Foundamental | The Secret Sauce: What Makes Construction Tech Companies Exceptional

The Secret Sauce: What Makes Construction Tech Companies Exceptional

January 24, 2025

What venture capitalists look for when they invest millions in construction tech startups? We've spent seven years and evaluated hundreds of companies to unlock the formula. Turns out, it's not what most people think.

Shub Bhattacharya

Patric Hellermann

The Secret Sauce: What Makes Construction Tech Companies Exceptional

This Week On Practical Nerds - tl;dr

Non-linear founders with diverse experiences create uniquely positioned companies
Strong communities in low NPS industries signal exceptional potential
Working capital efficiency above 25% ROC shows special business dynamics

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Non-linear founders with diverse experiences can create uniquely positioned companies

What can make founder backgrounds truly special in construction-tech?

The story of Faktus, a French construction finance company, perfectly illustrates what makes founders special in construction tech. Alex, one of the co-founders, took a fascinating journey - he built and sold a healthcare tech company, then bought and turned around a distressed construction firm. His co-founder Reda brought complementary experience from banking, management consulting, and insurance operations. Together, they understood both the financial and operational challenges of construction businesses at a granular level.

When evaluating construction tech companies, conventional metrics like prestigious universities or big tech experience don't necessarily predict success. What matters more is non-linear experience - founders who've taken unconventional paths that give them unique insights into the industry's challenges.

Some of the most successful founders in the portfolio came with surprising backgrounds. Two founders with neurodiversity - one with autism and another with dyslexia - demonstrated exceptional capabilities in processing complex information and making rapid decisions. Their different way of thinking became a superpower in understanding and solving industry problems.

The key insight here is that in construction tech, being "special" often means having experiences that most people would consider disadvantages. The industry is so nuanced and complex that founders who've lived through its challenges from multiple angles have an edge over those with more traditional backgrounds.

Non-linear founders don't just understand the market better - they can predict and solve problems others don't even see.

Strong communities in low NPS industries signal exceptional potential

How do you build devoted customer communities in traditionally low-satisfaction industries?

The construction industry traditionally scores low on customer satisfaction metrics. That's why it's particularly special when companies manage to build passionate user communities. Two portfolio companies, Speckle and Rayon, demonstrated this rare ability from their first year of operations.

Construction is inherently community-oriented - contractors gather in local associations, architects connect globally to solve common problems. This creates an opportunity for startups that can tap into and enhance these existing community dynamics. Some companies have been so successful at this that their customers voluntarily join webinars to sell the product to other contractors in their city.

The analysis shows this is not just about having users - it's about creating true advocates. In one case, a company remained bootstrapped despite acquisition interest because their community-driven growth was so effective. Their customers weren't just users; they were hardcore fans who actively brought in new customers.

The power of community becomes particularly evident when you look at how it compounds over time. Companies that build strong communities can expand their offerings, and their loyal customer base will readily adopt new products or features. This creates a flywheel effect that's incredibly difficult for competitors to replicate.

The key insight is that community isn't just a nice-to-have marketing feature - it's one of the most defensible assets a company can build. In fact, many of the $100 billion companies that will emerge in construction tech over the next 20 years will likely be community-driven.

Strong communities create compound growth that money can't buy.

Working capital efficiency above 25% ROC shows special business dynamics

Why is return on working capital a hidden gem in evaluating construction tech companies?

The traditional venture capital wisdom about working capital is deeply flawed. Many investors either completely avoid companies that require working capital or ignore it entirely to focus only on margins. The reality is more nuanced and presents a special opportunity for construction tech companies.

Working capital should be viewed as deployed capital that needs to generate returns above the cost of capital. What makes a company special is not whether it needs working capital, but how efficiently it uses it. Companies that can generate returns on working capital (ROC) above 25% consistently are doing something remarkable - they're beating most market indices and ETFs.

Some portfolio companies have achieved ROC of 150% during certain periods. This level of efficiency in using working capital is particularly impressive in construction tech, where payment terms and cash flow management are critical challenges.

The analysis reveals that successful companies treat working capital as a strategic tool rather than a necessary evil. They build sophisticated systems to manage it, understand their capital needs deeply, and can articulate exactly how additional working capital will fuel growth.

The key insight is that high returns on working capital often indicate a company has found a unique way to solve industry-specific problems. This efficiency becomes a competitive advantage that's hard to replicate.

Working capital efficiency above 25% ROC turns a traditional VC concern into a strategic advantage.

Conclusion: The Compound Growth Framework

We love non-linear founders who've lived problems and did unconventional things to experience them
Evaluate business fundamentals (not heuristics)
Prioritize teams that focus on removing bottlenecks rather than just painting grand visions
Consider passionate communities or track record in low-satisfaction segments as high-defensible assets