Concrete VC: ‘Construction tech will dominate the market’

When I was asked by the good people of PlaceTech to discuss my predictions for 2019 in property technology, it got me thinking a lot about what ‘proptech’ really is and how far it has come, says Chris Stevenson, partner at Concrete VC.

For us at Concrete, our clients, partners, and funded startups lean heavily towards construction technology, or contech – and we’ve had to wade into the widely running debate around whether it is its own thing, or a part of proptech.

In speaking with other VCs, I’ve found that they don’t include it in proptech, but we at Concrete VC believe this distinction has now disappeared… or at least, it should.

A lot can change in technology; we don’t need to highlight the speed of change of the smartphone world from Symbian to iOS and Android – that drum has been beating for long enough now. So for contech being part of proptech – I think the tide has changed in one short year.  I believe it to now be on the same playing field.

I would, in fact, argue that proptech includes all technologies in the built environment. This includes construction. After all, how can we exclude tech that improves the process of building and development which is the starting point of the property life cycle?

Growth in contech investment

Recently contech has started to gain real traction with investors. In the first half of 2018, we saw just over $1bn invested in the space; on the proptech side, that figure was around $13bn. It is, of course difficult to draw the line down the middle, as some startups cover both – which is why contech has to be covered as a segment of the wider proptech space. A prime example for this is building automation company, Katerra.

Inside Katerra’s ‘integrated factory’ in Pheonix, US, which uses advanced pre-fabrication technology

Contech has also already seen its first unicorns – startups worth $1bn or more – and there have been several important exits to date in the space. Most recently, PlanGrid was acquired by Autodesk for $875m, but it was preceded by 2 major exits which surpass $1bn each: that of Viewpoint to Trimble and Aconex to Oracle.

Looking forward, these exits, and the general buzz around the topic of contech, whatever definition you give things we are going to not only see the proptech investment pie grow as the market matures, but a greater slice of it headed towards B2B offerings in the construction sphere.

Even bigger than fintech?

With London-based unicorns continuing to set a precedent in fintech, and predictions from many industry leaders posing the idea that proptech is on a trajectory to outgrow fintech – I have something to add. Proptech is the tip of the iceberg; contech currently has the most room for growth and at maturity will dominate the tech market.

According to McKinsey, $10tn is spent annually on construction, accounting for 13% of the world’s GDP. How could technology that improves efficiency in that sector not have the potential to be huge?

Construction is not a small sector, and the changes in contech can be broken down to 3 basic sections, similar to what we’re seeing in other industries:

1. Incremental

This is the technology being developed to make incremental improvements to existing processes, be they financial management, equipment, monitoring, safety and human resources. I would class startups that are digitising paper processes (such as the aforementioned PlanGrid) in this category, for example. Because incremental changes are the easiest to sell to a conservative industry (and if you think real estate is conservative, construction is doubly so, for a variety of reasons) these are the ones that will have the most success today, when contech is still in its earlier stages.

2. Transformational

Here we have the technology that will start to fundamentally transform the construction processes of old – including the likes of AI, robotics, drones and technology enabling greater collaboration and transparency. Good examples for this are site safety applications using wearable and drones, or the experimental robots that are being tested to replace simpler tasks on site.

3. Disruptive

As the name suggests, disruptive technology is the ideas, processes and developments that are going to shake up what we know currently, the things that will entirely change our processes. We are looking here at new materials, construction methods and supply chain logistics. These disruptive technologies are a long way away from entering the market in a real way, as they request not only massive investments (with enormous lead times) but also a fundamental paradigm shift in the way we do things. Don’t expect to live in a 3D printed house anytime soon!

Chris believes it will be a long time before 3D printed houses – such as Crane Wasp’s Gaia – will be commonplace

So far, we have seen plenty of startups, good ones too, working on the “incremental” solutions and a growing number on “transformational” products and services – but when we look at the companies out there and pinpoint real disruptors, the number is much smaller.

When will the disruptors come, then?

Contech is going to take off properly when we see true advancement in the transformational and disruptive segments, which is happening, steadily. Over the next 18-24 months, we will see a lot of change.

As with a lot of other industries, real disruption will come when industry outsiders join. Thought leaders in other sectors that have already gone through so much change will be watching and seeing the opportunities appearing before them, which may not be as obvious to insiders. This does not apply just to ideas and skills, but also to the money that is put on the table, as investment into disruptive technologies requires large sums of capital and a lot of patience. Contractors are slow to react and embrace technology because margins are low, so do they see any reason to spend time and money to force change beyond that which obviously contributes to their immediate bottom line? No, I don’t think so.

Who can bring the change?

Owners have to be the ones that take the lead, see the value in the data they already have and take ownership of it. If you embrace the right tech solutions – are willing to invest in them, and set technology as a basic requirement for contractors (as was done with BIM in the public sector, for example), you will become the early innovators that lead the charge in what is set to be an extremely exciting few years for all of us involved in construction.

If owners and contractors don’t find a way to move this forward together, we’ll see disruption from outside – it may be the household name tech companies who will realise they can do it better or well-funded startups – or both. Look at the automotive industry. It is seeing Uber, Apple, Uniti, Google and so many more join in, reimagining the concept of car ownership – the future there is mobility-as-a-service, and the race is on between automakers and tech firms to see who will dominate that space.

Back to proptech, the examples are growing: Google has started developing Sidewalk Labs in Canada, Facebook is developing its own campus, and Amazon just purchased a modular home builder, to name a few – change is afoot. At Concrete, we are working to achieve the best of both worlds – connecting the startups driving change right to the decision makers in the industry. You don’t have to be left behind – the collaboration between large and small will help everyone.