What's hot in Constru-Tech right now:
Funding Still Strong
Profitability Prioritized
Leading Indicators Positive
Bootstrap If Possible
AI/Energy Models
Funding Still Strong
Despite some concerning headlines about construction tech funding dropping, Patric affirms that overall funding amounts and valuations in the space continue to rise. He notes that while some models like marketplaces currently face more scrutiny from investors, the data does not support claims of an overall drop in investment in the sector. "I don't know what numbers that person or that team use, but it certainly wasn't the factual numbers," Patric says.
Profitability Matters More
As investors become more selective in the current environment, they want to see a clear path to profitability from construction tech companies, especially in the form of EBITDA. For later stage companies trying to raise growth rounds, investors are looking for either demonstrated profitability or a runway of at least 2 years before running out of cash. "If you think you're more than push comes to shove, if you had to turn EBITDA profitable, would you be able to do it within six months?" Shub asks. "If not, assume that a very large number of growth investors, will, even if they take meetings, they're not taking meetings to be, to actually sincerely evaluate the opportunity."
Bootstrap If You Can
Patric advises construction tech founders who are pre-product to consider bootstrapping their ventures if possible, using real services revenue to finance product development. By bootstrapping and relying on services early on, founders can control dilution and still build their products, taking advantage of the construction industry's openness to services contracts. "It's an old school venture method. It's the most proven method out there. It's the best method to control dilution. And it's actually the best method usually that pays off long-term for founders," Patric says.
Leading Indicators Positive
Despite broader economic uncertainty, Patric and Shub share anecdotes of major tech investors making inquiries and plans to deploy large amounts of capital into construction technology companies. These serve as leading indicators that point to continued strength in funding for the space amidst the downturn. "Very, very large firms, right, clearly demonstrating intent to get in by making big moves in AEC as well. I would say that, if anything, I would say is a leading indicator of what's to come," Shub notes.
AI and Energy Models Hot
Certain models seem to have an easier time raising across stages in the current environment, especially companies leveraging AI, data analytics, and clean energy technologies. These spaces appear to be securing funding more readily compared to other construction tech models. "I think it's important to remember, even though as, as I guess alarming or depressing headlines of the kind we alluded to may seem, what you're actually building for is not fundraising activity in 2023, right?" says Shub.
Reputation Still Critical
Unlike other industries, construction tech investors still place tremendous value on founder reputation, track record, and relationships due to the nature of the space. Highlighting experience and trust in the ecosystem can thus go a long way with investors. "I can say throughout my career, I've never worked in a sector that values track record more than the construction industry, other than VC," Patric emphasizes.
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Keywords: construction technology, AEC technology, construction tech funding, investor priorities, profitability, bootstrapping, founder reputation, AI models, energy transition