VC Construction

What Does Venture Capital Investment Mean for the Construction Sector?

As it did with so many trends, the pandemic has accelerated venture capital investment in the construction sector. Has the pandemic created “the perfect storm” for investment in construction technology? It appears so, and here’s why.

The construction industry has been a laggard in the advancements that other industries have capitalized on in the last decade. Adoption of technology and productivity growth have been weak compared to other major sectors, yet demand in a growing world remains unabated. That demand presents massive opportunities for venture capital investors in supporting a sector that is predicted to grow by 7% annually through 2025.

The Build Back Better program, of course, will be a major factor in turning ideas into reality and has been called a “once in a generation” opportunity. That’s great news, but construction in both Africa and Asia should outpace projects in the developed world for decades, meaning that opportunity should be abundant in much of the world.

Problems ripe for tech solutions include:

  • Inadequate information about building sites. See how LiDAR can help.
  • Extensive rework of completed or partially completed phases due to mistakes, miscommunication, and so on.
  • Clunky communication between stakeholders, such as contractors, designers, and developers.
  • Inefficient labor practices that erode margin.
  • Shortage of labor resulting in usage of unskilled and semi-skilled labor and excessive overtime cost.

Because of the slow pace of technological investment in the sector overall, that leaves a gap—a massive opening—for tech firms and investors. This brings us back to the perfect storm.

According to investor Eran Bielski, “a number of technological tailwinds are supporting a shift in the market:

  • Artificial Intelligence enabling the optimization of all the activities across the value chain
  • IOT, novel sensors (unearthing data and insights)
  • Robotics (automating tedious labor)
  • Rapid adoption of BIM (Building Information Modeling) enabling tech adoption.”

According to Bielski, Tracxn’s 2021 report on investment in construction tech noted robust investment from 2019-2020. That investment has resulted in the sector moving away from using “an uncontrolled, fragmented and unstructured process, towards a fully visible, streamlined and digital one.”

Research firm McKinsey has also noted the growth in construction tech investing, predicting that the industry will accelerate technology adoption and “will continue its transformation from a highly complex, fragmented, and project-based industry to a more standardized, consolidated, and integrated one.”

The reach of technology in the sector is both broad and deep, and will affect all levels from labor to investors. McKinsey sees heavy adoption of technology in four distinct areas: “3-D printing, modularization, and robotics; digital-twin technology; artificial intelligence (AI) and analytics; and supply-chain optimization and marketplaces.”

We’ve seen this movie before, and it goes something like this: a few major firms will provide platform solutions, while multiple firms will offer point solutions that offer varying degrees of integration with other tools. McKinsey predicts that both will be viable for some time, as the market is now heavily fragmented. Bielski noted that more than half of startups solve for only one or two use cases, meaning that startups have a lot of room to maneuver in finding their profitable niche and wrestling users from competitors. Investors will fund small innovators and many of those will eventually be acquired by the larger firms and merged into their platforms.

Whether or not this all evolves into a perfect storm for venture capital investing in construction technology remains to be seen. That said, one-off events like the pandemic combined with recent trends like increased levels of investing are reasons for optimism.

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