Deidre Woollard: I've been doing a lot of thinking about construction tech lately. There are a few major platforms that are publicly traded, such as Procore and Autodesk. But there's so many more companies that are just starting out and there's so many opportunities out there. I've interviewed a few entrepreneurs lately in the space. But my guest today, Lauren Weston has an inside track on what's happening in construction tech. She's an associate at Thomvest and she focuses on early-stage investments across financial, technology, and real estate verticals. Previously worked in Equity Research at Morgan Stanley, where she covered residential and commercial real estate companies. Welcome, Lauren.
Lauren Weston: Deidre, thank you so much for having me. I'm excited to be here and chat more about construction technology.
Deidre Woollard: Awesome. One of the things I just love about Thomvest is you guys create the coolest maps where you really lay out all of the different companies in a particular vertical. You've got over a 150 of them in the construction tech map and we'll show that in the video. But how do you decide which ones end up in which sector, and how do you define construction tech as a whole?
Lauren Weston: That's a great question and starting point. I'll take a step back and my background in real estate I think, informs my view on construction. The way that I conceptualized it was thinking about everything that touches the supply of real estate across property types. That's residential, commercial, that's industrial, that's infrastructure. It is literally every real asset, and the technology that touches every part of the value chain, from the design and build to the procurement of materials, to the collaboration software that's used in the field, to even the companies that focus on reality capture and capturing data on the job site. I think the other way to conceptualize construction technology is thinking about the horizontal platforms that are involved in the full life-cycle of a project. So the financing of the construction, payments, ensuring a construction project, as well as, think about marketplaces that facilitate the supply and demand, and exchange of goods, construction materials, equipment, and even labor. That's a starting point. But within that, there's so much more we can talk about.
Deidre Woollard: Absolutely. I like that on the map. You've got it broken down into those sectors, field tools, the analytics, those tech-enabled builders. Where do you see the biggest areas of growth right now?
Lauren Weston: It's a great question, something I think a lot about. There were so many areas for innovation. I think the area that I'm most focused on is the intersection of FinTech and construction technology. Specifically payments, lending and insurance, and how those aspects of construction and financing the supply of real estate are changing. Maybe to be more specific, I can talk about lending. The process today is slow and costly. There's a drop process that involves multiple stakeholders and coordination, extensive coordination between borrowers, lenders, and even third-party inspectors who do on-site inspections on a monthly basis. I'm seeing so many companies that are trying to expedite this process using data, using collaboration software, and I think the goal that I've seen across so many different approaches is enabling trust and transparency in a process that has historically not had a lot of trust, and that's lending. Another big area is payments. Today, delayed payments are really detrimental to the industry. They also drive up overall project cost, and I can explain why. Essentially, owners pay general contractors then pay subs. It takes on average, more than 30 days for subs to get paid. But subs have to pay on weekly and bi-weekly basis for materials and then their own labor cost for other subcontractors. There's a working capital problem here. As a result, subcontractors have been footing the bill from their own retirement savings, from their credit cards, from their personal expenses or accounts to really pay for things that are driving up construction costs. Payments is a big area that I think can unlock a lot of innovation. Last area is insurance. Essentially, over the last 5-10 years, there has been more data on job sites than ever before. You have IoT devices tracking worker safety. You have software documenting construction projects. There's more data than ever. But the data isn't actually being captured in underwriting processes, and it's not yet reflected in premiums for insurance. So there is a disconnect there between the data that's out there and the data that's actually being organized and aggravated for the insurance process. Those are three areas that I'm really excited about. There's a lot more there, but those are three.
Deidre Woollard: That's really interesting. I think you've made a very good point there about the drop process in general, because one of the things when I talk to entrepreneurs and developers, I'm seeing that fragmentation at the construction site level. You talked about the subcontractors, and that's one of the issues is that the subcontractors all exist in their own universe and they're not necessarily talking to each other, talking to the developers, owners, architects.
Lauren Weston: Yeah.
Deidre Woollard: One of the things I'm really focused on as I look at these companies is the communication between all of the subs. How do you see that evolving?
