Why Venture Capital Will Revolutionize Construction

It is nearly impossible to talk about technology without talking about venture capital (VC). For the past several decades, venture capital has been nearly synonymous with tech financing, particularly for startups. Now that the tech sector has crossed over into the architecture, engineering, and construction (AEC) space, we think VC is on course to revolutionize the industry. Following are the top four reasons VC will have a huge impact on AEC.

1. Opportunity

The AEC industry is economically enormous. In the United States, it is a $1 trillion industry; globally, AEC is an $8.5 trillion industry. By comparison, these numbers dwarf other industries that have in recent years relied heavily on venture capital funding. Online dating, for example, generates $2 billion annually in the US, while taxi and limousine services gain upwards of $20 billion. Entertainment services, such as movie theaters and sports franchises, bring in $15 billion and $26 billion respectively. In short, all of these industries combined don't add up to even one tenth of the AEC market. At this size, AEC is so large that it can no longer be ignored by VCs seeking to disrupt it.

2. Underinvestment by VCs

Despite its size, VCs have not yet invested significant capital into the AEC industry. Between 2010 and the middle of 2015, AEC saw a mere $350 million invested through venture capital channels. By comparison, Match Group Inc., which owns the dating sites Match.com, Tinder, and OKCupid, raised $400 million during their IPO. Essentially, one dating app company raised more money in one day than all of AEC over a four-and-a-half year period. Like any other business, early-mover advantages exist, and venture capital firms will realize the need to make their move in the near future.

3. Cross-Industry Expertise

Venture capital firms typically invest across multiple industries, and the best firms add value beyond just capital. For example, many VC firms are very active in finding leadership and talent for their portfolio companies. This Quora question illustrates that many firms have sizeable talent acquisition staff. What this means is that VCs can cross-pollinate AEC with experts from other industries who have created efficient systems or processes. When paired with AEC industry experts, this cross-industry expertise can create solutions to AEC problems based on unique integrations proven in other industries.

4. Stagnant Labor Productivity

As we've mentioned before, Dr. Paul Teicholz from Stanford University has studied and written about the issue of stagnant labor productivity in AEC. Despite the addition of technology to AEC over the last several decades, AEC has not been able to increase overall labor productivity. As an industry, we need external motivating factors to push us. Forward-thinking venture capitalists, with a proven track record for championing innovative technologies, could be just what AEC needs to pull out of a decades-long productivity slump.

While much of the AEC community has been slow, if not altogether reticent, to embrace emerging technologies, the time has come when technology can no longer be ignored. Investment in the right technologies and by the right venture capital firms will change the construction landscape as we know it.

 

Make sure to check out the work we’re doing in computational BIM and the automation of MEP modeling. BuildingSP is at the forefront of the application of generative design to AEC, and we look forward to better tools changing how we specify BIM on projects. You can contact us at info@buildingsp.com.

Tags: AEC Construction Management Venture Capital

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