startups

Construction Tech Startups Drawing Investors


Digital technology designed for the construction industry is seeing a surge in investment, a sign that builders and contractors are warming up to augmented reality, 3-D printing, drones and other high-tech tools, after years of shunning them, industry analysts and startup founders say.

Investors poured a record-high $1.05 billion into construction-technology startups in the first half of the year, according to a report by global real estate services firm Jones Lang LaSalle Inc., known as JLL.

The mid-year total is already 30% above total investment volume for all of 2017, the report said.

Beyond dollars invested, the firm tracked 119 funding deals involving construction-technology startups so far this year, up from a full-year total of 104 last year, and just 97 in 2016.

Christian Beaudoin, a managing director of research and strategy at JLL who oversaw the report, said at the current pace construction-technology startups together are poised to raise more than $2 billion by the end of the year — an all-time high.

That rapid growth reflects a major shift for construction firms, who are beginning to realize that “it’s no longer an option to invest in technology, it’s an imperative,” Mr. Beaudoin told CIO Journal.

Investors are being drawn to construction tech ventures – which includes at least three valued at more than $1 billion – by what they see as a “prime opportunity for disruption,” the report said, citing an industry seeking innovative ways to deal with “cost fluctuations, labor shortage issues and overall lack of productivity improvements.”

As an industry, construction has been among the slowest to adopt digital technologies. In a report last year, JBKnowledge Inc., a Texas-based consultancy, estimated that construction firms underspend cross-industry averages on technology by up to 70%, with roughly two thirds committing 1% or less of annual sales to IT and digital tools.

Some industry analysts trace the underpinnings for the shift to digital technology back to the financial crisis a decade ago, which shook up the building sector and led to a period of industry consolidation.

That prompted many large firms to explore new IT tools, such as cloud computing, to improve data-sharing and collaboration between designers, engineers, jobsite crews and other partners.

Another factor is the industry’s notoriously thin margins and the need to cut costs while remaining competitive, analysts said.

Boston Consulting Group has estimated that construction firms globally stand to save more than $1.2 trillion in annual costs from full-scale digitization on non-residential projects.

More broadly, some market watchers are predicting an economy-wide boost in productivity growth, which has lagged behind technology development for decades, as construction and other tech laggards race to catch up with digital leaders in the financial and media industries, among other sectors.

Some of the hottest construction tech startups are developing cloud-based collaboration software, offsite construction capabilities, project management tools, big data and artificial intelligence, 3-D visualizations, and drones and aerial intelligence, according to JLL.

One standout is Katerra, a Silicon Valley-based integrated technology, construction and development venture launched in 2015, which has raised some $1.1 billion to date. A funding round in January raised its market value to $3 billion.

Zhaobang, the next closest firm in terms of fundraising, is a business-to-business e-commerce platform for steel trading founded in 2012, based in Shanghai, China, which has raised roughly $361 million for a valuation of $1 billion.

“People are starting to cotton on to the notion that computers really can capture the physical world” of a construction site, James Dean, cofounder of simulated-reality technology startup SenSat, told CIO Journal.

He cites emerging tools and technologies designed to understand the contextual world, such as autonomous vehicles and robots, that can be applied to building roads, houses and skyscrapers.  

Based in Britain, SenSat in August raised more than $4 million in seed funding from a range of venture capital firms and investors. It uses cloud-based technology to convert visual and spatial data, gathered from sensors, drones and Internet-of-Things tools on construction sites, into simulated reality. Through 3-D mapping, it can then identify any topological changes, such as how much soil has been moved on a project site, to track key production metrics. “Think of it as SimCity for your construction site,” Mr. Dean said.  

It’s not just new tech ventures eyeing growth opportunities in construction. Johnny Clemmons, global vice president for engineering, construction and real estate at SAP SE, said he expects the adoption of digital tech across the construction industry to accelerate in the months and years ahead.

“There is a convergence of technologies that are mature enough now to support construction processes,” he said. “We’ve built up all this experience and capabilities from digital transformation in other industries” to apply and accelerate the pace of adoption in construction.

SAP currently has digital tools being used by more than 11,700 engineering and construction firms in 113 countries around the world, he said.

It also has a joint venture with Komatsu Ltd., the giant construction equipment supplier based in Japan, to develop IoT capabilities for trucks, cranes and other  heavy vehicles.



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