This week:
Why profitability matters (again) in Con-Tech specifically (aka old-school venture)
Unfortunate fundraising mistakes Con-Tech founders can commit currently
Buy-side M&A: Preliminary findings of a bunch of interviews what acquirers hate about the construction-tech M&A process (good insights for founders)
Profitability Matters Again for SaaS Firms
Profitability and sustainable unit economics matter again in construction tech. The example of Procore losing money despite high revenue growth was cited. Patric analyzes Procore's financials and is shocked to see the company losing $290M on $720M revenue after 20 years in business. He emphasizes that "SaaS companies should be profitable due to minimal incremental costs." The logic is simple - "companies should make money on their core business while burning capital to explore new areas." Shubhankar agrees and discusses how "growth is unsustainable without solid profitability."
Audits Becoming Fundraising Precondition in Asia
Audits are becoming increasingly important for construction tech startups, especially in Asia. They validate financials and help build trust. Shubhankar shares he is seeing audits often being a prerequisite for fundraising in Asia lately. He advises founders to "prioritize audits to show financial discipline and transparency." Patric agrees audits "instill confidence in the numbers and prevent issues down the road." He cites the BharatPe example in India where lack of auditing led to unraveling of the business. Overall, audits are no longer seen as just bureaucracy but rather a "defensive barrier against rumors and claims."
Shortage of Quality Mid-Market M&A Targets
There is a shortage of quality mid-market M&A targets in construction tech with $10M-$100M ARR and good unit economics. Patric speaks to acquirers who complain about "too many low quality assets and not enough mid-market companies to acquire." The ideal target has strong technology, reputation, and $10M-$100M in ARR built on solid margins. But acquirers claim there are "barely 10 such construction tech companies." This highlights the need for more disciplined, profitable growth.
Conviction in Strategic Fit Key for M&A Success
For successful M&A, founders should have a clear narrative on why the acquirer is strategically the best fit for them. Patric shares an acquirer looks for founders who already believe in the "strategic merit of the deal." This "conviction that the acquirer is the ideal owner predicts whether a deal will happen." It comes down to finding a real "strategic rationale beyond just a financial transaction."
Easy Money Era Bred Bad Financial Habits
Bad habits like chasing growth at negative contribution margins have hurt parts of the construction tech industry. Patric gives the example of a company pitching with "-220% contribution margin that still raises a ton of money in 2021." But such habits make M&A integration harder when acquired by strategics not willing to "burn cash recklessly." Shubhankar blames the "easy money era for breeding undisciplined spending across VC-backed companies."
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Keywords: construction tech, AEC, M&A, fundraising, audits, profitability, SaaS, venture capital, startups, revenue growth, unit economics, integration, acquirer, strategic fit