Proptech

With eyes on workflow software, OMERS Ventures is bullish on construction tech

Growth and investor interest in construction tech is surging

When it comes to startups, the construction technology space is one that has been historically overlooked by investors.

It’s not the most “sexy” of industries and many VCs admittedly don’t understand its complexities.

But in recent years, funding in construction technology companies has surged as industry players realize the need to increase efficiencies and productivity – which in turn saves money. Earlier this year, construction management software provider (and unicorn) Procore raised $150 million. And, startup Briq, which has developed a fintech platform used by the construction industry, raised a $10 million Series A.

Further proof of just how construction tech is becoming more mainstream lies in increased investor interest.

One of those intrigued investors is Michelle Killoran, a principal at OMERS Ventures, the venture arm of OMERS, a Canadian pension plan with over $80 billion in net assets.

Founded in 2011, OMERS Ventures manages USD$1.5 billion and has made more than 50 investments in companies across North America and Europe, including Shopify, insurtech Clearcover and real estate startup Landed.

There, Killoran is responsible for researching and executing on investment opportunities in real estate, proptech and health technology.  As part of that, she’s looking to expand into investing in the construction tech space.

FinLedger sat down with Killoran to hear more about what has her so intrigued about construction technology, and why.

FL: Some of the reasons I’ve heard with regard to why investors aren’t doing more deals in the construction space include that they don’t fully understand it and that some construction companies have been resistant to adopt new technology. What are your thoughts on this?

MK: We take a thesis-driven approach to investing so in a way, we’re doing the market diligence upfront by talking to many people in the industry. Three main challenges around investing in this space, that I’ve heard time and again are: 

  • Adoption is slow – Procore is 17 years old, project-based sales are hard and many general contractors aren’t tech-forward
  • The industry is challenging to navigate – construction has many players in the value chain resulting in a transfer of risk and decisions across parties. These include owners, developers, general contractors and subcontractors. 
  • Growth plateaus –  there is an annual recurring revenue (ARR) ceiling that is hard for companies to surpass.

All of these challenges may well be valid, but they also all apply to another industry – healthcare. I see major parallels to both spaces. COVID-19 accelerated technology adoption in this largely human-based industry and we’re seeing the same in construction. I believe that generational shifts and the emergence of innovative general contractors, such as Turner Construction, are leading to higher adoption in technology, industry expertise on teams is absolutely critical and that a strong go-to-market motion that goes beyond early adopters counteracts this pushback. 

FL: Construction has historically underperformed, as you point out, with many productivity issues. Where do you see tech coming in to help improve productivity?

MK: The biggest pain point is that construction projects are over budget and over time. Innovation is going to come from both within and outside the industry. The best teams include folks that faced these challenges themselves and desire to make the industry better plus tech folks from outside the industry who can build against their vision.

One way that technology can have a big impact on productivity is around digitizing workflows to reduce costs and wasted time. This involves replacing highly manually and offline tasks with software, specifically around managing labor and ordering materials which are major cost drivers for a project. Increasingly the workforce within the construction business is one that has grown up with technology.

FL: What companies in the space have you invested in and what attracted you to that company/those companies?

MK: We haven’t invested in the space because we haven’t found the perfect candidate – yet! We’re really looking for companies that can demonstrate adoption and have a unique team to tackle the problems at hand. If you fit this, please come talk to us.

FL: Talk to me about tech-enabled services vs. pure SaaS. What are the advantages/disadvantages of each?

MK: There are two ways that technology can disrupt an industry. For one, tech-enabled services disrupt the full value chain and create a vertically integrated solution where you use technology internally to provide a superior solution. Another is via software as a service (SaaS) that you sell to existing industry players to make their business more effective or efficient. I come across both models and there’s a uniqueness to both. Two investments we have in proptech more broadly are both tech-enabled services – Landed and Resi.

For tech-enabled services, the advantages include creating a moat that prevents fast followers as disrupting the full value chain is complex, the potential for larger value creation as the market opportunity is often bigger than building software only and the opportunity to fully control the full experience and last mile – often through human touch – to truly delight customers. Disadvantages include lower margins – which requires business model innovation, more capital intensive, and high competition requiring a slick go to market.

For pure SaaS, advantages include quicker go to market/revenue generation as you’re solving a more narrow problem, more manageable competition (a handful of competitors) and a capital-efficient model due to higher software margins. Disadvantages include smaller market opportunity, upper limits on valuation creation (point solution vs. platform) and less control over adoption resulting in a higher bar around product development.

FL: Construction tech covers a lot of areas, from 3D printed homes and modular housing to software providers aiming to improve field workflows. In what areas do you and OMERS see the most promise?

MK: In the next three to five years, I see the most promise around workflow software. When you think about where the biggest companies will emerge in five to 10 years, this will all be about vertical integration. A couple of companies that inspire me here include Juno and Mosaic. (For more on Mosaic, check out FinLedger’s coverage here).

Latest Articles

Jiko secures $40 million Series A to build mobile bank from the bottom up
Oct 29, 2020 By

Mobile banking startup Jiko Group announced Thursday it has raised $40 million in a Series A round of funding. Upfront Ventures and Wafra Inc. co-led the financing, which also included participation from Radicle Impact, NYCA Partners and all existing investors. The round brings Jiko’s total equity raised since inception to $47.7 million, according to the […]

Content from our partners

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please