InvestimentosConstruction startups funding

It isn’t news to anyone that the extensive chain of value of construction has been going through major changes in recent years. The search for increased efficiency by means of technological solutions has never been so backed by venture capital investors as it is beeing in 2018.

Numbers presented by various reports point to key turning point of the sector. And the trend is that the rise in the amount of investments of the sector’s investors continues.

In order to highlight the trends on investments in Construtechs in Brazil and in the world, we will separate the studies presented by Specified Market (Real estate, construction or both combined) and the Types of Investors (venture capital, angels and accelerators and others).

 

  1. Introduction
  2. Construtechs, Contechs and Proptechs, what’s the difference?
  3. Investments already made
    1. What do international reports say?
    2. Our analysis
  4. The Unicorns
  5. Where the capital comes from
  6. Brazilian Panorama
  7. Movements in 2018
  8. Conclusion

 

Construtechs, Contechs and Proptechs, what’s the difference?

It’s worth recalling here the Blog post that Bruno Loreto wrote about the differences between the nomenclatures used in the world of Construtechs.

When accessing international portals on startups, it is common to find mentions of Con-techs (or even Constructechs) and others that reference Proptechs.

The important thing is to keep in mind that Con-techs are associated mostly with construction site’s environment, while Proptechs are real estate startups.

And these two nomenclatures are under the umbrella (or broad category) of Construtechs, which in Brazil is associated with startups that act on any of the points of the construction value chain.

 

Funding

A recent survey by CB Insights highlights a trend of increasing investments in Construtechs around the world.

The graph below shows the investments made by corporate and private venture capital funds in startups focused on solutions for the construction site (con-techs) in the last 5 years.

It should be noted that the amount of capital invested in the first two thirds of this year (until the end of August 2018) exceeded by more than 60% the amount in the entire year 2017 .

 

 

Another report, this time published by JLL, Chicago real estate investment manager, presents an investment perspective also in startups focused on solutions for the construction site , but taking into account only private venture capital funds, also worldwide.

 

 

And looking at the startups analysed in the JLL study, we can see that most of them are associated to solutions that enhance collaboration in site, followed by prefabrication of residences and project management .

This great concentration of collaboration and project management solutions coupled with the Construtechs explosion on the international scene is creating a new problem for developers and builders IT managers.

In an ConstructionDive article, Christian Burger, president of the Burguer Consulting Group (IT Consultancy for Chicago Construction), jokes about it.

He says that an executive facing this rising wave of software is like a kid in a candy store who once had to choose between 5 or 10 different candy types and today is faced with 50 or 100 different choices that start to overwhelm his mind.

 

The JLL report also details the startups that received the most funds in the last two years. Led by Katerra, all constructechs that appear in the image below are American, with the exception of the Chinese steel marketplace Zhaogang.

 

 

Our analysis

According to the data, gathered from the Crunchbase database, more than $ 8.3 billion went into funding construtechs around the world in 2018 alone.

It is worth noting that, unlike the studies cited above, our survey compiles todas as startups dos mercados imobiliário e da construção of the world (nearly 5,000 investment rounds), which includes any types of high-risk investment, such as venture capital, angel, equity crowdfunding and ICO’s(initial coin offerings).

The following charts are interactive. You can hide specific series to highlight only the most relevant ones, hover the mouse over the series so that the values of that data point are revealed and still zoom in the years that interest you most.

Note: YTD (Year to Date) includes 2018 funding rounds up until the publication of this article.

 

The first notable fact is the confirmation of the exponential growth in construction and real estate startup funding in the last decade. It’s a reinforces that a Trillion-dollar market, as is construction, is accelerating it’s pace towards it’s digital transformation.

It is also possible to note that VC rounds are reducing in quantity, but increasing in deal size. This is an international trend in the Venture Capital scene: more money being poured in fewer companies, regardless of industry.

This is due to the change in the mindset of investors who are now seeking to mitigate their risk by means of larger investments in the startups considered more promising by the managers of these funds.

In the graph below, it is possible to observe growth trends in the amount captured in all types of rounds over the years:

 

 

Isolating only the angel and seed curves, we can see that in 2016 the averages began to diverge significantly.

Even taking into account that angel rounds are usually not as disclosed as later rounds, this leads us to conclude that the Construtechs founded since 2015 have had less access to Angel capital, needing to seek alternative forms of funding.

By bringing each series back one by one, we can see that they have been shot up since 2016.

If you are wondering, the cause of the peaks of the series D averages in 2014 and series and in 2015 were both pulled upward by rounds raised by WeWork in those two years.

The next graph, as I mentioned, points to the decrease in the number of contributions, mainly of Seed rounds, following the VC trend:

 

 

The Unicorns

Katerra ,Con-tech founded in 2015 and which has already raised more than 1.1 billion dollars in funding, aims to produce modular buildings by means of a highly technological assembly line.

