Practical Nerds

About This Episode In this episode, Patric Hellermann and Shubhankar Bhattacharya dive deep into the tremendous investment opportunity in construction technology. They analyze capital allocation patterns across various sectors and explain why construction tech is poised for explosive growth in the coming years. In This Episode Construction tech is at an inflection point, with venture capital funding expected to grow 10-15x in the next decade The "double crunch" of exploding demand and shrinking skilled labor supply is driving urgent need for construction technology A virtuous cycle of increased funding, talent, and adoption is accelerating growth in the construction tech sector Capital allocators view construction tech as a generational investment opportunity due to its massive market size and low current penetration Timestamps (00:00) - Introduction (05:55) - Analyzing VC funding across different sectors (11:16) - Construction tech's current market penetration compared to other sectors (16:29) - The "double crunch" driving demand for construction technology (23:25) - The flywheel effect of capital allocation, talent, and adoption (27:42) - Concluding thoughts on construction tech as a generational opportunity Resources or Companies Mentioned McKinsey: https://www.mckinsey.com/ Vertiv: https://www.vertiv.com/ Air Trunk: https://www.airtrunk.com/ Procore: https://www.procore.com/ Digital Ocean: https://www.digitalocean.com/ Privalia: https://www.privalia.com/ Connect With Us Practical Nerds Website: https://practicalnerds.com/ Subscribe to the Newsletter: https://www.linkedin.com/newsletters/practical-nerds-7180899738613882881/ Foundamental: https://www.foundamental.com/ Patric Hellermann: https://www.linkedin.com/in/aecvc/ Shub Bhattacharya: https://www.linkedin.com/in/shubhankar-bhattacharya-a1063a3/ #ConstructionTech #VentureCapital #InvestmentOpportunity

About This Episode In this thought-provoking episode, Patric and Shubhankar explore the concept of "execution mode" in startups and its importance in the architecture, engineering, construction, and supply chain (AECS) industry. They discuss how consistent execution and the ability to prioritize can be a powerful mode for founders, drawing parallels with mathematical concepts like prime numbers. The hosts delve into why execution mode is often undervalued in venture capital Patric and Shubhankar share examples of portfolio companies demonstrating strong execution capabilities The importance of measuring, reporting, and consistently improving processes in building an execution-driven company Discussion on the balance between high-level strategy and granular operational involvement for founders Reflections on recent tech valuations and the disconnect between revenue and market value (00:00) - Introduction and recap of previous episodes (02:29) - Introducing the concept of execution mode using prime numbers analogy (11:37) - Examples of execution mode in portfolio companies (21:27) - How to judge and develop execution mode capabilities (34:15) - Discussion on recent tech valuations and the importance of execution (39:53) - Upcoming meetings and deals in the pipeline Bold: Discussion of recent valuation and ARR figures Google: Mention of AI companies with high valuations Practical Nerds Website: https://practicalnerds.com/ Subscribe to the Newsletter: https://www.linkedin.com/newsletters/practical-nerds-7180899738613882881/ Foundamental: https://www.foundamental.com/ Patric Hellermann: https://www.linkedin.com/in/aecvc/ Shub Bhattacharya: https://www.linkedin.com/in/shubhankar-bhattacharya-a1063a3/ #ExecutionMode #StartupValuation #VentureCapital In This EpisodeTimestampsResources or Companies MentionedConnect With Us

