The construction industry is still in the early days of its embrace of new and emerging technologies. That’s the takeaway from this conversation with Vivin Hegde, one of the founding partners of newly formed Zacua Ventures.
In the construction space, he sees a lot of opportunity as the industry moves out of its initial digitization phase and construction organizations become better suited to use technology in meaningful ways.
As a veteran of the construction technology world, he knows that nothing is easy in construction and that the heavily fragmented industry can be difficult to penetrate. He also recognizes that the industry’s transformation can’t be successful without construction organizations and start-ups recognizing the importance of expertise and leveraging that expertise to help drive things forward.
You’ve been in construction technology for many years and have seen the space evolve slowly and then seemingly rapidly overnight. Why was the time right to start Zacua Ventures?
You were one of the earlier guys in this space too. You know that if we look back five years, construction technology was almost nonexistent. There was not much happening at that time except for a few front runners like PlanGrid, Procore or Fieldwire.
Now, things are starting to change and construction is finally digitizing. The pandemic accelerated a lot of those trends but we’ve also seen a lot more corporates coming along as well.
It’s important that everybody plays a role here because construction isn’t like a lot of other industries. The workflows in construction are very unique — it’s a fragmented industry, local knowledge is important, product knowledge is important.
Not to say that these aren’t important in other industries, but they’re distinct in construction.
As an example, let’s look at financial products. We use financial products every day and consumers are aware of what financial products should look like and what they need to do.
But if you’re not on a construction site every day, it’s more difficult to understand how construction actually runs. Having experts involved in that journey is therefore very important.
How do you see that playing out with the current batch of construction technology start-ups?
From a start-up perspective, the earliest stage is where they lack the most support. Once you’re at Series A, there are a lot of places to go for funding. But when you’re pre-seed, you don’t know the people, you don’t know the workflows, you don’t have customers and you need support.
A new founder might say, “This is such a fragmented market. There are dozens of different stakeholders on every job and they’re all trying to get things done at different speeds and for different reasons.” It can be overwhelming.
Understanding construction workflows, accessing customers, looking at regulations across regions is hard. There’s a bridge that needs to happen between start-ups, between corporates, and between practitioners, and that’s what we wanted to solve at Zacua Ventures.
I often say that we have supercomputers in our pockets. If it were simply about the technology, the construction industry would be lightyears ahead. But in my work with construction organizations, I know how difficult this can be. There are challenges that leadership teams face in construction when building meaningful technology programs, that other industries don’t face. It’s not intuitive and many construction companies spend years spinning their wheels trying to gain traction. How do you approach the corporate side of things?
Our limited partners are corporates currently. All of them are in the built environment and we consciously haven’t taken funding from anyone else. At least initially, we’ve said that the fund will only be open to those who can be engaged in the ecosystem and who are able to add value to our construction start-ups.
From the corporate side, we ask, “How can we help them get access to startups? How can we help them think through their workflows with new technology trends?” By doing so, we’re able to get some of the largest organizations more engaged in the ecosystem, which is for the benefit of everyone.
Most of these corporates don’t have innovation teams. It’s about taking them through the process so that it makes it easier for them. It’s about helping them through that journey.
Just bringing a start-up to an LP isn’t helpful because unless it’s a priority for the organization, that start-up won’t get any traction and the start-up will just get lost.
The first step is to intimately understand the problem that’s being solved. For example, if it’s a workforce productivity start-up then I would look at an LP who’s a subcontractor or who has a self-perform unit because they’re the ones who would care most about this kind of topic. We’d then make the connection, let the start-up interact with the customer, and go from there.
Similarly, if someone is building a pure SaaS product that needs integrations, then we’d go to one of our software LPs and say, “Can you look at this product? Does this integration make sense for you? Does it match your workflows?”
It’s about mapping the start-up to the right kind of LP which is why having a diverse set of investors is very helpful. Our fund has geographical diversity, in addition to diversity from the type of investors that we have.
I’ve found that there’s a skill in translating a technology type to a workflow in construction and that it’s not always straightforward. I think a lot of lessons have been learned over the past five or so years and I like to say that solutions need to be easy to use and frictionless. They also need to have a clear beachhead with a really deep understanding of the pain point that they’re addressing. What are some of the qualities that you see in successful start-ups today?
You’re absolutely right. One of the things that we emphasize most when we talk to start-ups is about minimization of friction. Because if you want adoption with the smaller companies, if there’s too much friction, then they won’t adopt it.
With larger construction organizations, they have all sorts of compliance needs and they want a ton of things. This creates friction and it’s somewhat unavoidable in those larger organizations.
Most startups aren’t actually mature enough to provide that. It’s a years long project to get a very large construction company and they might not be the ideal first customer for a lot of start-ups.
The mid-sized players might be better off as initial customers just because the friction in deploying will be much smaller.
We also use a term called “gentle disruption”. In construction, it’s not about coming in and breaking things. It’s about adding value without disrupting the workflow when you initially come into the space. And yes, you eventually want to be more disruptive, you want to change things, but you have to earn that respect first before you start disrupting everything.
That frictionless adoption is very important to us. It’s what we coach a lot of startups on when they come into this space.
At the same time, construction companies don’t have time to experiment. Nobody has time to change everything. And that’s why fitting into existing workflows is so important.
Once you’ve done that, once you’ve shown the value and you’ve earned the respect, you have the credibility to then experiment a little bit more on future projects.
You completely hit the nail on the head when you say to identify an issue and solve it, but also have a clear roadmap on how to expand, because you don’t want to be a pure niche solution.
From a VC perspective, if it’s a niche solution, which offers no potential for expansion, then that’s more difficult to fund. But if it’s a beachhead that expands into a platform play then that becomes interesting.
Talk a bit about Zacua Ventures. I know you created the fund earlier this year and you joined a small but growing number of VC funds solely dedicated to construction technology. What’s your thesis and timeline?
All of the people involved at Zacua Ventures have been around for more than a decade — I was at Hilti and my colleagues at CEMEX. In our roles, we’ve all been bringing construction closer to start-ups, closer to open innovation, and closer to seeing where technology trends are evolving going forward.
Ever since we launched in March, we’ve been one of the more active investors in the space. We expect to get to 6 to 7 investments by the end of the year because our pipeline is really strong. We’re spending a lot of time deploying capital and working with start-ups.
For now, we’ll be deploying capital for the next three to four years.
We have three themes: one on sustainability, one on productivity and one on optimization.
On the ESG side of it, we’re interested in everything from new materials, to recycling, to waste management, to tracking carbon through the project lifecycle — every element of that is interesting to us. Whether it’s in the design phase, in the operation phase, or in the construction phase.
We spend a lot of time thinking about how we can decarbonize the built environment.
Nate Fuller is Managing Director of Placer Construction Solutions, advising leadership teams to transform their organizations in ways that improve performance and agility at the field level.
He provides construction companies with a field assessment that delivers transformative information about their field operations and is proven to accelerate innovation & technology adoption for Top ENR contractors.
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