While the venture world is abuzz with generative AI, Dayna Grayson, a longtime entrepreneur who five years ago co-founded her own company, Build the capital, has focused on comparatively boring software that can transform industrial sectors. Her mission doesn’t rule out AI, but it also doesn’t depend on it.
Construct recently led a seed stage round, for example, for TimberEyea startup developing vertical workflow software and a data layer that it says can more accurately measure and measure logs and, if all goes as planned, help the startup achieve its goal of becoming The market for the purchase of timber. How big can this market be, you might be wondering? According to one estimate, the global forest products industry took a hit 647 billion dollars in 2021.
Another construct chord that sounds less sexy than, say, big language models, is Earth, a startup focused on human composting, turning bodies into “nutrient-rich” soil over a 45-day period. Yes, yes But also: it’s a smart market to hunt. Cremation today represents 60% of the market and could represent over 80% of the market in another 10 years. Meanwhile, the combustion process has been likened to that of a 500 mile road trip; As people increasingly focus on “greener” solutions across the board, Earth believes it can attract a growing number of these customers.
Avoiding some of the AI hype doesn’t fully inoculate Grayson and her Construct co-founder Rachel Holt from many of the same challenges their peers face, as Grayson told me recently during a Zoom call from headquarters Contruct offices in Washington, DC. their challenges are timing. The pair launched their first three funds in one of the venture capital industry’s most frothy markets. Like every other venture firm on the planet, some of their portfolio companies are currently struggling with indigestion after raising too much capital. All that being said, they are heading into the future and – seemingly successfully – taking some lackluster industrial enterprises with them. Here are excerpts from our recent conversation, edited for length.
You invested during the pandemic when companies were raising rounds in very quick succession. How have these fast-track rounds affected your portfolio companies?
The quick news is that it didn’t affect too many of our portfolio companies due to the fact that we actually used the first capital in startup companies – new companies starting in 2021. Most of them were coming out of the gate. But [generally] it was exhausting and i don’t think those rounds were a good idea.
One of your portfolio companies is Vehoa package delivery company that raised a monster Series A round and then a massive Series B just two months later in early 2022. This year, it laid off 20% of its staff and there have been reports turnover.
In fact, I think Veho is a great example of a company that has done very well through the economic turmoil of the last couple of years. Yes, you could say they’ve had some mistakes in the financial markets by attracting so much attention and growing so quickly, but they’ve more than doubled in revenue in the last year or so, and I can’t say enough good things about the management team and how solid is the company. They have been and will remain one of our top portfolio companies.
These things never move in a straight line, of course. What is your view on how involved or not a venture firm should be in the companies it invests in? This seems somewhat controversial these days.
With venture capital, we’re not private equity investors, we’re not control investors. Sometimes we’re not on the board. But we are in the business of providing value to our companies and being great partners. This means contributing our industry expertise and contributing to our networks. But I put us in the advisory category, we are not controlling investors, nor do we intend to be controlling investors. So it’s really up to us to provide the value that our founders need.
I think there was a moment, especially in the pandemic, where VCs advertised that “we’re not going to get too involved in your company – we’re going to be out of the way and let you run your business.” We’ve actually seen founders shy away from that idea and say, “We want support.” They want someone in their corner, helping them and aligning those motivations properly.
VCs were promising the moon during the pandemic, the market was so frothy. Now it seems the power has shifted back to the VCs and away from the founders. What do you see, day after day?
One of the things that hasn’t gone away since the pandemic days of the investment rush are SAFE notes [‘simple agreement for future equity’ contracts]. I thought when we got back to a more measured investment pace that people would want to go back to investing in equity only rounds – equity versus paper rounds.
Both founders and investors, including ourselves, are open to SAFE notes. What I’ve noticed is that these notes have become more “elegant”, sometimes including side letters [which provide certain rights, privileges, and obligations outside of the standard investment document’s terms]so you really need to ask all the details to make sure the chapter table doesn’t get too complicated before [the startup] he’s got [gotten going].
It’s very tempting, because SAFEs can be closed so quickly, to keep adding and adding. But take boards, for example; you can have an italic letter [with a venture investor] that [states that]”Even if this isn’t a capital round, we want to be on the board,” that’s not really what SAFE notes are designed for, so we say to founders, “If you’re going to be involved in this whole company formation stuff, just go ahead and capitalize the round.’
Construct focuses on “transforming the fundamental industries that power half of the country’s GDP, logistics, manufacturing, mobility and critical infrastructure.” Somehow, it appears that Andreessen Horowitz has since appropriated this same idea and rebranded it as “American Dynamism.” Do you agree or are they different topics?
It’s a little different. There are certainly ways in which we align with their investment thesis. We believe that these fundamental industries of the economy – some call them industrial spaces, some call them energy spaces that can integrate transportation, mobility, supply chain and decentralization of manufacturing – must become technology industries. We think if we’re successful, we’ll have a number of companies that might be software companies, maybe manufacturing companies, but they’ll be valued the way technology companies are valued today, with the same revenue multiples and the same EBITDA margins over time. This is the vision we invest in.
We’re starting to see some older industries stack up. A former Nextdoor executive recently raised money for an HVAC collection, for example. Are you interested in these types of offers?
There are a number of industries where there are existing players out there and it’s very fragmented, so why not bring them all together [in order to see] economies of scale through technology? I think that’s smart, but we don’t invest in old-world technology or businesses and then modernize them. We are more in the camp of introducing technology de novo in these markets. An example is Monaire Which we recently invested in. They are in the HVAC space, but they provide a new service to monitor and measure the health of your HVAC through their low-tech sensors and monitoring and measurement service. One of the founders had previously worked in HVAC and the other was working in the past [the home security company] SimpliSafe. We want to support people who understand these spaces — understand the complexity and history there — and also understand how to sell to them from a software and technology perspective.
