Practical Nerds

This week: - Construction demand exploding globally, creating multi-decade tailwinds - Productivity paradox: construction worker output decreased 20% over 35 years - Aging workforce crisis: 20-25% of US construction workers nearing retirement - Global skills shortage: severe lack of skilled workers worldwide - Industry vulnerabilities exposed, creating perfect storm for construction-tech adoption In this episode, Shub and Patric dive deep into the factors driving the explosive demand for construction globally, including population growth, aging infrastructure, migration, and rising middle classes. They discuss the alarming productivity paradox in the industry, with construction worker output decreasing by 20% over the past 35 years, contributing to over 60% of inflation in Western markets. The aging workforce crisis is also explored, as 20-25% of the US construction workforce is nearing retirement, taking with them decades of experience and wisdom. The conversation then shifts to the severe global skills shortage, with a lack of skilled workers in both developed and emerging markets. This shortage exposes the vulnerabilities of the construction industry, which relies heavily on a per-diem, project-based business model. With demand surging and qualified labor fleeing, the industry finds itself in a precarious position, creating a perfect storm for construction-tech adoption. Shub and Patric explore the potential for AI and construction-tech to compensate for the fleeing qualified labor and boost stagnating productivity. They believe that the industry is at an inflection point, with technology emerging as a critical solution to the challenges faced. The episode concludes with a discussion on the generational opportunity for the AEC tech sector, as the construction industry stands at the dawn of a technological revolution that will reshape its future. Chapters (00:00) Introduction and Small Talk (04:45) Chapter 1: Exploding Demand in the Construction Industry (13:53) Chapter 2: Shrinking Productivity in Construction (24:57) Chapter 3: Opportunities for Technology and Innovation in Construction (36:14) The Potential of AI in the Construction Industry (43:23) AEC Tech: Addressing Challenges and Capturing Demand

This week: - The trillion-dollar opportunity in AEC services - AI assistants revolutionizing architecture and engineering firms - Challenging SaaS orthodoxy in the construction industry - ERP migration: the untapped market in construction - Data lakes and the future of AEC service providers In this episode, Shub and Patric dive deep into the vast potential of service-oriented business models in the architecture, engineering, and construction (AEC) industry. They discuss how companies that focus on delivering services, rather than just software, can tap into a trillion-dollar market opportunity. The conversation explores how AI-powered assistants can help architecture and engineering firms overcome resource limitations, improve efficiency, and boost profitability. Shub and Patric also challenge the conventional wisdom surrounding software-as-a-service (SaaS) models in the AEC sector, arguing that the industry's unique characteristics demand a different approach. They highlight the massive untapped market for enterprise resource planning (ERP) migration services, as many AEC firms struggle with outdated and inefficient software systems. The discussion then turns to the concept of a "Palantir of Construction," a company that could revolutionize decision-making in the industry by leveraging AI to interpret complex, unstructured data. Finally, Shub and Patric explore the potential for service-as-a-product companies to become custodians of valuable industry data, creating comprehensive data lakes that can drive innovation and provide insights for the entire AEC sector. Throughout the episode, Shub and Patric offer counterintuitive insights and fresh perspectives on the future of technology in the construction industry, making this a must-listen for anyone interested in the intersection of AI, services, and AEC innovation. Chapters (00:00) Introduction and Small Talk (01:00) The Convergence of Ideas: Venture-Backed Startups and Integration Services (06:22) Exploring Opportunities in the AEC Industry (09:06) ERP Migration and Data Lakes (14:19) Debating the Choice: Large Firms vs. Small One-Person Shops (25:03) Choosing the Right Business Model (27:30) Unlocking Larger Value Pools (29:26) Faster Sales Cycles and Net Profitability (30:46) Building a Distribution Channel (34:09) Accelerating Transformation in the Industry (38:33) Net Profitability from Day One (43:09) The Role of Data Lakes (46:32) Driving Expertise and Specialization (49:58) The Importance of Service Provision (51:37) Challenging Conventional Wisdom

