Time to dust off: 5 reasons why 2021 is the best time to build a tech company in construction

Feb 3, 2021

We all know that manufacturing, e-commerce, hospitality and many other industries have faced dramatic changes in the past 20 years. Construction had been rather overlooked, like the stuff in your attics – dusting. Construction is indeed dusty in any sense, no question. But like they say: diamonds are made out of dust under pressure. We believe the pressure on construction is on, ready to create diamonds. Being well aware we can’t predict the future (nor will we try), we see patterns unfolding upon us. Here are our observations making us believe that way that 2021 is the best time to build a company in construction.

1. The market is huge

Construction is responsible for 10% of the world’s GDP, a $13 trillion market and still growing. As the world’s population is growing, 13,000 net new buildings per day are required to match this growth until 2060. Looking at investments, the industry still has a headspace of at least 10-20x. If you factor in the overall sector sizes, we believe ConstructionTech might have 30x+ headroom during the 2020s.

Total funding per sector between 2000-2019 ($B)

2. It’s still full of opportunities

While the demand for new builds rises, the industry’s procedures still look not much different from 20 years ago. Do you remember when was the last time you sent a fax? I don’t.

Believe it or not but in the construction material supply chain the fax is still a common tool to send orders in the Western world. Architects spend more than four hours a day searching for product information, workers still buy around 20% of the needed materials by going to Home Depot and spend 3-5 hours on manual and repetitive communication daily.

Raising the bar to overcome this obstacle even further, between 25 and 41% of the construction workforce in the Western world today will be retired by 2030. This is a problem in itself, but it gets worse: while 74% of young adults (18-25) know in what field they want to pursue a career, only 3% are interested in the construction trades.

Like other industries have been, construction is in dire need of new technologies to face the challenge.

3. Funding is inflecting in 2021

We observed in other industries that VC funding inflected, once $10B accumulated funding in a sector was reached. On average it took a sector around 3 years to get from $5B to $10B funding. Construction reached the $5B mark in 2018, meaning according to this pattern we are close to an inflection point.

Pattern recognition: Once $10B of VC funding are reached, sector inflects

Also, we see the world’s best early stage investors flock into ConstructionTech – sector-focused & generalists.

Deals made by the world’s best early stage investors

4. Incorporate learnings and best practices from prior failures

After early models got weeded out and some businesses failed, we see top-founders of companies incorporating today draw on the learnings. The following are our top 3 takeaways:

Organize, not replace existing supply

We believe to make supply more discoverable and fulfillment more reliable combined with an easy user interface is key to success. Not an easy task, especially in mature markets with legacy supply chains, we often see high resistance to a disintermediation of supply-demand relationships. Here our advice: either enter a market where discovery and trust is an issue and become the trusted go-to supplier, or don’t disintermediate but enhance existing supply-demand relationships – like a Shopify for materials distributors.

Outsource full processes, not dis-intermediate existing processes 

Transactional monetization aligns well with project budgeting and purchasing decisions, especially when not much IT integration is required to keep existing workflows on the client side. To our experience replacing single steps of a legacy process e.g by offering a saas-enabled tendering marketplace, finds hardly adoption. But we see a trend for services offering the entire process and delivering the end result, think of it like outsourced procurement offices covering sourcing, negotiation and delivery.

When you can’t scale selling the tool, sell the end result

This is an interesting trend we see, but haven’t fully validated just yet. Selling software or hardware e.g. a robot to fulfill a task – printing mechanical layouts on concrete – can be very difficult. Easier adoption can be achieved by offering the print and using the robot to do the job for you.

5. Talent is entering the industry

First instinct might be that starting an own company in this current time of unknowns and instability, is not the best idea. But every change creates new opportunities, resulting in great companies like Uber and Airbnb being founded in troubled times.

One of the most difficult tasks in building a company is finding great talent. The current crisis sets free a great number of talents – by working remotely people do not feel restricted to a certain location, which leads people to rethink and consider next steps.

Spending more time at home 57% of homeowners found time for home improvements, letting them experience the inefficiencies first hand. Many are not willing to accept those crux processes and are inspired to change construction for the better.

Of the hundreds of companies we have seen being founded in the last year, 50% of the founders do not have a construction background. 4 out of 108 teams have established successful companies (+100M exit) in other industries before. For example the founders of: 

Welcome Homes

Welcome allows you to buy a custom built house online. The company manages the construction in-house, using local contractors and sources all materials. The team previously exited Digital Ocean before entering construction. The team sees “a growing need for new inventory, especially among millennials cycling out of major cities”.

011h

The team of 011h digitizes the construction process of eco-friendly multi-family houses, by providing a platform to utilize and qualify a network of existing third-party manufacturing facilities and service providers. The team is led by two of the founding fathers of the Spanish tech scene. Asked about the industry, they said “construction is a dirty business – and a big one. Digitising the construction process will reduce building costs by 20%, potentially providing much-needed affordable housing around the world”.

Just like the aforementioned founders we find construction as the next El Dorado frontier for the 2020s. The industry is big and full of opportunities, capital in-come is just hitting off and entrepreneurs can leverage first learnings and best practices. In other words, the time couldn’t be better.

Excited to see how construction becomes orchestrated? If you want to make a change in construction or if you’re already working on a new solution, let’s talk 👋

For those of you interested where the data comes from:

  • I analyzed 108 companies that were founded in the last 12 months that I have come across until today. I’m sure there are far more companies out there so I always appreciate receiving some hints.
  • For published deal data I used Crunchbase and Tracxn as data sources. Please note, that not all deals are published, so there might be more.