nPlan).
What is less of a known fact to outsiders is that there are thousands and thousands of version of a schedule, because changes happen all the time, which requires all subsequent dependencies to change as well. The amount of files and documentation for collaboration around the schedule therefore is a nightmare.
3/ Estimators for materials take-offs
“Take-off” is an Americanized expression for assessing material volumes (the bill of materials, BOM) and the associated cost of those volumes for a construction or renovation project.
In the US market specifically, it’s quite common to have an (often external) “estimator” look at the blueprints or models of a project and conduct the estimation of volumes, and provide researched or experienced-based cost estimates.
This process is ultra tedious, easily taking a lot of man-days from a professional estimator.
Construction = supply chains + working capital
4/ Sub-contractors deliver materials early
Let’s continue with one of my craziest favorites. Sub-contractors around the world very often offer the materials associated with their labor in their quote to the general contractors. This allows them to choose materials most comfortable with (within specs), and most importantly, skim some materials margin as additional income.
I’ve learnt that in some of the European low/mid/high-rise markets, sub-contractors have a habit of delivering their quoted materials weeks earlier than their labor starts.
Why? Because it allows them to invoice the material to the general contractor and get paid for it earlier than their cash clock for their labor starts. I would not be surprised if they also try to receive more favorable payment terms for their distributors or manufacturers, thus optimizing their cash cycle. I can’t blame them, since sub-contractors get squeezed constantly for cash from both sides.
5/ Applications for payment
In many markets around the globe – especially Anglo-American markets – applications for payment (AFP) documents are a standard with which a (sub-)contractor provides an overview of (partial) labor and material that has been rendered. With this document, the contractor requests to be paid.
The customer (eg. a general contractor) passes the AFP around internally to the colleagues best suited to provide judgment whether the work has been rendered satisfactorily.
There are hundreds of millions and millions of AFPs flying around the construction markets every year. Its significance is so high because it not only expedites payment – it enables an important quality assurance workflow through which the client is forced to judge acceptance of work and material.
While there are several standard forms for an AFP, reality is: millions of documents fly around.
6/ Payroll companies and crew leaders
This is a UK special, but might be happening in other markets, too.
In the UK, it’s quite common for construction companies to hire flexible construction labor, often entire crews who keep working and roaming together.
The UK has recognized this many years ago and implemented CIS – the Construction Industry Scheme that regulates how payments, payroll and taxes in construction ought to be made.
To run such payroll creates a headache for construction firms who employ roaming crews. One common practice has therefore become to have specialized construction payroll firms. For example this one (among many others in the UK).
Now here’s where it gets really interesting: Among such roaming crews, often times a crew leader (sometimes called a “baron”) can emerge who markets “their” crew to contractors and their projects. In the payroll processing, they take a cut of the entire payroll (regularly 10-20% of the entire net payroll) and have the remainder paid out to “their” crew. Interesting, huh…?
7/ We speak not enough about aggregates
You might have heard that the world’s consumption of raw materials is set to double by 2060.
But when you hear “raw materials”, you might think oil & gas, metals, coal, wood, or even agricultural products.
Very few people think of sand, gravel and crushed rock – the so called “aggregates”.
55% of the entire world’s raw material consumption in 2060 will be sand, gravel and crushed rock. A material heavily used in concrete, bedrocks and other construction applications.
And we are running out of supply fast.
8/ Truck drivers and access keys
The construction supply chains would not work without third-party trucks and drivers. Since I mentioned about aggregates above, let’s use that as an example:
Customer orders aggregates from a quarry
Quarries and 1 and 2 says “sorry all sold out right now”
Quarry 3 says “yep send a truck, he can load up”
Customer orders an external truck – often via a local broker
The broker and truck driver know all the quarries around the town
But to get onto the quarry, you need to get through a gate
The gate has physical access keys in cheque-card-format
And guess what: That’s what the truck drivers have under their sunscreen – 10-20 access keys to all the quarries in town they drive regularly to
And who keeps track of these keys? Hell if I know…
Construction is ultra-relevant – even before considering CO2
9/ The #1 reason for fatalities are falls
Falls are the leading cause of deaths among construction workers. Not electrocutions, not being struck by or caught between objects. Falls.
