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Building the Future: Menlo Ventures Bets On Construction Tech

October 2, 2021

Menlo-backed companies Canvas, Fieldwire, Hover, and OpenSpace are reinventing the construction industry

Construction is a massive industry drawing more than $11 trillion in global spend and comprising more than 4% of US GDP. And, while the industry took a hit last year following restrictions imposed to contain the global Covid-19 pandemic, it’s now rebounding at a rapid pace. In fact, the industry is recovering so fast that growth estimates were revised upward from 5.7% in Q2 of this year to 6.3% by Q3.

As demand for construction continues to grow, so do opportunities for technology to drive the industry forward. An industry once defined by manual labor and managed by pencil and paper has benefited from a decade of advancements in technology, chief among them:

  • The move to mobile-connected users on job sites to office teams 
  • Cloud software that makes it easy for multiple constituents to collaborate 
  • Advancements in machine learning and artificial intelligence, automation and robotics drive new efficiencies, making work smarter and safer while offloading manual repetitive tasks

Capitalizing on this opportunity, we’ve seen companies like Procore and Plangrid create large and valuable businesses. But it’s still early innings. Only five years ago, a McKinsey Global Institute report referred to construction as the second least digitized industry in the world (and one of the most archaic in terms of labor education and practices). The report pointed out that inefficiencies cost the industry billions of dollars. 

We’re excited to see a number of innovative startups capitalizing on the opportunities in construction. As our Partner Matt says, “Construction has entered the golden era of technology adoption.” In the last three years, we’ve made several investments across the category.

Among our investments:

  • Canvas uses a unique robotics system to transform productivity and predictability in drywall finishing. Matt Murphy led their Series B in 2021
  • Fieldwire helps construction contractors and workers on the ground coordinate more effectively. Tyler Sosin led their Series C in 2019
  • HOVER relies on deep learning and computer vision to digitally map any 3D structure using pictures taken from a mobile phone. Matt Murphy led their Series C in 2019
  • OpenSpace uses machine vision to automatically capture 360° photo documentation and analyze construction sites. Shawn Carolan led their Series B in 2020
  • One soon to be announced. Series A.

Alongside the category leaders we’ve already backed, we expect other exciting startups to emerge. Founders will see the challenges facing the construction industry as opportunities to innovate.

The construction industry’s challenges create opportunities for scrappy startups:

  • Labor Shortages: It’s challenging work in a dynamic environment, heavy on manual labor, often involving repetitive and sometimes dangerous tasks. (According to OSHA, construction accounts for 20% of worker fatalities in the U.S.) These dynamics have led to a critical labor shortage: As the skilled workforce retires, fewer young people are joining the trades, and the industry is unable to meet rising demand.  
  • Lagging productivity: Construction is an industry plagued by inefficiency. Research from Plangrid and FMI found that poor project management costs the construction industry $177.5 billion in labor costs per year in the U.S.
  • Financial fragility: Construction is a sprawling and complex business pressured by working capital issues and significant counterparty risks. The industry needs better tools and processes to manage the financials and liquidity of these businesses which would, in turn, provide more stability across the system.
  • Supply chain disruptions: The global supply chain has crumbled under labor shortages and other pandemic-related disruptions. Understandably, this created challenges for a construction industry that relies heavily on materials and products from foreign markets. (If the supply chain is of interest, we encourage you to learn more about our investments and perspective in Steve’s post on Funding the Next Generation of Supply Chain Disruptors.) 
  • Focus on affordability and ESG: The demand for affordable housing and lower-cost commercial projects is growing. That demand is compounded as the private sector outpaces public sector construction, putting more focus on margins and efficiency, while environmental concerns drive pressure to reduce construction’s environmental impact. In the years ahead, ESG will take on even more importance for the category.

How can technology drive innovation? 

These challenges may seem daunting, but in this trillion-dollar industry, even the slightest innovations have the potential to create hundreds of millions in value and address the labor crunch. We are optimistic that technology will power these advancements, and expect to see two of our focus areas leading the transformation:

  • Robotics/Autonomous Equipment: Automation and robotic solutions will drive transformation because they address critical labor shortages, increase productivity  and reduce safety concerns. A key benefit is that autonomous equipment can be operated remotely, as we’ve seen with our portfolio companies, OpenSpace and Canvas. But those who fear robots will replace humans can rest easy: The easiest tasks to automate are repetitive, physical activities in predictable environments—but construction’s environment is usually unpredictable. Each construction site and project is tailored to specific customer demands, architectural designs, and geographical and site requirements, and there are lots of moving pieces at any job site. Even when a task can be automated, as we see with Canvas automating drywall installation, or OpenSpace in project documentation, we still need people involved in the process.  (For more on how we view the potential for collaborative robots, we encourage you to read this article Steve wrote, originally published in TechCrunch.) 
  • Purpose-Built Cloud Software (aka Vertical Saas + Fintech): The same Plangrid/FMI study we mentioned above revealed that construction workers lose almost two full working days every week solving avoidable issues and searching for project information.With software solutions designed specifically for the needs of the construction industry, we can expect more efficient planning, communication, collaboration, documentation, budgeting and forecasting. Digitization should in turn help drive innovation downstream in payments, lending, and insurance. And artificial intelligence and machine learning built into these solutions will amplify their value by further driving automation. Each of our construction tech investments Canvas, Fieldwire, Hover, and OpenSpace is proving out this narrative. And, our soon to be announced investment focuses on payments specifically. (Our interest in vertical SaaS is not limited to the construction category, we believe valuable businesses can be built across a number of verticals. And, at this stage of the game, we find ourselves more excited by the potential to transform verticals than horizontal transformation. In fact, we recently published a piece on the opportunities in Life Sciences, here.)

Inspired by the opportunity to transform an industry we’ve backed several promising companies and continue to look for the next great innovator. We’re firm believers that the construction industry will continue to benefit from technology that enhances productivity, cost efficiency, speed, and safety. If you are leading an effort to transform the construction tech space, please reach out to Tyler or Croom.