In 2017, the Katerra raised 158 million of dollars, corresponding to 18% of the total invested that year, according to the CB insights.

In January of this year, in only one Series D round led by the Japanese group Softbank, it raised 865 million dollars , which sets it’s valuation a little over 3 billion dollars, a record amount for a construction startup.

Just this round represents approximately 60% of all funding raised by Con-techs worldwide in 2018 to date. Earlier this year we wrote a post all about Katerra.

 

 

Some of the largest unicorns (startups that have a market value of more than 1 billion dollars) existing within the building and real estate markets are:

 

Startup Valuation (in billions of dollars) Market Solution
Airbnb 29,3 Real estate Accommodations and Lodgings Marketplace
WeWork 20 Real estate Coworking
Houzz 4 Real estate Platform for interior decorating, from start to finish.
Katerra 3 Construction Verticalization of the home building, from design to manufacturing
Uptake 2,3 Construction Platform for predictive analysis of assets such as heavy machinery, 258 million of dollars raised in funding so far
Compass 2,2 Real estate Platform that centralizes the whole process of buying and selling a property
Procore 1 Construction Construction management platform founded in 2002 and that raised 229 million of dollars to date

 

 

Where capital comes from

From the buy-side, the Venture capital funds that closed the most rounds with Construtechs are all from Silicon Valley, except for the Vitas, which is located in Los Angeles, USA. Among them, the main ones are:Biggest Construtech VCs

  • Brick & Mortar Ventures , venture capital focused on Construtechs founded in 2015, with 28 Investments in Construtechs
  • Vitaas Capital , VC focused on Construtechs of Los Angeles, with 24 Investments in Construtechs
  • New Enterprise Associates , sector agnostic VC founded in 1977, with 18 Investments in Construtechs
  • FundersClub , CoinBase and Slack backer, with 6 Investments in Construtechs
  • Andreessen Horowitz , renowned venture capital that has raised more than 6.6 billion dollars in funds, with 5 Investments in Construtechs

 

Accelerators also made their mark with lots of construtechs that go through their programs and receive funding. Among the main ones are

Biggest construtech accelerators

  • EASME , the European Entrepreneurship support entity, with 104 Investments in Construtechs
  • 500 Startups , with 79 construtech investments. Backed companies like Reddit and Udemy
  • Techstars , with nearly 6 billion dollars of invested accross it’s portfolio, has 73 Investments in Construtechs
  • Y combinator , another World-class accelerator, with backed companies like Dropbox and Reddit, with 60 Investments in Construtechs

 

Brazilian landscape

Investments made by venture capital funds, accelerators and angel investors in Brazilian Construtechs added to more than 450 million of real in recent years , according to data gathered by Construtech Ventures.

Such investor support for new business models demonstrates that the industry’s move toward digital transformation is also taking place in Brazil.

The profile of the startups invested range from those that document management solutions to real estate marketplaces.

From the companies included in the data, the biggest rounds, however, are focused on startups related to the intermediation of buying and sale of real estate, such as VivaReal and QuintoAndar .

Other large investments were also made in construtechs of other sectors, such as the Mobly , e-commerce of decoration items, and Getninja , platform for brokering service providers and homeowners who need repairs.

 

Movements in 2018

JLL launched in June of this year a 100 million dollars fund focused on housing market startups, called JLL Spark. The focus will be the construtechs with products that can help the investors and customers of JLL, as well as those that can be useful to JLL itself in its main activities. This includes from property management to the leasing and real estate investments.

Venture capital investment Fund Fifth Wall also launched in June of this year its second fund for real estate startups, this time of 400 million dollars .

In September of this year, another VC, Baseline10 , from San Francisco, California, launched a 100 million dollars fund focused on solutions that use artificial intelligence and automation for real economy industries such as transport and construction.

Still during the month of September, a new corporate venture capital focused on the construction industry was announced. Ferguson Ventures, headquartered in Tampa, USA, will invest in late stage construtechs that seek to solve the challenges of the industry.

 

Conclusion

In the last decade, investments in Construtechs have been growing exponentially, as reported by the aforementioned surveys.

In any case, the problems of the construction chain that sparked this rise in startups and funding have not yet been completely remedied, whereas both new solutions and traditional players need to mature so that the generation of value is positive and mutual.

One of the reasons that can explain the enthusiasm of investors with initiatives to change the sector is the great challenge of the low productivity of the sector, compared to others.

By adopting new technologies applied in construction, according to a McKinsey Consulting study, we can increase the global GDP of the chain by 1.6 trillion dollars annually.

 

Authors: Daniel Zanoello and George Lodygensky – Investment team, Construtech Ventures.