Consider this crazy stat: According to Safety & Health Magazine “over a 45-year career, a construction worker has a 75% likelihood of experiencing a disabling injury and a one in 200 chance of being fatally injured in the job.”
10/ 220 million people work in construction worldwide
Leaving this here feels a good way to end this list. Construction is insanely relevant. Not just in terms of its share of GDP (between 10-13% worldwide) or its total market size (somewhere between $10-16 trillion). But for the employed lives it impacts. You want to have impact as founder, don’t look beyond the construction sector.
Artificial intelligence (AI) seems to be the latest catch-all that venture capital investors are in love with – following “FBA aggregators” in 2020, “Web3” in 2021 or some fundamentally stupid “climate” stuff that also got backed in 2022.
But I think applied AI can equally transform vertical B2B sectors.
One such huge opportunity I am seeing is AI-enabled vertical search in construction and architecture, specifically vertical search for light building materials such as floors, tiles, textiles, paints, decor and so on.
When I posted this on Linkedin the other day, a discussion erupted about concrete, cement, steel. Those are heavy “in-the-wall” building materials, which in the mature markets have very established supply chains and market dynamics (that’s different in emerging markets).
For vertical search, my observation is that light “outside-the-wall” building materials make a perfect fit. Categories such as paints, floor, stones, fabrics, glass, bricks, decorative metals, plasters, textiles have more than 250’000 potential EU-based suppliers, millions of customers and millions of SKUs.
Most importantly, the way the discovery, selection and purchasing happens is diametrically opposite to heavy building materials. Consider my framework here:
Buyers of such light building materials know what they want as they have a vision and concept, but need to find specific SKUs.
And for these light material categories, purchasing decisions are made not just on performance and price, but additionally on haptics, optics and increasingly ESG considerations.
Therefore, the industry hotfix practice for the last 50+ years has been to (a) meet at trade shows and display samples and (b) send around samples in large quantities during the early discovery processes. Both practices are not scalable for millions of SKUs in light building materials.
That’s where AI-powered vertical search comes into play.
My dumbed down thesis is that for every “Amazon” in light building materials (eg. Material Bank), which is logistics-enabled and strips manufacturers of their market power, there must be a software-powered “Shopify” that enables manufacturers (eg. Mattoboard, Stylib and others)
The one reinforces the other.
Now applied AI becomes increasingly ready to allow manufacturers to organize their vast SKU catalogues at scale, while it allows buyers to discover one very specific SKU they need for their project without going to a trade show nor getting more samples. At scale !
Hence why I am keen to back founders building the AI-powered vertical search for (light) building materials in mature markets.
I have a bit less time this week for a longer researched piece. Since we just kicked 2023 off, thought it would be interesting to share a few spaces and models which got me excited in 2022 across the AEC-Tech world, and where they might be going in 2023.
(example investments I mention below include both first cheques and follow-ons)
The $20B acquisition of Figma by Adobe in September brought multiplayer design back on the menu of many investors. We believe that multiplayer design and CAD – both in 2D and 3D – will be vertical. Demonstrated already by the eg. ntopology, we also believe that retooling the architecture, engineering and design stack with multiplayer solutions, and building a n:n API infrastructure around it, is a Decacorn frontier.
I am EXTREMELY keen to do do more in retooling the AEC design space with great software and highly differentiated technology in 2023.
Enabling thermal renovation
Building owners operate ca. 69 billion square meters of floor area in North America and Europe. And all that space needs heating. Gas supply came under shock in 2022, and the result was an extreme price volatility in fossil fuels.
Well, in Europe, 80% of buildings are heated with fossils – gas and oil (and in some parts of Europe even coal).