About This Episode In this comprehensive episode, Patric Hellermann and Shubhankar Bhattacharya dive deep into the metrics that matter for evaluating startups across different business models in the Architecture, Engineering, Construction, and Supply Chain (AECS) industry. They share their expertise on what investors look for in SaaS, marketplaces, outcome-as-a-service, and financial services companies at various funding stages. In This Episode Detailed breakdown of key metrics for SaaS companies, including ARR, growth rates, and LTV to CAC ratios Insights into evaluating marketplaces, focusing on GMV, working capital, and contribution margins Discussion on the unique aspects of outcome-as-a-service businesses and their evaluation criteria Analysis of financial services models in AECS, including lending and insurance Timestamps (00:00) - Introduction and casual banter (03:53) - Overview of business models to be discussed (06:03) - Deep dive into SaaS metrics and evaluation criteria (21:05) - Marketplace metrics and evaluation strategies (38:00) - Outcome-as-a-service model discussion (46:55) - Financial services in AECS industry (56:05) - Clarification on take rates vs. gross margins (01:00:14) - Closing thoughts and upcoming events Resources or Companies Mentioned Autodesk: https://www.autodesk.com/ Uber: https://www.uber.com/ Amazon: https://www.amazon.com/ Connect With Us Website: ⁠https://practicalnerds.com/⁠ Foundamental: ⁠https://www.foundamental.com/⁠ Newsletter: ⁠https://www.linkedin.com/newsletters/practical-nerds-7180899738613882881/⁠ Patric Hellermann: ⁠https://www.linkedin.com/in/aecvc/⁠ Shub Bhattacharya: ⁠https://www.linkedin.com/in/shubhankar-bhattacharya-a1063a3/⁠ #StartupMetrics #AECS #VentureCapital

About This Episode In this eye-opening episode, Shubhankar and Patric explore the fascinating phenomenon of construction companies valued higher than their Total Addressable Market (TAM). They discuss how brand power, distribution advantages, and market expansion strategies can lead to these exceptional valuations, challenging conventional wisdom in the AEC industry. In This Episode Examples of construction companies valued higher than their TAM The role of brand power in creating recurring revenue streams How technology can enable new-age brands in construction Opportunities for venture-backed startups in the AEC industry Timestamps (00:00) - Introduction (03:13) - Examples of companies valued higher than TAM (13:07) - Brand power and its impact on valuation (24:22) - Distribution advantages and recurring revenue (32:41) - Technology's role in building valuable construction brands (41:27) - Opportunities for new-age brands in construction (49:33) - Exciting upcoming opportunities for the hosts Resources or Companies Mentioned Sherwin Williams: https://www.sherwin-williams.com/ Asian Paints: https://www.asianpaints.com/ Astral Pipes: https://www.astralpipes.com/ Pidilite: https://www.pidilite.com/ Pool Corp: https://www.poolcorp.com/ Connect With Us Website: https://practicalnerds.com/ Foundamental: https://www.foundamental.com/ Newsletter: https://www.linkedin.com/newsletters/practical-nerds-7180899738613882881/ Patric Hellermann: https://www.linkedin.com/in/aecvc/ Shub Bhattacharya: https://www.linkedin.com/in/shubhankar-bhattacharya-a1063a3/ #ConstructionBrands #AECTech #VentureCapital

About This Episode In this episode, Patric and Shubhankar dive deep into the world of reference checks in venture capital. They explore the nuances of customer, investor, and founder references, offering valuable insights for both VCs and founders navigating this critical part of the investment process. In This Episode The importance and types of reference checks in VC Unique challenges of customer references in construction tech Best practices for investor and founder references Tips for founders on managing the reference check process Timestamps (00:00) - Introduction (01:54) - Defining reference checks in VC (06:38) - Customer references in construction tech (24:51) - Investor reference checks (32:09) - Founder references and their importance (41:07) - Number of references per category (44:26) - Employee and ex-employee references (46:12) - Upcoming events and deals Connect With Us Practical Nerds Website: https://practicalnerds.com/ Subscribe to the Newsletter: https://www.linkedin.com/newsletters/practical-nerds-7180899738613882881/ Foundamental: https://www.foundamental.com/ Patric Hellermann: https://www.linkedin.com/in/aecvc/ Shub Bhattacharya: https://www.linkedin.com/in/shubhankar-bhattacharya-a1063a3/ #VentureCapital #ReferenceChecks #ConstructionTech