Lauren Weston: That's a really good question. Maybe I'll do a little bit of a history lesson to talk about how we got to where we are in terms of the fragmentation that you talked about, because it's very much a reality of where we are. We're in a phase of lot of point solutions. Taking a step back, if you look back at the long arc of the history of construction, let's say project management collaboration software. Dating back to the '80s and '90s, you had essentially accounting firms such as Sage, Viewpoint, CIMC, selling project management to construction firms. It was not purpose-built. It was really accounting firms and ERP solutions that bolted on project management. That was the dominant source there. Then in the '90s and early 2000s, we had Procore, we had Buildertrend, eSUB, what I'd call purpose-built Cloud-based software, were the emergence of that. Procore really dominated by saying, hey, there are iPhones and tablets. We're going to leverage mobile, leverage Cloud, and deliver project management software. I'd say, in the last 10 years, we've seen companies iterate on the back of Procore and Autodesk, and focus on niche pin-points that were either underutilized or underserved on the broader project management platforms. You've seen companies like Brak, there is startup focus on financial forecasting. You've seen companies focus on resource management, so managing and optimizing your labor, your materials, and your crews. You've seen companies focus on just pre-construction. I'd say we've moved from on-premise project management software to Cloud-based project management software, to now Cloud-based point solutions that focus on all the areas that weren't quite served before. I think the goal and the focus for all the point solutions is to become platforms by engaging more stakeholders. Not just selling to subs, but now engaging the GCs. Then ultimately, engaging owners and becoming more of a platform from a point solution. The way you do that is by engaging more stakeholders, as well as what I call becoming the system of record versus a system of engagement, which is maybe used once or twice a week. You don't want to really infrequent basis, but becoming the de facto platform that ultimately replaces some of the legacy tools.
Deidre Woollard: Well, I've been thinking about that a lot lately. Thinking about Procore and Autodesk, neither one of them I think, has become that default platform. Some of the companies patch into those individual solutions that you mentioned. Do you feel like we're close to getting a platform to rule them all and do you think it would be Procore, or Autodesk, or something that maybe doesn't even exist yet?
Lauren Weston: Yeah. I think Procore and Autodesk are definitely large incumbents in the space. They've done phenomenally well. They both have their own origin stories. Autodesk really focus on the design and 3D modeling. They really excel there. Procore really emerged in the era of tablets and iPhones, to say here's a better way to communicate and collaborate. They're different. But I think they both serve important roles in the industry. A lot of the companies that I'm seeing startups really need to engage, and actually embed themselves, and integrate with these dominant players, because they do have a lot of market share. I think integrating and partnering is key. But I also think it's finding the areas that the behemoths don't want to do themselves. Find the pin-points, whether it's financial forecasting and figuring out a way to better forecast project budgets and outcomes. Do it better than the incumbents. I think there's still so many opportunities for innovation and really finding pin-points that are either underutilized features of some of the big guys. There's still plenty of room.
Deidre Woollard: I wanted to talk to you about construction materials and the supply chain. We've been up and down with lumber this year, with steel. Apparently, there was a recent shortage at one point. How does Tech help deal with the supply chain problems?
Lauren Weston: Supply chain has been, I think, a key focus this year. Given all the disruptions, it's impacted project schedules, project costs, and everything. I think I'm really excited about the opportunity to really embed financial services. I say that because there's an opportunity to embed supply chain financing for subcontractors and really engaging them in suppliers and even payments. I think 2020 shocked the system. But there's a ton of opportunity. I think people are more focused on platforms that really serve subcontractors, and helping them procure materials, because at the end of the day, it's their responsibility to get the materials and labor on-site. That's a big task, and so I think there's more focus than ever given the disruption, as well as this broader theme of embedding FinTech into platforms is going to be monumental for supply chain companies that have had increased potential in this year.
Deidre Woollard: Wanted to get your opinion also on factory construction [inaudible 00:11:36] filed for Chapter 11, but then I noticed it's factories that picked up pretty quickly by others in the space. Feels like factory building is still going to be the future. But it hasn't been a future's fast as I would have thought. What do you think is some of the issues there?
Lauren Weston: I think you're absolutely right. I think it's well-known in the industry that factory building increases efficiency, quality, and affordability. Absolutely, and I think people recognize that. We still struggle with an adoption and scalability problem. Stick-built is still the dominant way that we can soon and deliver housing and building. The two things that come to mind in terms of some of the challenges that factory-built construction faces are two-fold. One, actual delivery and transportation to on-site, as well as financing. I can talk a little bit about that. When you build in a factory, being mindful of the design, because design is now front-loaded. I think designing to build in a factory, but also designing to be transported to on-site, which is even harder in dense urban areas. It can be costly, it can be prohibitively costly, and it can be challenging to navigate the logistical challenges of physical delivery. I think that's a key focus as how you think about where the factories are relative to the on-site. The second thing is financing. I think about factory-built versus site built. When you build on-site, the drop process is a monthly process where lenders disburse payment based on percentage of completed milestones. On-site that is front-loaded. Lenders have to get comfortable [NOISE] with larger upfront costs given the nature of the expenses and production that is front-loaded when you build in a factory. There's a little bit of lenders getting comfortable with that new risks and perception of risk, and developing a more robust financing vehicle, motion for factory-built housing and construction, or broadly.
Deidre Woollard: Well, that's really interesting. I hadn't necessarily thought of it that way. But you are absolutely right. We're so wired into that draw process, so that's always the way it works. But with factory-built, you've got the factory portion and then you've got that installing portion, and the process exists on those two ends of the spectrum. That's really interesting.
Lauren Weston: Yeah.
