The AEC industry is complex. It’s made up of many moving parts: clients and owners, designers and engineers, labour and construction, materials and environmental impacts, real estate and assets — the list goes on.
In 2017, McKinsey & Company published a report stating that the construction sector today is worth around $10tn, accounting for approximately 13% of the world’s GDP. Interestingly, the same report highlights a long record of poor productivity in the sector, with a growth increase of only 1% over the last 20 years.
While this seems at odds with rates of development in other industries, it’s true that the AEC evolves slowly — just think of how long it took to transition from the drawing board to CAD, and then from CAD to BIM. It might be that concepts in the past two decades have been too hard to adopt and develop, or maybe it’s that — as a collective group — we don’t do change very well.
Whatever the reason, one thing is clear — this presents opportunity. And I’m not talking about opportunity in the sense of ‘we can all do better and there is scope to grow’. I’m talking about outside opportunity and investment.
Recently, I’ve been exploring some AEC start-ups and their fundraising rounds. What I saw was compelling new businesses trying to instigate change in our (somewhat dated) industry. And some truly gargantuan figures as well.
Here’s a few that caught my eye.
Description: An AI-powered product for helping property professionals find profitable development sites, assess feasibility and generate dozens of design strategies.
Funding to date: $13.6m.
Comments: The reason I’ve started this list with Archistar is down to the space they occupy. They're trying to tackle the feasibility stage of projects, and from what I can see are doing pretty well at it. At matterlab, we also have experience in this area, helping clients to understand whether to build or redevelop a site using bespoke generative design platforms. Lots of businesses are now starting to do it too so it’s now becoming a little crowded. That said, Archistar’s product looks great — and I’m interested to see what's next for them after having recently secured an additional $6m of funding.
Description: Spacemaker has developed AI technology that helps users discover smarter ways of maximising a building site’s potential. Their product lets users generate and explore a multitude of site proposals before sorting through them to find the best ones — all the while offering detailed analyses for each of them.
Funding to date: $25m.
Comments: Similar to Archistar, Spacemaker are making headway in the ‘early design phase’ space. So far, they’ve raised a significant funds and seem to be growing their team rapidly (on writing this post, 114 employees listed as working here but it’s worth checking now). What I’ve been impressed by is the array of data science talent they seem to be bringing into the industry. It’s a great move — I think the AEC space will benefit hugely from exposure to other disciplines.
Description: UpCodes is a searchable database of US (currently) construction and building code.
Funding to date: $785k.
Comments: UpCodes make this list for two reasons. Firstly, they have had significantly less funding than many other ConTech and PropTech firms, so it’s likely there are fewer expectations and demands on them right now. It also seems like they’re scaling organically at the moment, which is an approach I am fond of —‘walk before you can run’. Secondly, they’re embroiled in an interesting dispute with the International Code Council — the non-profit organisation that develops the building codes — about whether such regulations and codes can be copyrighted. Hopefully the right decision is made here.
Description: Both of these companies are tackling the fragmented approach to home renovations, focusing on kitchens and bathrooms respectively. They provide a one-stop shop for homeowners from start to finish.
Funding to date: $19.4m and $9m respectively.
Comments: The idea for these two companies is straightforward: efficient, one-stop shops for home improvements. For many, the convenience of a fixed upfront cost and timeline will be attractive. There are many examples of renovations not going to plan or overrunning so this approach could well be a welcome change. However customers will pay a hefty price for this convenience. Made’s website provides an estimate of $33,500 for an example kitchen renovation and, considering I recently did my bathroom all-in for less than £6,000 ($7,400), that’s a big jump. Regardless, I’m sure there’ll be people willing to pay this.
Company: ALICE Technologies
Description: ALICE is a generative simulation platform for construction projects. It uses AI to enhance planning and scheduling by allowing users to explore ‘what if?’ scenarios.
Funding to date: $28.7m.
Comments: No matter how hard we try to optimise construction projects, they often still overrun — both in terms of time and cost. ALICE aims to empower the user so that they can make more appropriate and effective planning decisions, helping them to make proactive project decisions (rather than reactive ones). I’m looking forward to seeing the outcomes from early adopters and comparing them against normal scheduling.
Company: Bright Machines
Description: Bright Machines is a software and robotics company who focus on automation for the electronics manufacturing industry.
Funding to date: $179m.
Comments: While this company might not be an obvious choice for this list, I’ve included it for a number of reasons. Firstly, the founding board contains Carl Bass, former president and CEO at Autodesk. As well, Bright Machines’ current CEO is Amar Hanspal, who is a former co-CEO himself at Autodesk. They’ve secured a substantial amount of funding during their series-A raise and I imagine they’ll continue to raise more capital to deliver on their ambition. Finally, as our industry shifts towards modular construction and more robust methods of manufacturing, I believe companies like Bright Machines will pave the way for a new approach that leverages both software and robotics. One to keep an eye on for sure.
Description: Cover design, permit, manufacture and install backyard homes in Los Angeles.
Funding to date: $1.6m.
Comments: Similar to the home renovation companies Block and Made, Cover is a one-stop shop for custom backyard homes. What I like about Cover is not only their simple and clean design but also the fact they’re integrating automation into the design process. And, even though they’re currently only working on designs in Los Angeles, the fact you can put an address into their website and it automatically begins designing viable options for you is pretty cool. I imagine in the future they’ll look to expand beyond the LA territory.
There are plenty more companies like these — it's worth taking a look to see who’s making tracks. From the information I could find, I was amazed to discover that start-ups in the AEC space have received in excess of $1.1bn over the past five years. Add Katerra to the mix as well and that number goes up even further to $2.3bn.
One of the biggest exits to date for a construction tech start-up was PlanGrid, which was acquired by Autodesk last year for $875m. According to Crunchbase, PlanGrid went through four rounds of funding over four years, raising $69.1m in total - not a bad return for those who got in early.
When I see new businesses receiving large investments like this, I can’t help but wonder what’s behind it and whether they’ll make it through. For every successful investment like PlanGrid, I wonder how many more are not so straightforward — like Flux.io or WeWork, for example.
What I do know is that, regardless of the outcome, these are large sums — even at the smaller end. Having run two successful companies to date, the first of which was acquired, I have a reasonable understanding of what it costs to scale a business. What I’ve learned is that there’s a lot of trust and expectation tied into any investment, as well as risk. And, with large sums like these, the risks and opportunities are amplified.
Is money being invested in initiatives like this in the hope of a large acquisition in the future, or are some of these companies expecting to generate healthy monthly recurring revenues (MMRs)? Every company has a different roadmap and exit strategy, so I’m interested to see which will succeed.