In this eye-opening episode, we explore the unexpected challenges that can blindside construction tech startups. From funding fall-throughs to co-founder exits, we discuss how to navigate these turbulent waters. Learn strategies for managing layoffs, mitigating customer concentration risks, and handling legal threats. Gain invaluable insights on crisis management and maintaining resilience in the face of adversity. Whether you're a seasoned entrepreneur or just starting out in the AEC industry, this episode offers crucial advice for weathering the storms of the startup world. (03:20) Unexpected funding challenges in construction tech startups (13:16) Managing large-scale layoffs and team restructuring (26:15) Customer concentration risks and major account losses (41:13) Co-founder departures and their impact on operations (49:10) Legal and reputational threats to AEC companies In this episode, we delve into the unexpected challenges that construction tech and AEC startups may face during their growth journey. We explore the emotional and practical implications of investors pulling out of funding rounds, forcing founders to quickly adapt their financial strategies. The discussion covers the delicate process of managing large-scale layoffs, emphasizing the importance of decisive action while maintaining empathy and team morale. We address the significant risks associated with customer concentration, particularly in project-based industries, and strategies to diversify revenue streams. The conversation also touches on the complex dynamics of co-founder departures, offering insights on transition planning and maintaining business continuity. Legal challenges are examined, with advice on how to approach lawsuits rationally and the importance of strong risk management practices. Finally, we discuss the rare but impactful scenario of competitor smear campaigns, providing guidance on PR strategies and stakeholder communication. Throughout the episode, we emphasize the importance of preparedness, maintaining strong financial controls, and fostering a resilient company culture. Our goal is to equip construction tech founders with the knowledge and mindset to navigate these potential setbacks successfully, turning challenges into opportunities for growth and improvement.

Uncover the secrets of smart burn strategies and capital efficiency in construction-tech startups. Learn why the AEC sector offers unique opportunities for early profitability and rapid growth. Essential listening for founders and investors in the built world. (02:16) Smart burn strategies for construction-tech startups (14:10) AEC sector's unique advantage for early startup profitability (19:15) Looking beyond P&L in construction-tech investment decisions (23:25) Capital efficiency and treating burn as strategic investment (29:02) Achieving rapid growth while maintaining profitability in AEC startups In this episode, we dive deep into the nuances of burn rate and capital efficiency in the Architecture, Engineering, and Construction (AEC) sector. We challenge common misconceptions about startup growth and explore why the AEC industry offers unique opportunities for early profitability. Our discussion covers the importance of aligning burn with product-market fit, and why front-loading expenses isn't always the best strategy for construction-tech startups. We examine why investors and founders should look beyond the profit and loss statement, considering cash flow and balance sheets for a more comprehensive financial analysis. The conversation highlights the potential blind spots in traditional due diligence processes and why they're particularly crucial in the AEC sector. We also introduce the concept of treating burn as an investment rather than just a measure of runway, encouraging founders to think strategically about capital allocation. We provide specific guidance for early-stage AEC startups, suggesting an optimal annual burn rate and explaining why a lean approach can be beneficial in this sector. Finally, we debunk the myth that rapid growth and profitability are mutually exclusive, especially in the AEC industry. We discuss how the perceived inefficiencies in this sector actually create opportunities for startups to build profitable, high-growth businesses. This episode offers valuable insights for founders, investors, and anyone interested in the unique dynamics of scaling a business in the construction-tech space.