Deidre Woollard: Let's talk about ESG and Green. I think people are very interested right now in monitoring energy, water, or things like that, construction waste. Certainly, we're hearing those statistics on construction waste. Are you looking at any companies that are tracking those sort of things?
Lauren Weston: Yeah. ESG is critical to real estate and construction, considering the fact that the built environment, meaning the operation of building as well as construction of buildings represents 40 percent of CO_2 emissions globally. It is critical, it is top-of-mind. At Thomvest, we are focused on consumption in real estate. I'd say our interest is really the intersection of finance in construction, so payments and lending and insurance. ESG is Vault and all of that, but I'd say the specific areas of environment, social, and governance, and the emphasis on one of those areas will differ depending on the particular investment. But I'd say given the focus on the built environment and how much it contributes to emissions, I think everyone is focused on this in the industry. It is top-of-mind. I think when you think about finance and payments, it's really the earth thinking about who's impacted? How are we paying service faster? How are we getting payments to people in the right hand and in compliance safe way? There are ways to think about ESG, even from the FinTech in construction tech perspective.
Deidre Woollard: Are things like decentralized finance and crypto currency having any impact on construction finance or is that still pretty fringe?
Lauren Weston: I think it's pretty early, but I wouldn't be surprised at the innovation that's coming the way to the built-in environment. I think the built environment and PropTech and construction tech, I like to say PropTech maybe three to five-years behind FinTech and construction tech is up right behind that. The innovation will come, particularly in payments and lending.
Deidre Woollard: It's interesting that you made that distinction between PropTech and construction tech. Do you feel like investors are more interested in PropTech, because they finally got comfortable with it. Seems like for years nobody was comfortable with PropTech. Now they are all lean on PropTech, but is construction tech lagging behind that?
Lauren Weston: I think so. I think it starts with consumer-facing technology is so thinking about PropTech as it relates to home ownership and home buyers and aiding that process. Then it goes more into commercial. Then construction will follow given it's the least consumer-facing part of the PropTech world, as well as it's a supply of the real estate chain. That's why I think about the trend and wave of technology in terms of the cadence from the most consumer-facing to the back-office, if you will.
Deidre Woollard: That makes sense. I interviewed Lauren Lake and Mallory Brady from Bridgit recently. I know that's one of the companies on your map. They do workforce management. With them I talked about how there aren't a lot of women on the construction side of real estate, either on the tech side or on the on-site side as well. What are you seeing and do you think that's starting to change to some extent?
Lauren Weston: I have had the pleasure of getting to know both Lauren and Malory and I think super highly of them. I'm impressed by what they've been building at Bridgit and I think they actually have really pioneered a model in a space around building a team and building culture that's really strong, and a culture that brings in people that don't necessarily have construction backgrounds, but can build a team well and can learn how to solve problems in this industry. I commend them for the work they've done because I think that's exactly the way you bring in more women and more people who don't necessarily have this specific experience. But when you can look at someone and look at their future potential, their aptitude and their ability to solve hard problems, and bringing them in from their various background. I think that's exactly the way you bring in more people into the industry that hasn't had different spaces and thoughts.
Deidre Woollard: That's true. You've got 150 companies on that map. Is there any aspect of construction that you feel hasn't been covered by any startups yet?
Lauren Weston: Yeah, it's a good question. I think there's been so much and I think I go back to over the last 5-10 years. There's more data, there are more platforms, more point solutions than ever. I'm really excited about the companies that are now taking all the data and integrating it, orchestrating the data, and having it actually deliver on financial outcomes. Producing the cost of financing, reducing the number of days it takes to get paid and better at reflecting risk among workers on-site as well as overall projects. I think we're still trying to actually deliver on those tangible outcomes. I think there's a lot that's working towards that goal. But to the extent that accompanies can help not add to the noise, but [LAUGHTER] actually simplify all of the data IoT in tech that's been disbursed into the industry. More funding, from the venture side to strategics, I think it's all great. But now we need to focus a little bit more and deliver on those outcomes.
Deidre Woollard: Excellent. Thank you so much for this. As we wrap up, it's clear you have a very focused approach to a very specific area. I'm curious how you got into this particular niche and what do you love about it?
Lauren Weston: What I love is real estate and construction touches everyone. It's the built environment. It's the spaces that we live in, we grow up and we inhabit. I think of housing and I tend to believe that housing and the access to decent housing is a fundamental human right. That excites me, and the fact that technology can make it better, make it more efficient, reduce the cost is powerful. That's what excites me about real estate, construction, supply of real estate. I feel honored that I have the privilege to get to speak to people who are building and innovating every day. That's been my focus and the reason why it's been fun for me to work in this space.
Deidre Woollard: I love it. Well, thank you so much for your time today. For listeners, you can find Lauren's work at thomvest.com. Stay well and stay invested. Thank you.