Additionally, the EU is introducing ever-more ambitious decarbonization targets and regulation for building owners.
Hence, we made multiple new partnerships early in Q1 2022 with amazing teams who fix the rapid thermal renovation and upgrading of the European building stock.
Example investments from 2022 are Baupal, Lun and a company I cannot announce yet but which is building the one-stop shop for retrofitting insulation across European buildings.
This space has developed rapidly in 2022 with several amazing teams. In 2023, I am keeping my eyes peeled for various not yet-addressed opportunities in this space, one of which is fixing the financing journey for B2B and B2C customers in thermal renovation.
Replenishing the skilled labor pool
The West is running into very deep issues with regard to skilled labor supply. I plan to run a detailed research piece about this in the coming weeks.
We see 3 levers to fix this issue:
Making existing labor supply more fungible and efficient. Fixing the candidate journey to allow super efficient recruiting admin processes. And providing software tools to do repeatable jobs repeatedly.
Upskilling domestic labor supply. Providing efficient (re-) training offerings in person but strongly tech-enabled. Can come with process standardization for employers, eg. through academies-as-a-service.
Qualifying, upskilling and providing mobility for foreign labor supply. There hundreds of thousands of exceptionally skilled – and socially aspirational ! – people outside of the Western markets. Solutions in this space make those mobile.
We are extremely bullish on robotics for construction, and will look at every deal that fits our above criteria.
Providing one-stop procurement options
Construction is moving into the teenager stage of digitalization, and part of that is because enterprise customers are adopting project management softwares and one-stop shops for building materials. From both ends, we are seeing how more and more integration opportunities emerge, which are resulting in even bigger one-stop shops. Infra.Market from our Fund-1 portfolio is a great example of this, and we see this trend go around the world.
Example investments from 2022 are Brick & Bolt, GoCement, Latii, an unannounced one-stop shop for cross-border building materials in Germany, and an unannounced one-stop shop for sub-saharan Africa, and an unannounced Zetwerk for Mexico.
Super keen to do more in this space, and in Europe specifically, procurement softwares that connect domestic suppliers with domestic demand on top of which they load software and procure-to-cash workflow automation.
Un-tightening the cash cycle
300 basis points on central bank rates make a huge difference at wall street, and in the real economy. We have seen a rise of receivables and payables at contractors in 2022, across enterprise and SMB.
All the while, in construction, suppliers have always been the secret working capital banks of the industry. Now with increasing cash cycles, this reaches real limits.
As margins come under pressure as well, the ability to control my contractor business and my projects regains a premium.
With these tailwinds, we have been excited to back financial operating systems, materials-price hedging solutions, and automated access to working capital for contractors and suppliers.
Very keen to partner with more and more differentiated avatars across the world un-tightening the cash cycles across AEC.
Building vertical-search infrastructure
And a last big thing going into 2023 on my personal radar is vertical search within AEC. The release of OpenAI’s trained ChatGPT model in November caused a major re-buzz around what AI will be able to do.
Within my scope – architecture, engineering and construction – I see major applications of AI for vertical search. By vertical search, I mean for example that we have millions of stock-keeping units (SKUs) in our industry, over tiles, paints, roof shingles, concrete, steel variants, fabrics and so on. And these SKUs are described by dozens of properties. It is a major pain for manufacturers to manage their product portfolio, let alone make it truly searchable for their customers – designers, architects and contractors.
At the same time, manufacturers keep pushing the boundary on moving closer and closer to their end customers, but without the infrastructure to allow direct B2B shopping.
I am super keen to partner with founders who build vertical search infrastructure, ideally with design-stack components and webshop components. Most excited by distribution as infrastructure and API plays.
An example investment we did in 2022 is Mattoboard.
Hit me up if you are building in any of these spaces, or other frontier spaces in AEC-Tech. I love to be ahead of the curve.