Exploring the rise of Outcome-as-a-Service models in construction tech, this episode dives into how AEC startups can disrupt the industry, build defensibility, and create significant value through innovative service-based approaches. (02:30) Outcome-as-a-Service models in AEC, inspired by IT giants (15:06) Construction industry's ripeness for tech-enabled service disruption (21:26) Strategic branding advice for AEC startups (32:48) Building defensibility through track record in AEC tech businesses In this episode, we dive deep into the emerging trend of Outcome-as-a-Service models in the Architecture, Engineering, and Construction (AEC) industry. We explore how these models are gaining traction, mirroring the success of IT services giants like TCS and Infosys. The conversation highlights the vast market potential for tech-enabled service businesses in construction, emphasizing the industry's readiness for disruption. We discuss the need for venture capitalists and founders to rethink traditional software approaches in the AEC sector, suggesting a service-first strategy that evolves into software development. The episode also touches on the timely opportunity created by labor shortages and increasing digitization in the industry, opening doors for innovative service models. Strategic branding is another key topic, with advice for AEC startups to position themselves more like traditional firms rather than tech companies to build trust and credibility. Finally, we delve into the importance of building defensibility through track record and reputation in AEC tech businesses, highlighting how this approach differs from the traditional VC playbook. Throughout the episode, we provide insights on market dynamics, investment strategies, and the unique characteristics of the AEC industry that make it ripe for innovation and value creation through tech-enabled services.

Uncovering the hidden reasons why construction tech startups often fail. Industry experts reveal common pitfalls, from the "Icarus problem" to distribution challenges, offering crucial insights for entrepreneurs and investors in the AEC sector. This week: (01:12) Common pitfalls for construction tech startups (12:45) The importance of distribution in AEC innovation (15:15) Misalignment between generic investor advice and industry realities (27:42) The risk of premature expansion in construction tech (37:40) Balancing technology adoption with real industry needs In this episode, we dive deep into the reasons why many construction tech startups fail. We explore the "Icarus problem" where founders overestimate their ability to revolutionize the industry without fully understanding its complexities. The conversation highlights the dangers of force-fitting hyped technologies without proper market validation, leading to impressive demos but little real-world traction. We discuss the obsession with SaaS models in an industry that often requires more tangible, outcome-based solutions. A significant focus is placed on the often-overlooked importance of distribution strategies in the AEC sector, with insights on why mastering distribution can be more crucial than having the most advanced product. The episode also touches on the potential pitfalls of following generic investor advice that doesn't align with the unique realities of the construction industry. We examine how pressure from investors can lead to premature expansion across categories or geographies, diluting a startup's focus and resources. Throughout the discussion, we emphasize the need for founders to balance technological innovation with a deep understanding of the construction industry's needs and operational realities. This episode provides valuable insights for both aspiring and established construction tech entrepreneurs, as well as investors looking to understand the unique challenges of this sector.

This week, we explore the diverse impacts of seasonality on the construction industry and related markets. We discuss how weather patterns, cultural observances, and fiscal calendars affect business operations and decision-making. We examine examples from various global regions and faith traditions, highlighting the challenges these seasonal cycles present. We also consider strategies for mitigating seasonality's effects and offer practical advice for founders and investors navigating these cyclical patterns in the AEC sector. (01:19) Seasonal patterns in AEC: monsoons, holidays, and religious observances (11:08) Construction software sales paradox during peak building months (20:16) Fiscal year-end budget rushes driving AEC technology purchases (35:55) Diversification strategies for AEC startups to counter seasonal fluctuations (40:18) Temperature-driven demand trends in energy renovation services In this episode, we dive deep into the complex world of seasonality in the Architecture, Engineering, and Construction (AEC) industry. We explore how various factors, from weather patterns to cultural observances, significantly impact construction activities and related businesses. The discussion covers the challenges faced by construction companies during monsoon seasons in countries like India, and how religious events such as Ramadan affect work schedules in Islamic nations. We also uncover a counterintuitive trend in construction software sales, where peak building seasons actually result in slower technology adoption. This leads to an interesting examination of how software companies are adapting their sales and marketing strategies to align with the industry's unique rhythms. The conversation then shifts to the phenomenon of fiscal year-end budget rushes, exploring how this creates unexpected spikes in AEC technology purchases across different global markets. We discuss the implications of these spending patterns for both buyers and sellers in the construction tech space. Recognizing the challenges posed by seasonality, we offer insights into diversification strategies for AEC startups. We examine how companies can develop complementary products or services, or expand into different geographic markets to maintain more consistent revenue streams throughout the year. The episode also touches on the seasonal nature of energy renovation demands, particularly in Western markets. We explore how temperature changes drive consumer behavior in this sector and discuss the challenges and opportunities this presents for businesses in the energy efficiency space. Throughout the discussion, we emphasize the importance of understanding these seasonal patterns for investors in the construction technology sector. We highlight how this knowledge is crucial for accurate valuation and setting realistic growth expectations for AEC startups. This episode provides valuable insights for anyone involved in the AEC industry, from startup founders and investors to established companies looking to navigate the complex seasonal landscape of construction and related technologies.

