What a start into 2022. Today news broke that our portfolio company Tül had completed its most recent growth round: $181M on an $800M post, with an exclusive club of investors in 8VC, Avenir, Coatue, Tiger Global, Lightrock and others.
We’ve all become so used to mega-rounds in the past year. So what’s special about this one?
A whole lot actually. Consider this:
We’re fortunate to be early investors not only in one, but in both of the category-defining ConTech marketplaces globally. Besides Tül, the other category-leader we backed early is Infra.Market.
So with our inside view as investor in both firms, we want to answer:
Where did Tül and Infra.Market start?
What is it that makes both companies so successful?
And where might both firms go from here?
Let’s start at the start 😊
We have had quite some success in our first fund with our early investment in Infra.Market (more on that here). Our partnership with Souvik and Aaditya had spoiled us to expect quite a lot of the next category-leading marketplace, since they had built Infra.Market to grow to $400M annualized GMV just a year ago.
Earlier in 2021, at about the same time Infra.Market was at its $400M run rate, we were fortunate that Enrique and the Tül team decided to partner with us. In that past year, we’ve been quite impressed with 20-30%+ month-on-month growth on quite a large scale already (Tül plans to be at $450M annualized GMV at the end of 2022, the same run-rate Infra.Market was early in 2021). All this while constantly increasing its already healthy margins.
So, on the surface, Tül’s stellar execution is so similar to Infra.Market’s it’s almost scary. But likening Tül to Infra.Market is also selling short Tül’s execution – and its own category-defining playbook.
💰 LatAm is a $120B+ construction materials market – roughly the same ballpark as India’s construction materials market
🏪 LatAm has a distribution structure hugely reliant on local hardware stores. 50% of the total sales are distributed by 600’000 hardware stores.
👪 The majority of those hardware stores are not owned by chains – they are in the hands of Moms and Pops. They are SMBs.
↔️ Space-constraint is a real issue for these small hardware stores. They purchase materials on inventory, store the cement bags and equipment anywhere they can find space – including their roofs ! – and sell it off. When they run out of storage space, they cannot purchase and sell more until they have made more room. Demand is often bigger than storage space.
💳 The other bottleneck for hardware stores has been the access to working capital financing. Even when storage space is sufficient, small Mom-and-Pop stores have to purchase inventory and finance the purchase out of their own pockets. Traditional financiers in LatAm have found it challenging to extend credit to small SMBs in the construction space.
🚛 Logistics cost routinely account for ca. 20% of the purchasing cost of construction materials in LatAm. This is less driven by unreliable logistics (some of it is), but more so by a low-concentration of purchasing power und low bundling of volumes.
Hardware stores are the most efficient last-mile delivery channel across LatAm. Stores were bottlenecked by low purchasing power, no credit access, and running out of storage space. Materials suppliers were unable to serve the 600’000 hardware stores efficiently. A tech-enabled mega-distributor can plug the hole between supply and retail.
And we quite loved that thesis, because we are convinced that construction SMBs are sleeping superpowers.
That’s why when we learnt that Tül started as the digital-first mega-distributor and enabler for LatAm’s hardware stores, we fell in love within minutes of our first meeting with Enrique.
🪨 Infra.Market’s original playbook for much of its first 4 years was to be THE service-rich one-stop shop for big general contractors to purchase their bulk materials, such as cement, aggregates (the little rocks that nothing works without), flyash and concrete. Not more. At the roots, that was that.
😇 But while Infra.Market was laser-focused in their customer segments and categories, it excelled with execution. Customers have always received a worry-free package – order with Infra.Market, get it delivered when you need it, where you need it, on time, on budget and on quality. No hassle, no errors.
🏬 India has a healthy supply of smaller and medium-sized suppliers of materials. Lots of them serve their local communities, or selected customers. They tend to go undiscovered by large parts of the rest of the country, let alone big general contractors who don’t have the time to search the country for unbranded suppliers. Infra.Market gave those smaller suppliers a seat at the table, allowing them to be discovered by Infra.Market and thus serve (indirectly) into big clients.
Within the context of any emerging market, that is a powerful proposition. It turned out to be what the Indian market was starved for, too.
India’s construction market was fueled by big projects from infrastructure and housing. A handful of large general contractors construct those projects, and we know how to sell to them efficiently. But those contractors are crunched for time and margins. Undiscovered suppliers produce same or better quality as branded manufacturers, but due to lower fixed cost, can offer their goods at more competitive prices. A digital-first one-stop shop can be the platform to connect contractors and suppliers, if it is willing to guarantee delivery and quality.
Hmm. Does that seem like the same playbook to you? Let’s see…
Stating the obvious: Infra.Market and Tül are both construction material fulfilment platforms. However, they initially went after slightly different playbooks.
Beachhead customers: Infra.Market was initially focussing on large infrastructure clients, Tül tailored their service offering to the needs of small hardware shops.
Product categories: Given the focus on different customer groups, the number of SKUs was widely different: Infra.Market’s initial offering comprised fewer than 10 SKUs compared to the 1000s of SKUs Tül had in their first catalogue.
Service offering: The similarities are strikingly obvious. Instead of focusing on a simple, service-light marketplace, both companies elected to pursue a service-rich model, in which they take supply-chains (eg. warehousing, logistics) under their control. Thereby driving the availability and quality of material fulfilment to unprecedented levels.
So in essence, while the no-worry no-hassle experience for customers was similar from the get-go, Tül and Infra.Market started in very different places of their markets, and with different models.
But that was just the start.
As you can see, the early theses of both firms were dominated by their local market contexts. India and LatAm shared some similarities, but also offered different starting points to a degree. Both Tül and Infra.Market were excellent in picking playbooks that allowed them to get adopted and loved by customers fast.
Now, does that mean they will stick to their initial playbooks? Very unlikely. We see a convergence of playbooks. As a matter of fact, Infra.Market has already implemented a direct-to-retailer strategy in addition to their core offering.
But that does not mean they will not evolve their playbooks. In our view, the stories are just starting.
Our thesis is that the early playbooks will converge into a holistic model that looks much more alike.
In our observations, both Infra.Market and Tül (and soon a few others) will evolve to share the following characteristics:
In our view, the stories are just starting. We see a convergence of playbooks. Ultimately playbooks of the leading construction marketplaces will converge to share the above traits.
Now, keep in mind: These playbook elements are not what a construction marketplaces looks like when it starts. That’s the whole point of our learning from the past 2 years being partners to Infra.Market and Tül. These elements are what we believe the category-defining construction marketplaces can evolve into.
And we believe that no matter where you started out – in a B2R model like Tül or originally in a B2B model like Infra.Market – ultimately playbooks of the leading construction marketplaces will converge to share the above traits.
Should be a fun journey for everyone involved 🚀
We have learnt that so much about defining a category in ConstructionTech lies in the execution. So ultimately, time (and execution) will tell.
That said, we are closely following a few firms in other markets that we are quite excited about, and that started with their own playbooks:
In the meantime, all we have left to say is an immense thank you to Enrique, Juan Carlos, Nicolas and the Tül team, as well as Aaditya, Souvik and the Infra.Market team for trusting us to be a great partner early in their journeys. We learnt a lot, and are proud to call ourselves your partners. Thank you !
If you are building the next category-defining construction marketplace – or a HORIZONTAL marketplace that happens to also serve construction – we’d love to talk 💌 Join the global ConTech marketplace club, and let’s build your category-leader in this elite group of founders together ! Write us.
Asia-Pacific and Africa: Shub
Europe and LatAm: Patric
North America and LatAm: Adam