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