In the past week we announced our new round in Snaptrude, which we were fortunate to co-lead alongside our friends at Accel.
Snaptrude, which is like the Figma for AEC, is one example of highly talented product teams re-inventing the 3D/2D design stack.
Like Altaf, we believe in a multi-player and open (!!!) future for the future design stack. And that’s a transformative leap, because designers today are stuck in hundreds of walled gardens from legacy players.
In other words: multiple firms collaborate on the same project.
And interestingly, this fragmentation is increasing. In 2015, 52% of ENR firms had 50+ employees. Four years later, it was only 49%. The super small firms also lost some share, down from 15% to 13%. It is the “mid-sized” engineering/archi firms with 10-49 employees who are gaining share, up from 33% to 38, and rising.
Meaning, mid-size firms – which are still very small by any other industry standard – are becoming the norm.
On top of this, we can observe a structural shift over the past years towards multi-disciplinary firms, i.e. engineering/archi firms who house the different disciplines required to engineer a project internally. Which does not eliminate the need for collaboration, but inversely should increase the speed of adoption for collaboration solutions within the same firm.
The rise of mid-sized and multi-disciplinary engineering/archi firms is relevant for the design stack as mid-size firms should be easiest to penetrate and gain adoption with. Small firms tend to not have the overhead staff to deal with adoption. Very large firms come with the corporate BS and bureaucracy which leads to slow adoption and long sales cycles. I am most excited about the rise of mid-size firms.
Lo and behold, this adoption thesis seems corroborated by this chart – how fast the different firm sizes adopted BIM over the past two decades. The middle line is the mid-sized firms. I wish I had sales cycle data to plot against it, but my money is that sales cycle with the large firms will be 3x longer than with mid-sized firms.
So, we can see that (1) multiplayer is not just a fancy trend, but a structural need with structurally-supported tailwinds and (2) selling multi-player design tools to SMBs in AEC gives you a growing market within the fastest-adopting segment.
Now, luckily, this opportunity is further amplified by a third factor, namely (3) CAD users really really really do not like the legacy solutions.
And well, the incumbents tell us quite frankly on their own website how they see the future of the ecosystem. What they call “moving interoperability forward” I would call “creating a walled garden with some peek holes”.
Meaning: The incumbents telegraph their vision of more walled gardens, not less – whereas the market is structurally moving into the multiplayer direction.
We have seen this same structural shift play out with the 2D graphic design community. Adobe legacy solutions, Figma and Miro transforming it. And eventually, it ended here:
So for me, it is crystal clear in what place the 3D/2D CAD design stack will end. It seems to me quite clear the legacy authoring tools – which are solo-player, 1:1 – will try to expand into some multiplayer functionalities and some value-added functionalities that we see develop in other parts of the market, such as eg. ESG analysis functions from Cove.tools. But they will ultimately fail in innovating fast enough, due to the closed nature of their approach in a market that will now favor open tools structurally more quickly.
As a result, pure-bred multiplayer authoring tools, that incorporate versioning, commenting, collaborative editing (minus true branching as you would have on a git), are continuing to gain adoption in specific parts of the design market. Namely Snaptrude, Rayon, Qonic or Arcol.
And these multiplayer tools – equivalent to a Figma – will incorporate more open functionalities and integrations in amazing user interfaces. Now, as transformative as they are, one restriction will remain: they are 1:n tools, meaning all players will ultimately have to author in the same tool. This is the same restriction as with Figma or also Notion.
So, beyond the multiplayer tools, we believe an open infrastructure streaming opportunity is emerging, that will enable all users/players to author in their respective tools, but on the same model. So this is a cross-platform streaming opportunity, that we are extremely excited about. The pioneer and market leader in this 3D authoring streaming opportunity is Speckle, and something similar might emerge for flat documents in AEC (I spoke about the flat document streaming opportunity here)
So, my vision of the future AEC design stack is open. Multiplayer and streaming is what I am excited about.