In this episode, Patric and Shub discuss the potential of Europe as a breeding ground for category creators in the construction technology (ConstruTech) space. They explore the unique characteristics of different European countries and how they contribute to the development of innovative startups. They highlight the importance of understanding the market context and the specific needs of customers in each country. The conversation also touches on the growth trajectories of Germany and France, and how their economies and construction industries differ. Overall, the episode provides insights into the opportunities and challenges of building ConstruTech companies in Europe. The conversation explores the characteristics of French founders and the fundraising dynamics in the French venture ecosystem. It highlights the natural inclination of French founders to be close to their customers and develop strong relationships. The French VC ecosystem has matured slower than the British and German ecosystems but has solidified itself from within, with successful French founders reinvesting in other French founders. The market conditions in Europe, particularly in compliance, AI safety, energetic renovations, and construction robotics, make it a prime breeding ground for category creators. Europe is not a poor version of Silicon Valley but has its own unique strengths and opportunities. Chapters (00:00) Europe: A Breeding Ground for ConstruTech Category Creators (11:16) France's Optimism and Structural Changes (25:57) Opportunities and Challenges in European ConstruTech (32:40) The Maturation of the French VC Ecosystem (49:39) Europe: Not a Poor Version of Silicon Valley

This week: (01:17) - CAD wars: The untapped potential for contractor-focused solutions - Schneider Electric's acquisition of Bentley Systems and industry implications (16:19) - Opportunities and challenges in building "CAD for Contractors" - Incumbent CAD players' struggles to adapt to contractor needs (28:26) - The future of BIM: Integration, collaboration, and progressive UX In this episode, Patric and Shub dive deep into the world of CAD solutions tailored specifically for contractors in the construction industry. They discuss the untapped potential of contractor-centric CAD tools and the limitations of existing solutions in meeting the unique needs of contractors, particularly in the estimation and bidding process. The conversation also touches on the recent acquisition discussions between Schneider Electric and Bentley Systems, signaling the growing interest of industry giants in construction-tech for energy infrastructure. Patric and Shub explore the opportunities and challenges in building "CAD for Contractors" solutions, which enable easy 3D BIM model enrichment and detailing for accurate quantity take-offs. They highlight the need for user-friendly tools that allow contractors to enrich models with minimal training and effort. The discussion also delves into the struggles of incumbent CAD players to adapt to the specific requirements of contractors, such as browser-based accessibility, mobile compatibility, and intuitive user experiences. Looking to the future, the hosts share their insights on the evolution of Building Information Modeling (BIM) in construction. They emphasize the importance of integrating as-built models, collaborative estimation, and progressive user experiences tailored for untrained users. The episode concludes with a discussion on the perspectives of construction-tech investors, who recognize the significant potential in the market while acknowledging the challenges in developing and scaling contractor-focused CAD solutions.

This week: - Vertiv - the "shovel seller" powering the AI data center boom - Looking beyond the obvious for construction's hidden opportunities - The power of "tooling" to enable the broader AEC industry - Uncovering the "hidden champions" in the construction tech space - Constructing relevant advice for founders in this industry This episode dives deep into the overlooked yet compelling opportunities in the construction technology landscape. The conversation explores Vertiv, a traditional industrial company that has quietly emerged as a critical provider of power, cooling, and infrastructure solutions for the booming AI and data center industry. The panel highlights the importance of looking beyond the obvious, first-order problems and trends, and instead identifying the "second" and "third order" solutions that can create durable competitive advantages. The concept of "tooling" - building technology products and services that empower and enable the broader AEC ecosystem - is discussed as a powerful business model. The discussion also shines a light on the prevalence of "hidden champions" - niche, specialized construction technology companies that have achieved dominant market positions but remain under the radar. Uncovering these gems requires dedicated focus and industry expertise, which is often lacking in the generic advice given to founders by VCs. Ultimately, this episode offers a fresh perspective on the vast potential within the construction technology space, emphasizing the value in taking a more holistic, systems-level view to uncover promising avenues for innovative, defensible companies.

