Tread Ready to Disrupt the Construction Industry

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Recognizing opportunities to disrupt the multi-trillion dollar construction industry, a slew of startups are focused strictly on developing technologies to make construction projects go more smoothly while increasing productivity and efficiencies. Investors are joining the game, with a number of venture capital firms formed with the purpose of investing in construction technology.

As evidence of the growing interest in the field, funding in North American construction technology startups surged by 318 percent to $581.6 million in 2017 compared with $182.7 million in 2013, according to Crunchbase data. Investors pumped dollars into 87 known North American deals last year compared to 44 in 2013.

Those figures are expected to go way up in 2018. In January, one startup alone—Menlo Park based Katerra—brought in $865 million from Softbank, RiverPark Ventures, and Four Score Capital in a Series D round. That’s more than the whole sector raised in 2013 and 2017 combined. According to its Crunchbase profile, the startup optimizes “every aspect of building development, design, and construction.” It has raised $1.1 billion since its inception in 2015.

A number of other companies in the space are growing. San Francisco-based Rhumbix has raised more than $20 million to develop its mobile platform designed for the construction craft workforce. Most recently, it brought in $7.4 million in a Series A round last September. Carpinteria, Calif.-based Procore Technologies, which has developed a cloud-based construction management software application and is backed by investors such as Bessemer Venture Partners and ICONIQ Capital, has raised $229 million over time. San Francisco-based PlanGrid also markets a cloud-based productivity software that aims to help owners, general contractors, and subcontractors collaborate on blueprints and building documents from any device. It raised a $6.9 million Series B round last September and has brought in $66 million in total since it was founded in 2011.

On the investor side, newly-formed Boston-based Four Score Capital is an example of a VC firm focused strictly on real estate technology. The West Coast is also home to firms targeting the construction space. Brick & Mortar Ventures, based out of San Francisco, backs startups developing software and hardware solutions for the real estate, hospitality, and construction industries. Los Angeles-based Navitas Capital is focused on real estate and construction technology.

Greylock Partners, which invested in Rhumbix, is not focused exclusively on construction tech. However, it’s eyeing more deals in the space, according to Partner Jerry Chen.

“Construction is a multi-trillion dollar industry that is beginning to adopt technology aggressively to reduce costs and increase productivity,” he told Crunchbase News.

David Glynn, president and managing director of Glynn Capital Management (another Rhumbix investor), notes that, over the past 30 years, the construction industry has struggled with productivity challenges.

“Within any project, labor is by far the biggest cost driver, representing over 50 percent of the total cost,” he said. “With profit margins of 1-3 percent, any improvement in productivity or efficiency makes a big difference to overall profits.” Glynn acknowledges that the construction vertical has historically been “a tough industry for IT providers to crack.” Construction companies are not known for spending very much on IT or R&D, “and the people and process make selling into the industry a challenge,” according to Glynn.

To his point, a June 2016 McKinsey & Co. study found that the construction industry is among the least digitized. Implementing solutions across construction sites for multiple sectors that are geographically dispersed is more than a little challenging.

“The construction industry has been historically very slow to adopt technology and has been very resistant to change,” Glynn said. “To the extent that Rhumbix and some of the other emerging companies in the space can provide real value and ROI, we think you will start to see an acceleration of adoption of technology in the industry.”