Last week I traded emails with a McKinsey Partner who counts global AEC software firms among his clients. He was working on a new report to be released soon, and I shared a few editorial thoughts prior to release.
As we exchanged thoughts, one of the topics we had controversial thoughts over was the share of SaaS unicorns in construction vs. other sectors.
75% of ConstructionTech Unicorns are NOT SaaS, while 59% of all other B2B Unicorns ARE SaaS.
Yet founders raise venture capital for as many SaaS firms in ConTech (56%) as in all B2B sectors (57%).
And before you conclude that ConTech SaaS is just a new category and it’s just a time delay. Nope, that’s not it. ConTech SaaS exists for decades, and has been VC backed for the last 10+ years.
So what is happening along the way you think? I have my thesis from the past 4 years investing in AEC-Tech and experience from our early investment in one of the non-SaaS ConTech Unicorns (Infra.Market), but curious to hear your thoughts.
I’ve been seeing a few API-enabled startups in architecture and construction this year. Few of them API-first.
We first partnered with Speckle in 2020, leading their pre-seed raise. Dimitrie and Matteo have created an amazing API-first company distributing 3D data on the most granular object level.
But apart from 3D data, there is massive amounts of flat data in AEC that needs harmonization and easy distribution, such as invoice data, purchase orders, tickets and lots of project level information.
So where do we expect the API-first players in flat data to emerge? What do I look for?
There is 550 billion invoices issued globally per year. 10% of global GDP is construction. So, fair assumption that at least 55 billion invoices are issued in construction every year. That makes at least 165 billion flat documents (invoices, tickets, purchase orders etc.) in AEC. This number is most likely under-estimating the flat documents in construction, given lots of milestones and sub-contracts.
And yet, there is only a comparatively small handful of startups dealing with API-first in flat AEC data as time of writing. Selected examples are Agave, Comstruct,Gryps, or Toric.
So we used our learnings from 2020-2022, and combined them with our analysis of more than 100 well-known API (first) companies from other sectors.
(Here is our API startups market map and database – we made them open-source, so feel free to re-use)
And bam, here are our 10 commandments for API-first in AEC:
#1 Repetitive data objects, used one billion times a year Unified APIs need to process similar data points in same objects a billion times a year.
#2 Done repetitively and manually across systems The data points are used repeatedly in manual workflows with iterative steps, switching systems + channels.
#3 Ability to focus on 1 scaleable property (ideally 2) Either:
one standardizeable data object (eg. ecommerce payment, account statement, 3D model)
one standardized “host” software with market share >10% (eg. Procore, Revit, AutoCAD; NB: SAP doesn’t count due to customized instances)
one super-repeatable customer type who already has tens of softwares and is building integrations with own dev team (eg. Mulesoft, Makini)
#4 Data points can be standardized BEFORE you reach scale You need 1’000 samples to identify repeatable standardization and harmonization. If you need 1’000’000 samples you picked the wrong object.
#5 Already digitally available Data objects exist consistently in software. Implies: pre-requisite is high (legacy) software adoption by suppliers.
#6 Fragmented data providers offer non-harmonized data points Integrations are expensive when point-to-point, fragmented, undocumented, and data is not harmonized.
#7 50%+ of market has no public APIs There is not a dominating software provider that already has open APIs (eg. Twitter, Meta).
#8 hundreds of parties develop applications using the data points Either:
Inhouse engineering teams (eg. compliance, verification, security, eshop multi-payments before Stripe)
Third-party software vendors or startups (eg. FinTechs with Plaid, HR/payroll startups)
#9 High existing software adoption from SMBs/startups (accelerant, not prerequisite) Accelerant because: Low resources to build all integrations inhouse. Hence, high value per customer per software integration offered while initial sales cycles are low and initial frequency is high.
#10 Software procurement done by software engineers (accelerant, not prerequisite) Accelerant because: Very difficult to achieve high sales velocity when procurement needs to pass on the discussion to engineers.
