Construction Is (Finally) Embracing Tech – And Venture Capital Is Cashing In

Two venture capitalists share their observations on the industry’s promising emerging technology landscape, as well as the areas where they’re investing their money
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KP Reddy grew up in a household focused on innovation – his father was a civil engineer and his mother a computer programmer. By his early teenage years, in the mid-1980s, Reddy’s family purchased a personal computer (PC) and he began writing code for his father’s projects.  

As it turns out, Reddy was ahead of his time.  

Reddy graduated from the Georgia Institute of Technology in 1994 with a civil engineering degree. He immediately dove deeper into the world of writing code, hoping the engineering and construction industry would soon see the value of the internet. Reddy then snagged an engineering job, and while keeping his technology interests alive, worked on the side to build a software platform for construction management.  

That platform turned in to Reddy’s first startup, which he launched in 1997. The only problem: demand for his product was mostly non-existent.  

‘I’d talk to general contractors and they’d tell me that the internet was a fad; that it all came down to rolling out plans on the hood of their Ford F-150s’, he said, referring to the popular pickup truck.   

The company ended up pivoting to another industry, and Reddy spent the next 15 years launching various startups. Many of those startups were focused on construction technology. Reddy frequently ran into the same roadblocks as before – in particular, an unwillingness to move away from stubborn paper-based workflows and processes.  

By 2013, Reddy was convinced the construction industry would never fully embrace technology, so he spent the next few years investing elsewhere.  

But in 2015, his phone started ringing. 

‘I started noticing that leadership at construction and engineering firms was young enough that they were starting their careers using computers vs. the computer being something that was hitting them mid-career’, Reddy said. ‘If it was Jimmy & Sons, for example, at this point the “sons” were running the company, and they were 40-somethings and couldn’t imagine doing their jobs without iPads or iPhones.’  

Construction embraces tech … finally 

The construction industry appears to be in the middle of a venture capital bonanza. Funding in U.S.-based construction technology startups surged to approximately US$3.1 billion in 2018, according to Crunchbase data, and while funding volume has decreased from that level since, there’s still an outpouring of enthusiasm from the venture capital community on the industry’s potential.   

Sensing the industry was finally poised for an embrace of technology, Reddy in 2017 decided to get back into the construction industry by starting Shadow Ventures, an Atlanta-based venture capital firm focused on investing in construction technology. Today, his schedule is filled with founder meetings and analysing potential investments. 

Reddy isn’t the only one seeing exciting investment opportunities in construction.  

A little more than 3,860 kilometres miles west, in San Francisco, the team at Brick and Mortar Ventures is focused on investing in hardware and software solutions for architecture, construction, engineering and facilities management, with no lack of innovative companies in its growing portfolio.  

‘Around 2010, there was a tech focus on digitising paper processes – taking data off spreadsheets and making it web accessible’, said Curtis Rogers, principal at Brick and Mortar. ‘By the mid-2010s, you were seeing more construction market segments adopting tech and even using it to compete on contracts.’  

‘But now you’re seeing technology come out that allows you to visit a project site without going there physically – doing this with cameras, robots – and the tech is so easy to use that companies are able to centralise’, Rogers continued, ‘which is something only big construction companies used to be able to do.’  

Some construction firms are so open to embracing technology nowadays that they are hiring their own software engineers.  

‘Instead of letting an employee who’s interested in tech take a Friday off to take a software workshop’, Reddy said, ‘companies are now employing full-time software engineers. The insertion of tech talent is resulting in highly transformational changes. You start bringing in people from other industries, and they’re saying, “Wait, why would you do it that way? Let me write some software to help you”, and that is where we are seeing changes.’ 

Innovative companies paving the way 

Rogers is enthusiastic about Brick and Mortar’s growing roster of portfolio companies. These include IFM Restoration, which does restoration on single-family home rental properties. The company manages the logistical challenges of maintenance; it even serves as a place where contractors can find work.  

‘IFM helps tradespeople find jobs and handles the technically complex process of maintaining multiple properties’, Rogers said.  

Trade Hounds is another company in the Brick and Mortar portfolio. It functions like LinkedIn for construction workers and others in the skilled trades. 

‘Our education system is so broken; there isn’t an efficient path to these jobs’, Rogers said. ‘You typically have to come from a family who has experience in the trades to know how to get jobs. But the thing is, the salaries for these jobs are really good – an experienced tradesperson can make more than US$100,000 per year.’  

Over at Shadow Ventures, Reddy is excited about Local Logic, which uses an Artificial Intelligence (AI) engine to help developers identify sites in which to build. The company pulls data from things like nearby hospitals, schools and even coffee shops to give a full picture of a site’s construction potential.  

Also backed by Shadow Ventures is Aren, which uses AI computer imaging to inspect crumbling bridges and buildings – something that Reddy can personally see value in. ‘When I was an engineer, I had to repel off the side of buildings to look at cracks; now you can just fly a drone to check on that crack monthly’, he said.  

Future forecast 

Jobsite connectivity is among the developments Rogers is most anticipating. While web connectivity remains spotty on most jobsites today, it is poised to become mainstream in the years ahead. ‘It’s already happening but happening in stealth’, Rogers said. ‘I think it will be here in 1-3 years.’  

The use of AI for cost estimating is an innovation on Reddy’s mind. He said Shadow Ventures is pricing multiple deals per week around the nascent technology, but cost estimating – figuring out how many screws, handles and doors, for instance, will be needed in a building – is something that will change the industry for the better.  

‘Right now, construction companies have cost estimating departments, and generally speaking, these people are doing manual labour of counting light fixtures’, Reddy said. ‘New technology will allow for builders to more accurately estimate the cost of a project, the energy it will consume and all the pieces needed before even buying it. It is fascinating.’  

During the COVID-19 pandemic, the construction industry has had to find new ways to maintain the flow of information.