Find original article at: https://news.crunchbase.com/news/peak-funding-may-have-hit-construction-tech-startups/
Construction tech startups broke funding records in 2018, the sector proving ripe for disruption as VCs suddenly paid attention. But midway into 2019, we’re wondering whether the surge in funding last year represented a potential peak for the sector.
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Funding in US-based construction tech startups totals just $196.5 million across 44 deals halfway through 2019. Of course, there are caveats: reported data often undercounts seed and early stage rounds. Furthermore, it takes just a couple of big rounds (like Katerra’s $865 million Series D last year) to skew those numbers pretty significantly. Still, $192.6 million across 44 deals is still significantly lower than the $1.274 billion raised by US-based construction startups in the first half of 2018.
By comparison, in February, I reported on how funding in U.S.-based construction technology startups had surged by 324 percent to nearly $3.1 billion in 2018 compared with $731 million in 2017, according to Crunchbase data. Of course those numbers were slightly skewed by a number of very large rounds.
So far in 2019, the biggest known round in U.S. construction and building material tech companies is a $28 million Series B raised by Los Angeles-based Flo Technologies, which builds water waste prevention and monitoring tools. Next down the list is Woburn, MA-based Boston Metal, which instead of using traditional blast furnaces utilizes a patented molten oxide electrolysis process to make steel and other metal materials. Given ore and electricity, its process produces pure molten metal, with oxygen bubbles as the only industrial byproduct, according to the company’s website. Boston Metal raised $20 million in a Series A round announced in January. Breakthrough Energy Ventures led the deal, in which The Engine and Prelude Ventures also participated.
So, what could be behind the apparent slowdown? Some investors who have invested in the space have a few thoughts.
Greylock Partners’s Jerry Chen (who invested in Rhumbix) believes that what may be happening is that “while there are a ton of construction tech companies being started, the number of companies that can attract a lot of capital is small in number.”
Trevor Zimmerman, managing partner of Colorado-based Blackhorn Ventures, is no stranger to the sector. In addition to also investing in Rhumbix, Blackhorn backed software startup Pype, India-based Manufacton and Safehub this year alone. It’s also made several other construction tech investments and “plans to continue investing heavily” in the space, with more deals planned for 2019. According to Zimmerman, Dr. Ray Levitt, another Blackhorn partner, is “a construction tech guru” and able to help startups in the space beyond capital.
In general, Zimmerman believes the “white space” in construction tech to build on the infrastructure of the information and communications technology revolution “is profound.”
“Today, foreman and laborers have supercomputers in the form of smartphones in their pockets,” he added. “That’s enabling companies like Rhumbix to bring efficiency gains to construction that other sectors, like manufacturing, were able to access over a decade ago with desktop computers.”
With regard to the drop in funding, Zimmerman, just like us, wonders if 2018 was just “influenced by an unusually large round or two.”
Also, he believes the best is yet to come.
“Anecdotally, we’re seeing many of the most compelling construction tech companies coming to market this year,” Zimmerman told Crunchbase News.
He isn’t surprised at the fact that funding is down, citing the “really large investments” that took place in 2018.
“For this reason alone, it’s not surprising that sector growth has appeared to slow down so far in 2019 — it can be attributed to the ebb and flow of specific companies,” Levine added. “However, I think the future holds continued growth for this industry as companies continue to grow and improve through new innovations.”
Zach Aarons, partner and co-founder of MetaProp (which invested in Avvir), remains bullish on the space.
“From our perspective, the market is hot. All of the deals are super competitive and we are scratching and clawing to win allocations,” he told Crunchbase News via email.
Recently, Rhumbix, a San Francisco-based startup with a mobile platform designed for the construction craft workforce that we’ve covered in the past, announced the closure of a $14.3 million Series B led by Blackhorn Ventures and Tenfore Holdings. And Avvir, a New York-based automated construction platform for monitoring and building digitization, announced a $2.5 million seed round led by Khosla Ventures partner Evan Moore with participation from MetaProp and LocalGlobe.
Rhumbix CEO Zach Scheel said via email that the company, which was launched by two U.S. Navy veterans in 2014, is using the new capital to hire across all departments including sales, engineering, product, and field operations. Rhumbix, he added, has seen year-over-year revenue growth “in excess of 3x the past few years.” According to Scheel, the company is seeing major demand for its “enterprise-grade field tools for tradesmen and women that not only digitize paper and Excel-based workflows, but do so in a way that generates structured data that can be fed into BI tools, project management platforms, ERPs, and other back office software platforms.”
Meanwhile, Avvir says it is using its capital infusion to continue building a “system of reality” for buildings, or “a system of record that connects building plans to built reality and syncs them automatically,” eliminating the need for manual data entry. The goal of its system is to cut down on “rework.”
The Avvir platform uses computer vision algorithms to compare laser scans and photographs captured onsite to a building information model (BIM) and then automatically update it, “effectively creating a digital twin of the site,” according to the company. This digital twin can be used for construction monitoring purposes during the construction project and as a platform for building management once construction is complete.
Whether 2018 funding numbers represented an anomaly remains to be seen. My gut says there’s still plenty of disrupting to be done in this space, and that could be reflected in funding dollars to come.
Jason D. Rowley contributed data analysis and some text to this article.
Note: This article was updated post-publication with amended funding numbers as well as additional sourcing and information.
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