If you are building an API-first play in architecture or construction (or even logistics !) that satisfies as many of our 10 commandments as possible, hit me up !
Over this time, you taught me so many things about you and about business. When you chose to become founders, and chose us as one of your partners, so that together we could build iconic tech firms in AEC – in 3D, design, renovation, energy efficiency and generative AI – it’s been a great ride already.
You were kind to share with me what your previous life’s in architecture taught you.
With which you allowed me a window into your world, at the intersection of architecture meets entrepreneurs meets coder.
Which made me fall in love with you.
Architects, here’s 10 things I love about you – and why you make great founders:
1/ Your product mind: 740k+ of you and folks in your archi-firms are coders. You worked on 3D your whole life. Your whole profession is about figuring out what the users of the buildings you design will need, and formulating the right questions to find out. If you get requirements wrong, your designs fail epically. You are natural product managers, and I freaking love it.
2/ Your founding DNA: Architecture is among the longest tails in business. 1.6M architects working in 607’000 firms across the globe. The largest player (Gensler) has 0.3% market share. Founding is in your blood.
3/ The chip on your shoulder: Architecture is a grind. On average, your employers earn $184k+ per year selling your hours. And they keep $105k of that for themselves. You realize that your hours don’t scale – so you learnt the appetite to scale something bigger than yourself. Your own venture.
4/ Your work ethic and results mindset: You are easily among the hardest working founders I meet. Architecture practice has taught you well. Hard deadlines, short on staff, never any budget for anything. And yet you deliver. Like a great founder.
5/ Your abstraction ability: You get the big picture. Your work always starts with a vision. It can never be bigh enough for you. They teach you to dream big early on. Which makes me love you.
6/ Your attention to detail: And yet, somehow you always manage to sink your teeth into the nittiest and grittiest details – cause without those details, your design will not be built. Founder life.
7/ Your pragmatism: One of the hardest things to get right in venture is to take pragmatic decisions. Architecture taught you this skill from day 1. Your boss asked you to time-box and budget your tasks. Constraints are everywhere. And yet you needed to deliver. Finding pragmatic solutions is the only way to survive as an architect. And as a founder.
8/ Your natural storytelling: All the constraints you face force you to find ways to keep the people around you motivated. I love that you know how to present coherent narratives that make people follow you in spite of constraints. It serves you well in hiring and fundraising.
9/ Your messiah complex: Nobody puts it better than Dimitrie: “We are partly delusionally convinced that the world revolves around the stuff we build and the plans we design. A useful defect to have in order to even consider doing a tech startup.” Couldn’t agree more. Love it.
10/ Your fast learning: You know you are not perfect. Who is? When you found, some of the more common learnings among architects are to delegate better, communicate more precisely, and operationalize everything. The best of you pick it up quickly, and become superhero founders.
I learnt all of this from some of the best of you, who practiced in archi-firms and went on to become founders. I want to thank you all for taking me along on your ride, and being your partners. You taught me a lot, and I can’t wait to build bigger and better alongside you.
Thank you, architects !
Your biggest and staunchest fan as you become founders.
P.S. special shoutouts to a few of my most favorite archi-founders:
Why is this relevant to blue-collar ? Because inflation, in its most fundamental essence, happens when there is too much demand for too little supply. The more money is being brought into circulation (M1 supply) and being used frequently (velocity), the more money facilitates demand to bid for supply. If we now have stagnating or – worse – shrinking supply, your inflation becomes painful.
And that’s exactly what happened in the Western markets since beginning of COVID.
Regardless of what the Fed would like to make you believe, inflation in the Western markets is here to stay unless we fix supply.
Because demand is going nowhere. Take housing: The US needs 2.3M new homes per year, Germany and UK 400k and 300k respectively. On top come several hundred thousand of thermal renovations across Europe and US that will be required to deal with the energy situation and climate asks.
While demand will stay, supply of craftsmen and installers is shrinking drastically.