This week: • Leading indicators from global shipping for construction economy • AI agents guiding construction firms through supply disruptions • Climate crisis effects on construction supply chains explored • Efficient construction sites through optimized logistics management discussed • AI solutions for electrical grid construction projects examined This episode delves into the intricate relationship between the global shipping industry and the construction economy. Shipping rates are highlighted as powerful leading indicators, capable of foreshadowing market trends in the construction sector by six to twelve months. The conversation then shifts to the transformative potential of AI agents and language models in navigating supply chain disruptions faced by construction firms. Practical examples illustrate how these AI assistants can synthesize critical information, prioritize tasks, and facilitate proactive decision-making amidst volatile conditions. The climate crisis emerges as a significant disruptor of global supply chains, with far-reaching consequences for construction projects. The impact of rising sea levels, extreme weather events, and water scarcity on critical shipping routes like the Suez Canal and the Panama Canal is explored in-depth. The episode also underscores the importance of optimized logistics management for efficient construction sites, drawing parallels between construction and supply chain businesses. Furthermore, the discussion highlights innovative AI solutions being developed to enhance port operations through seamless shift handovers and address bottlenecks in electrical grid construction and maintenance. Overall, this episode provides valuable insights into the convergence of construction technology, AI, and supply chain management, offering a glimpse into the future of resilient and sustainable infrastructure projects.

This week: PoolCorp: A billion-dollar vertical niche one-stop-shop success story in the construction industry Lessons from PoolCorp on distribution, pricing power, and recurring revenue in a service niche Why it's so powerful when you dominate vertical niches in construction-tech In this thought-provoking episode, Shub and Patric delve into the remarkable success story of PoolCorp, a publicly listed company with a staggering $15-17 billion market cap in the pool products and services industry. Despite its massive size, PoolCorp remains relatively unknown, even within the construction and tech sectors. The discussion unravels the company's strategic focus on a narrow niche, providing a one-stop-shop for all pool-related products and services, from construction and installation to maintenance and remodeling. Through the PoolCorp case study, the hosts explore the power of dominating vertical niches in the B2B construction-tech space, particularly in the early years. They challenge the conventional wisdom that narrow markets are insufficient for venture-backable outcomes, highlighting PoolCorp's $10-12 billion serviceable market as a prime example. The conversation underscores the potential for companies to achieve disproportionately large market shares by going deep into a niche, developing unparalleled expertise, and building strong customer relationships. Moreover, the episode dissects PoolCorp's masterful distribution strategy, fostering an "illusion of choice" for customers by distributing through a vast network of retailers, contractors, and online stores, often using generic or third-party branding. This approach not only avoids the perception of a monopoly but also creates an omnipresent presence across channels. Construction marketplaces can learn from this strategy by establishing their own private label products, breaking the illusion of perfect price discovery and increasing pricing power. Furthermore, the hosts explore the concept of recurring revenue redefined, drawing parallels between PoolCorp and major elevator manufacturers. In these industries, the bulk of revenue and profitability comes not from the initial sale or installation but from ongoing maintenance contracts, which are often non-discretionary due to the inherent need to maintain mechanical and electrical systems. Finally, Shub and Patric challenge the widespread assumption that market shares in construction niches are limited to 5-10% at best. They highlight the reality that in many B2B construction niches, legacy players routinely command market shares of 50-70% or higher, necessitating a shift in thinking when evaluating niche opportunities.

This week: What founder traits and behaviors lead to success in AEC-Tech: Traits and behaviors we discuss: How founders think about BUSINESS ... about OPERATING ... about PRODUCT ... and about PARTNERSHIPS and relationships In this episode, we delve into the world of successful construction tech founders. Rather than boasting overconfidence, these founders embody humility, recognizing the complexities of the construction industry. We explore how financial discipline and transparent reporting fuel operational success and discuss the importance of treating investors as partners. Additionally, we examine the strategy of prioritizing frequent interactions with customers for iterative product development and the integration of off-the-shelf technologies for carbon reduction. Join us as we uncover the key traits and strategies behind thriving construction tech startups.

This week: What's hot in Constru-Tech right now: Funding Still Strong Profitability Prioritized Leading Indicators Positive Bootstrap If Possible AI/Energy Models Patric and Shub analyze the current funding environment for construction tech. They discuss trends in what types of companies and models investors are favoring. The episode provides guidance to founders on how to best position their ventures based on stage, profitability, runway, and vertical. Other topics covered include signals pointing to ongoing investor interest in the space as well as the importance of reputation.

