Construction often takes a bad rep as one of the “dinosaur” industries. This is not entirely unjustified: Increase productivity in the industry has averaged just 1% over the past 20 years compared to 2.8% for other industries. However, having spoken to many developers, manufacturers, material suppliers, construction technology entrepreneurs and investors over the past 12 months, I believe the industry is much more open to experimentation and technology adoption than many realise.
The built environment faces opportunities and challenges on an unprecedented scale, including growing global demand for infrastructure and housing. a continuing, escalating labor shortage; cost inflation; supply chain disruptions; and ESG (environmental, social and governance) requirements. These challenges are pushing manufacturing to evolve faster than ever — and there are many ways founders can take advantage of new trends in the space.
Over the past five years, the manufacturing industry has become more sophisticated and software savvy. For example, 84% of general contractors implemented stand-alone solutions in the past year. Innovative technology and ideas are impacting manufacturing everywhere you look. These new technologies help manufacturers achieve higher levels of productivity, profitability and safety. Tech founders may find that manufacturing customers are more selective than they were five years ago when it comes to sharing data or purchasing. Instead, most general contractors now have a technology budget, a well-defined evaluation process, and a team.
Construction technology founders who solve the most critical priorities for general contractors—based on budget, time, and scope—are well positioned for growth in 2024.
1. Take advantage of growing subsectors of construction technology, in a hot financing market
VC Funding in the US Construction Technology Sector (2013–2023). Image Credits: Sorenson Capital
(Note that not all financings completed in 2023 have been announced to date, and the number will likely increase significantly.)
Construction technology founders should consider how their products can serve construction and real estate customers.
Venture capital interest in construction technology has reached an all-time high over the past four years, and the last three months of 2023 have been an incredibly active period for construction technology startup funding. I predict that 2024 will be another active year, surpassing 2023, with approximately $1 billion to $1.5 billion in total capital invested (shown in light blue).
In terms of opportunities, IT spending in construction it’s just 1% to 2% of revenue (versus 3% to 5% in other industries), so construction technology has plenty of runway. Buyers are also becoming more sophisticated — increasingly appreciating software tools that digitize workflows and help deliver superior results by leveraging data, artificial intelligence or automation. Taking advantage of these opportunities and market demand, 2024 should be a good year for founders to launch construction technology startups and raise capital.
2. Demonstrate sustainable practices that help clients achieve ESG goals
There is an ever-increasing focus on sustainability in today’s construction and real estate industries. According to the International Energy Agency, the built environment accounts for 30% of the global energy footprint and 26% of global energy-related emissions. As a result, governments are tightening the screws on builders and property owners to ensure that buildings meet code on energy consumption and carbon emissions during construction and operation.