This week: (00:00) Avoiding harmful VCs that obstruct progress or give detrimental advice (05:31) Realistic expectations for value-add from investors (24:08) Identifying an investor's true strengths and expertise (26:22) Cautionary tale of ex-founder VCs providing misguided advice (34:28) Finding an enjoyable, long-term investor partner for the startup journey In this episode, Patric and Shub dive deep into the crucial factors founders should consider when selecting a VC. They emphasize the importance of avoiding investors who might hinder the company's growth or force harmful advice upon the founders, noting that a staggering 70-90% of VCs either contribute no value or actively harm the companies they invest in. The duo also discusses the need for founders to have realistic expectations about the value-add they can expect from investors, suggesting that trajectory-changing insights are rare and that founders should view the relationship as an intersection of timing and expertise. Patric and Shub also explore the importance of identifying an investor's genuine capabilities by directly asking about their superpowers and the specific situations in which they can provide exceptional value. They warn founders to be cautious of VCs who are former founders or operators of unicorn companies, as their past experiences may not always translate effectively to an investor role and could lead to misguided advice during times of adversity. The conversation also touches on optimizing angel investors by prioritizing those with strong networks within the startup's industry vertical or with specific expertise in company-building. Finally, Patric and Shub emphasize the significance of finding an enjoyable, long-term investor partner to make the startup journey more pleasant, given that founder-VC relationships often outlast the average marriage.

This episode is better enjoyed with the video experience! In this episode, Patric and Shub delve into Foundamental's updated mission for the next five years by streaming the VC firm's new community letter, focusing on backing vertical singularities in the construction-tech sector. They discuss the tremendous potential for disruption and growth in these unique, sector-specific opportunities and how Foundamental aims to drive innovation within the architecture, engineering, and construction (AEC) industry. The construction-tech sector is experiencing a notable funding inflection, with its share of venture capital increasing from 0.1% to 0.45% in recent years. Despite this growth, the industry still holds massive potential for further expansion and investment. Patric and Shub explore how Foundamental's early recognition of this trend positions the firm to identify and support the most promising startups in the space. Patric and Shub also discuss the key to success in construction-tech, which lies in founders who pursue unobvious opportunities that are apparent to industry insiders. They emphasize the importance of developing innovative solutions that address critical pain points and drive meaningful change within the sector. The episode also covers Foundamental's recognition of outcome-as-a-service business models as particularly well-suited for the construction industry, despite the prevailing herd mentality among venture capitalists. They discuss how construction companies are accustomed to purchasing services, transactions, and outcomes rather than just tools or software, and how embracing outcome-as-a-service models can unlock significant value and drive adoption more effectively. Lastly, Patric and Shub delve into Foundamental's investment philosophy in construction-tech, which is centered on seeking out category creators rather than backing category clones. They discuss how true innovation and disruption in the sector will come from startups that forge new paths and define entirely new categories, and how Foundamental's deep sector expertise and willingness to think outside the box enable them to spot the immense potential in these unconventional opportunities. Chapters (00:00) Fallacies in B2B Capital Allocation and Category Creation; what generic VC's are getting wrong (about AEC) (35:56) Uncovering Vertical Singularities: The Core of Early-Stage Investing (43:42) Earning Nuanced Knowledge and Strong Signals in Venture Capital (01:04:00) The Future of Early-Stage Investing in Construction Tech

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