UK lost 175’000 (6%) construction workers just in 2020, and will lose another 500’000 in next 10 years.
Germany needs to fill 190’000 jobs for craftsmen in 2022 already.
US has 2.2M construction workers retiring in next 3 years and will need another 650’000 ON TOP of the 2.2M per year to cope with demand.
Demand rising. Supply shrinking. Inflation here to stay.
Lucky for us, this is where the story begins.
We see insanely talented founders who build the next-gen of blue-collar models to fix supply. Three models in particular create the blue-collar 2.0 space:
Tech-enabled employer: Standardize all workflows. Train lateral/migrant/GenZ hires on core software stack and useful hardware in internal academy. Employ post training. Example: Forge.
Business-in-a-box (BiaB): Enable tech-enabled ownership of craftsmen/installer businesses. Example: Lun.
In new construction, we observe all 3 models and combinations thereof. While in renovation, robotics are much more tricky due to less controlled environment – a combination of tech-enabled employers and BiaB work very well in reno.
We believe the academy piece to be critical to both models. Classical blue-collar education has steep on-ramps for the new talent pools of lateral hires, migrant talents and GenZ+. In Germany (representative for Europe), a carpenter undergoes 1’200 classroom hours over 3 years and has to take 2 exams to be allowed entry into the trade.
There’s so much wrong with this. Monopolistic authority over the curriculum unfit for 2023, too generalistic education (rather than verticalization and further specialization to allow fast entry into productive life), and training for flexible problem-solving rather than being linked to standardized workflows creates the steep on-ramps and too long training time.
This is where tech-enabled employers and BiaB solve the EdTech element of blue-collar 2.0. Having (1) standardized workflows around a core software/hardware stock and (2) deeper verticalized and specialized job roles that they train (3) in internal academies.
Makes for a very sticky blue-collar 2.0 employment. And low on-ramps.
Can’t wait for these next category leaders in blue-collar 2.0 to be built in Europe.
It’s election time in several major economies. One of which is Brazil, which is home to one of the world’s largest biomes – the Amazon rainforest.
One of the presidential candidates in Brazil ran on a “zero de-forestation” campaign. Looks like he won. That’s certainly a step forward.
If you follow my work regularly you know that I’m about the architecture, engineering and construction industry – not the wood industry. It just so happens that A TON of politicians and lobbyists in the Western markets seem to have fallen in love with using a ton of wood in construction recently – other than this Brazilian politician.
Read the primer? Great. Let’s continue part-deux here.
Various scientists come to the conclusion that scaling up the use of wood in construction can significantly reduce CO2 in the atmosphere. Latest estimates point to 30% reduction or more if we use timber buildings for 50% of our new construction.
Here’s the problem that lobbied Western politicians don’t get:
We have 4 billion hectares of forests
They produce 4.75 billion m3 of net incremental wood growth
Of which we can safely harvest 3 – 4 billion m3 per year
In 2020 we consumed 5 billion m3
World population keeps growing by 30%
Middle class keeps growing and emerging economies have a right to consume like their Western counterparts did and do
Therefore we will need to construct +70% floor space in Europe, +90% in Americas, +125% in APAC and +300% in Africa and Middle East until 2060
And the whole point is to use MORE WOOD in construction of those floor spaces.
This means: We are already consuming more than our supply, we are increasing our demand even before we put more wood into construction, then we need to use even more wood in construction, and by doing all this we will kill our wood supply.
So maybe some lobbyist will tell some politician over fancy lunch: “We’ll just recycle wood”.
Not happening, amigo. Wood is a downcycling material due to its specific properties. In the US, 17% of wood waste is recycled once or twice. 83% are downcycled to be either a fuel or compost/landfill. You can’t change the shape and structure of wood the way you can with metals/steel.
Meaning: Supply is supply. Not much we can do other than not fuck it.
What we need to fix is the consumption of wood in other sectors to allow construction to use much more wood.
