Move over meal deliveries and mobility startups: The construction industry has become a new focal point for venture capital funds and tech investment.
Investment in AEC firms—architecture, engineering, and construction—have blossomed in the last few years, as a once low-tech, staid industry begins to feel the full impact of digital technology, especially when it comes to collaboration software, worksite monitoring, safety, and new design tools.
Tech investment in construction has grown rapidly in the past decade—in 2008, global investment totaled $4.5 million across two deals—led by growing number of more active and specialized VC investors. According to data from CB Insights, the industry saw $882.3 million in investment last year across 103 deals, and has already bested that in 2018, racking up $1.38 billion across 61 deals.
While this year’s considerable investment is mostly due to a handful of sizable investmentsin companies such as Katerra, the Silicon Valley construction startup that received $865 million in a funding round that included the SoftBank Vision Fund, these mammoth deals only show the potential many see in these types of companies.
“Construction is one of the least digitized industries, so many startups are seizing the opportunity to build technology that would increase efficiency within this market,” says Michael Wholey, an intelligence analyst for CB Insights. “As a result, funding and deal activity in the construction technology space has been increasing steadily over the past few years.”
Kaustubh Pandya, a principal at Brick & Mortar Ventures, a three-year-old San Francisco-based investment fund focused on AEC companies, says the technology to digitize buildings, including affordable sensors and better mobile technology, has the potential to make an industry known for long timeframes and flexible deadlines more efficient.
“We now have technology available that wasn’t previously available for the construction specific environment,” says Pandya. “Just a few examples include sensors which we can now deploy at scale economically or a smart mobile device with increasingly computational power now in everyone’s hand at job site. That shift in enabling technologies is starting to make construction more attractive for solutions development.”
According to a recent Crunchbase article, a number of startups are on the rise, including Rhumbix, which raised $20 million for its mobile platform for the construction craft workforce, and Procore, which has built a cloud-based construction management software application and raised $229 million.
While there’s a desire to expand and diversify tech investment—”the world doesn’t need another general fund, there are plenty out there,” says Pandya—the size and scope of the construction and design field offers plenty of opportunities. A report from global consulting firm McKinsey found numerous areas for improvement and investment, especially in the realms of field productivity and site-performance management.
One of the main reasons investors see great potential is the relatively low growth in productivity in the building trades, relative to other industries. The McKinsey analysis found that construction labor productivity averaged 1 percent growth annually over the last two decades, compared to the 3 to 4 percent average found in other industries. If new technologies could help close that gap, that would add an estimated $1.6 trillion to the industry’s annual output.