This week: Some of the big US themes to watch out for in Constru- and AEC-Tech in 2024: Alternative supply chains Automating the workforce Vertical AI applications Startup acquisition wave Questionable materials science? This week on the Practical Nerds podcast, we spoke with Adam Zobler, General Partner at Foundamental, about the latest trends and developments in US construction tech. We discussed efforts around supply chain localization and reshoring production to Latin America to reduce fragility. With an aging workforce exiting the industry, we also talked about robotics and automation solutions coming online to fill labor shortages. In addition, Adam predicted customized AI and vertical LLM models hold promise to optimize construction workflows when trained on historical industry data. He also foresees larger firms needing to acquire top startups in the next two years before they scale too large. We tried to make sense of some "crazy unscientific" material innovations attracting funding despite lacking viability or rigor. Adam explained the value of Foundamental's global fund approach in transferring learnings across the US, Europe and other markets to shortcut pitfalls for startups.

This week: Secrets how to build a category-creating firm in AEC-technology and Construction-technology: Narrow niches and customer profiles are a good thing (to start with) Starting with services Slog precedes exponential growth Copy & paste pitfalls, and why using funding data to evaluate who could be a category creator can be dangerous In this episode, Patric and Shub dive deep into what it takes to create an enduring category leader in the construction tech space. They discuss how the most successful startups begin by targeting a narrow customer segment where they can deliver instant utility through excellent, tailored products. The show also covers how top construction tech disruptors find unusual methods to serve strong but overlooked needs, by creatively tapping into customer disappointment with current inadequacies in the market. Additionally, the hosts explain that it takes 3-5 years of iteration and perfecting the product-market fit before category creators in AEC really break out, despite often appearing sluggish and risky in early stages. The episode also provides advice to founders on avoiding superficial analogies when attempting to adapt proven business models to new geographies or verticals. It's critical to analyze subtle differences in incentive structures, operations and value chains at a granular level first. Finally, Patric and Shub discuss why substantive customer traction and product usage metrics matter far more for assessing construction tech startups than vanity fundraising figures do.

This week: The Outsized Aussie Construction-Tech Unicorns Tight-Knit Founder Community Global Mindset Baked In Effective Frugal Scaling Shub and Patric dive deep into Australia's vibrant construction tech ecosystem which keeps producing an outsized number of unicorns relative to the country's small population and GDP. They analyze how Australia fosters a collaborative founder community where top entrepreneurs all know each other despite geographic isolation. The conversation also explores how Australian teams think globally from day one since they can't rely solely on their tiny domestic market. The episode discusses how resource constraints make Aussie builders highly skilled at frugal scaling methods as they grow. Overall, a fascinating look at the construction tech scene Down Under. Editorial Correction: Estonia is #3 in Unicorns per $ GDP and #4 in Unicorns per capita. In 2023 it was actually Luxembourg with the most Unicorns per capita.

This week: Labor shortages drive robotics Software and product DNA beats automation experience Micro-step automation shows promise Construction is a perfect market to build fast-to-revenue robotics firms due to its service nature Leapfrog potential in emerging markets for robotics - yes or no? Patric and Shubhankar dive deep into the growing role of robotics in construction tech. They discuss how labor shortages and inflation in mature markets are accelerating demand, and why founders with a product mindset do better than pure automation experts. Other topics include: the promise of granular “micro-step” automation focused on valuable tasks; the need for robotics startups to sell actual construction outcomes rather than just equipment leases; the niche adoption so far in emerging markets versus the huge potential for leapfrogging; and the market triggers that could rapidly unlock construction robotics innovation globally. Whether you’re an investor or founder in this space, or just want an insider’s overview of the construction robotics landscape and business models, this episode delivers an insightful analysis.

This week: Founder vs investor knowledge Counter-cyclical growth Leveraging experience Adversity response Governance challenges Shub and Patric dive into amusing idioms from German, Hindi and Bengali to unearth essential wisdom for construction tech founders. Key topics span the extreme information asymmetry between insurgent AEC innovators and their backers, construction software's resilient growth trajectory, why seasoned advisors are invaluable, pragmatically tackling obstacles and avoiding chaotic expansion sans governance. The broad mix of cultural metaphors and situational advice highlight what makes the build sector unique while confirming universal startup truths. Enjoy these tactical, philosophical and entertaining nuggets to kickstart 2024 with inspiration, realism and humor.