So who consumes wood?
51% for paper & packaging
20% in construction
18% for cooking, fuels, chemicals industry and others
11% for furniture
Ikea alone is consuming 1% of global wood. Furniture + packaging.
So the way I see it, we have amazing founders working on decarbonizing one of the largest CO2-emitting sectors (construction) by bringing new materials and wood into buildings, such as Mighty Buildings, 011h and Juno.
But our politicians need to enable these founders to use more wood by eliminating the use of wood in packaging, paper, fuels, cooking and furniture.
Amazon needs to replace paper-based packaging with new materials.
Ikea needs to replace wood with new materials.
And Western politicians need to equip emerging markets with non-wood-based cooking and heating alternatives, and also need to ban cozy fireplaces for role-model reasons.
Only then we can free up wood supply for scaling up wood in construction, bring construction emissions down to 10% or less of world emissions, and not fuck the (Amazon) forests.
I became quite fascinated by how eco-friendly wood in new construction is. For one, because we partnered with numerous founders over the years who use technology to make the use of wood in buildings more efficient, for example:
But also because I had chats with people from the wood-processing and forestry businesses.
One chat in particular last week stood out. It came with a European family owning a billion-dollar business in wooden construction materials. They asked me flat out: “Where do you see wood in construction going?”
No one is fully immune to media manipulation and public debate. So my first nano-second reaction was “hey, of course wood is great and steel and cement are dirty, so it must grow in use”. But does it? My interest was piqued.
To answer the question where wood in buildings might be going, we have to start by understanding the CO2 footprint of construction and buildings. That’s what I’m doing this week – and will follow up with part two on wood specifically next week.
We all know that the world population continues to rise. 10 billion people are expected by 2060, which is another +30% vs. 2020. And middle classes in emerging countries are rising, too, which means they have more money to spend on consumption. Just from 2009 to 2020, the middle class almost tripled in 11 years.
And that’s the issue with CO2. The demand. Per capita, CO2 has increased by +55% to 4.7 tons per capita compared to 1960.
CO2 is not just a world population issue. It is driven by consumption per capita !
Meat +85% per capita. Cars + 125% per capita. Oceanfreight + 100% per capita compared to 1960. Per person.
And the most dramatic CO2 per capita increase comes from construction. Take cement: +270% vs. 1960 and +135% in just last 22 years.
The issue is per-capita CO2 consumption.
And construction is a massive consumption driver. 17% of the world’s emissions come from construction. Another 17% from operating residential buildings, and 11% from operating commercial buildings. (side note: this is freaking why we need heat pumps across the Western World – go and buy yours with Lun)
However: If you ANNUALIZE the CO2 demand from constructing and operating a building, the design and construction is a 10x higher CO2 driver than the operations phase – because the construction emissions are set free in first 1-2 years, while the ops emissions are set free over the 30-50 following years.
That’s why the 17% of construction vs. the 17% of residential building ops are not the same. The Construction emissions are a 10x larger and instant lever.
I have a feeling people begin to realize this massive CO2 reduction lever that construction is.
However, I fear it is becoming (again) an emotional and non-scientific debate. Much like energy choices after Fukushima and vaccine choices during COVID – experts do not get heard and lobbyists and politicians lead emotional debates.
I fear the same for the use of wood in construction to decarbonize the construction of buildings.
I will write here next week about why wood will make a great contribution to CO2 reduction, but scaling it massively is not going to be a very healthy choice for decarbonization targets.
The same way scaling gas consumption post 2011 was a very bad choice for the EU.
World Bank 2018 | OECD 2020 | IPCC 2017 | Global Carbon Project 2017 | Oxford 2019 | OICA 2016 | UNCTAD 2018 | Cembureau 2015 | BNP 2018 | UNFCC 2019 | UNFAO 2018 | IEA 2017 | European Commission 2018 | Rocky Mountain Institute 2018 | UN 2017 | Ecoinvent 3.1 2018