Billion dollar business: Venture capital piles into construction technology

Venture capitalists invested $1.05bn in global construction technology (ConTech) start-ups in the first half of 2018, 30% higher than last year’s first-half figure and a record high.

The figure is reported in analysis by JLL, which says that ConTech’s “allure” to users and investors alike is outpacing overall tech start-up investment growth in the US.

Part of construction’s appeal is that it is one of the least digitised sectors in the world, with only agriculture and hunting below it, according to a recent McKinsey report.

In addition, says JLL, “It’s no mere accident that this uptick in [construction technology] investing coincides with an industry plagued by cost fluctuations, labor shortage issues and overall lack of productivity improvements – creating what many venture capitalists view as a prime opportunity for disruption”.

It points out that:

  • Over the past 25 years, based on Bureau of Labor Statistics data, nearly every industry doubled their productivity rate, whereas construction has not only flatlined, but declined, indicating labour-intensive processes.
  • Materials costs are growing at an increasing rate. Costs grew by 5.6% over the past 12 months, with another 5-6% in increases expected over the next year, indicating “less product for your buck”.
  • Access to skilled labor continues to be an issue. The number of construction workers is down 12.9% from the 2007 peak, indicating growing project schedules.
  • Spending in construction is up 23.3% over the 2007 peak, hitting a projected $1.3 trillion in 2018, indicating increased competition for resources.
  • Construction wages are continuing to rise, up 4.5% in the past year, compared to 2.2% across all industries, and 31.2% over January 2007, indicating wages are at a premium.

Funding will be injected into construction technology-focused start-ups through approximately 120 deals by the end of the year, according to JLL’s estimates, as Silicon Valley investors bet that ConTech can solve the problems currently plaguing construction through a number of creative approaches.

The top start-ups in 2017 and 2018 by funding are in companies focused on offsite construction, cloud-based software and new tech-focused hardware. Artificial intelligence and big data solutions are a close second and are positioned to make even larger impacts.

The top companies are:

  • Katerra ($1.1bn in funding)
  • Uptake Technologies ($287m)
  • Procore Technologies ($180.2m)
  • Blu Homes ($179.5m)
  • Project Frog ($93.0m)
  • PlanGrid ($66m)
  • Flux Factory ($39.3m)
  • SmartEquip ($31.6m)

Of these, Katerra, founded in 2015, is the “star child” of 2017 construction technology venture capital, says JLL. An integrated technology, construction and development company focused on building assets quicker and cheaper, Katerra uses BIM technologies, a global supply chain, prefab construction and manufacturing techniques, and just-in-time delivery of ready-to-install components.

Others singled out for attention by JLL include:

  • Zhaogang, founded in in Shanghai in 2012, a business-to-business e-commerce platform specialising in steel trading. The company, currently focused on Chinese buyers and suppliers, provides an online exchange, as well as information and quotes for a wide range of steel products.
  • IL Uptake, founded in Chicago in 2014, which creates predictive analytics software that collects and interprets sensor data for mining, rail, energy, aviation, retail and construction industries.
  • Procore, founded in 2002 in Santa Barbara, creates and sells a suite of cloud-based construction management software, focusing on optimized workflow and information sharing.
  • Blu Homes, founded in 2008 in Vallejo, California, a prefabrication-focused residential builder. The company has a handful of customisable predesigned homes that are manufactured offsite, shipped to the final location and assembled in three months.

Main image: Technology, construction and development company Katerra uses BIM and prefab and has attracted $1.5bn in funding

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