1.5 years later: My insulation thesis
Today, we revisit our very first topic on AEC_VC, cavity insulation in Europe, with a fresh perspective. After 18 months, our backtesting confirms: this insulation opportunity has an outstanding market potential and exceptional margins and cash flows. It has shown me that it can support the next AEC unicorn.
1.5 Years Later: My Insulation Thesis
When I first launched AEC_VC 18 months ago, insulation, and more specifically cavity insulation, was my opening topic. This choice wasn't just about its energy-saving potential; it was about tackling a significant problem in the construction sector with an innovative solution. Reflecting on this journey now provides a unique insight into how certain bets in the architecture, engineering, and construction (AEC) space pan out over time. Let’s dive into how my insulation thesis has evolved, its current market dynamics, and why this matters for founders and investors alike.
Flashback: The Insulation Opportunity
Cavity insulation presented itself as a simple yet profound solution to a widespread problem. Millions of homes across Europe were losing energy due to inefficient insulation, notably through air gaps intended to serve as insulation themselves. The concept was straightforward: inject insulation granules into these air gaps to significantly improve energy efficiency. This strategy promised not only considerable reductions in CO2 emissions but also positioned itself as a crucial player in combating climate change, with the potential to decrease the primary energy demand and greenhouse gases of a building by 25%.
A $100+ Billion Market
The magnitude of this opportunity was immense. With 160 million homes across Europe still relying on fossil fuels for heating and a staggering 38% of greenhouse gas emissions stemming from the operation of existing buildings, the need for effective insulation solutions was undeniable. My initial projections identified this as a $100 billion-plus market in Germany alone, with the broader European insulation market tapping into a potential $400 billion. These figures represented a clarion call to action, not just abstract numbers.
Exceptional Margins and Cash Flows Available
My partnership with founders like the crew at varm.earth proved the financial viability of my thesis. The business model didn't just show good but exceptional unit economics, with average order values ranging from $5,000 to $10,000 and gross margins reaching up to 75% - figures that could make even the most successful software companies take notice. This venture wasn't just about making buildings more energy-efficient; it was proof of the profitability and sustainability of investing in green technologies.
Highly Standardizable and Repeatable
One of the most compelling aspects of cavity insulation was its scalability. Firms in this arena demonstrated that a home could be insulated within a day, with operations streamlined through digital tools and remote management. The method's standardizability and repeatability indicated that it wasn't just a solution for today but a scalable model for the future of the construction and insulation industry.
The End Game: Cloud Installation as an Infrastructure
The vision for what I dubbed "cloud installation" has begun to materialize, with companies positioning themselves as infrastructure providers for this burgeoning market. The process is so streamlined that new workers can be trained in weeks, not months, enabling rapid scaling of operations. This approach doesn't just solve an immediate need; it creates an ecosystem for sustainable, efficient building practices that can be replicated across markets and borders.
My journey from the initial insulation thesis to where I stand today illustrates the untapped potential within the AEC sector. For founders, this story is a reminder that beyond the allure of AI and other trendy sectors lies a plethora of opportunities in addressing foundational challenges through innovative solutions. The insulation market is just the beginning. I encourage founders to look beneath the surface, to the underlying opportunities that await in improving our built environment. Here’s to discovering the next big thing under the proverbial rocks of the AEC industry.