This week: Data > AI: Data infrastructure and databases for AEC gain faster adoption than AI tools built on top, as firms still lack data foundations One mega acquisition: Legacy AEC software vendors will acquire modern SaaS design platforms that pose existential threats, gaining next-gen capabilities Robotics > migrant ed-tech: Construction robotics firms automating repetitive low-fidelity trades will scale faster than educating migrant workforces facing policy declines Building energy renovation hits another inflection: Europe's home energy renovations will accelerate further as solar subsidies fall, grid costs climb, and governments maintain and increase renovation incentives India to US corridor becomes dominant for Constru-Tech: Indo-American hybrid construction tech startups will proliferate, benefiting from strong funding, talent pools and construction growth across both regions This week's episode makes bold predictions across architecture, engineering and construction for 2024. It sees data pipelines and infrastructure gaining rapid traction as firms still lack adequate data systems for effective AI. Legacy vendors will feel threatened by new entrants, acquiring one key competitor for modern web capabilities and platform business models. Construction robotics adoption will outpace workforce education facing anti-immigration policies. Europe's building renovation wave will hit another inflection as energy prices increase while renovation incentives stay. And Indian-American collaborations among investors, founders and dual-market services firms will dramatically proliferate. Tune in for expert perspectives on these 2024 predictions and the market shifts underlying each.

This week has some behind the scenes war stories: Questionable behaviors in Constru-Tech deals that Patric and Shub have seen over the years, and led them to pass on those deals Founders botching revenue recognition and other cases of book-cooking Founders setting up hidden corporate structures which could lead to personal gains VC's blocking deals and making deals for personal enrichment at expense of the startup or their partners Straight up, Board members charged with bribery accusations Patric and Shub discuss hidden stories of questionable behaviors that have led investors to walk away from deals in the construction tech sector. Examples include a botched funding round due to problematic revenue recognition, a VC blocking an outside investment in one company to force a quid pro quo investment in another company they partially owned, vague accusations of "book cooking" by a prominent founder's past investors, a founder secretly enriching themselves through an offshore subsidiary, bribery accusations against a board member, and sibling VCs scheming to promote one of themselves through a shaky deal. These stories demonstrate issues around greed, self-enrichment, abuse of power, and deception that can undermine deals even at the last minute. The podcast covers ways founders can safeguard their companies and partnerships to avoid these pitfalls.

This week: Snaptrude's $14M raise for 3D AEC design New technologies are enabling next-gen platforms Why the time for challenging legacy 3D/CAD incumbents has never been better Leveraging community, open source and multiplayer unlocks new distribution forms Software spend per 3D user will double in the next years This episode explores the major shifts happening in construction tech and AEC software. We discuss Snaptrude's recent $14 million Series A raise to build a "Figma for 3D AEC" led by Foundamental and Accel, and how they aim to bring real-time collaboration to 3D design. We also examine the frustrations with legacy construction tech vendors and their closed-off, desktop-centric tools. However, new startups have an opportunity to disrupt them by utilizing cloud, APIs, multiplayer, browser and better optimization for concurrency. 3D design startups in architecture, engineering and construction (AEC) can gain an edge through community building and embracing open source, compared to the incumbent's historical top-down approach. And workforce shrinkage means construction firms will double their software spend per user as they automate more workflows. New technologies are enabling the creation of next-gen construction platforms.

This week: AI procurement agents in construction, and why construction supply chains are perfect for it Raising capital from generalists vs specialists (and from Foundamental specifically) Why diligence that heavily relies on strategics can be very mis-leading This week Patric and Shubhankar discuss the potential for AI "procurement agents" to streamline purchasing for construction companies. They compare raising capital from generalist investors versus specialists focused on construction tech, explaining how their diligence process and priorities differ. The episode wraps up with them sharing what they are looking forward to in the coming week, including a new opportunity in timber/lumber and an exciting 3D reconstruction software company.

This week's main topic: Construction firms increasing software budgets despite cuts in other sectors Utilization and margins driving need for process improvements and new software Construction projects provide flexibility to trial software on select projects Supply chain and working capital financing software of interest right now We also chat about: AI applications emerging in construction tech deals; use cases matter for defensibility (Tech) conferences often echo chambers with little ROI; why small, focused events prove useful

This week: Several fundamental shifts for founders and venture investors in the construction markets Why solving for a shortage transformers, cables and power infrastructure is a billion-dollar opportunity in AEC The state of Constru-Tech VC funding per Q4-2023 How Constru-Tech outperforms the total venture market since 2021 by 3x, and why constru-Tech hubs grow faster outside USA Sneak peek at upcoming analysis of the 17 Constru-Tech Unicorns across the globe