Interview with Alice Leung, VP at Brick and Mortar Ventures
Interview with Alice Leung, VP at Brick and Mortar Ventures
This week on Construction Physics I interviewed Alice Leung. Alice is vice president of platform and product strategy at Brick and Mortar Ventures, a construction tech focused venture capital firm.
(This interview has been lightly edited for clarity.)
Brian:
Do you want to start with a little bit of background about yourself and how you ended up at Brick and Mortar?
Alice:
I started my career in the construction industry working at DPR construction as a project engineer. And I was very fortunate that that first job was a fairly innovative job. The culture around DPR was very much about cultivating this entrepreneurial spirit, and I was really empowered to test out and vet new technologies for workflows that I found very frustrating. So that was kind of my first entry into working with construction tech startups on the end user side. I worked really closely with the innovation group and helped evaluate and vet new tech and was kind of just connected to the circle of people who were very interested in technology and innovation.
But I was seeing that over the lifetime of the projects that I worked on, I was kind of reinventing the wheel and redeveloping processes every single time. But I started to see that there were startups starting to memorialize a lot of these processes into technologies, and I was kind of interested in doing more on that front. So I ended up reconnecting with the startup ecosystem, and started talking to Brick and Mortar Ventures about some of the big problems in the industry that I was very interested in solving, and got a job offer. So now I've been at Brick and Mortar for three years.
Brian:
Cool. And Brick and Mortar has only been around for a few years, right? So you've been there from close to the beginning.
Alice:
So Brick and Mortar Ventures was established back in 2015. But during that time Darren Bechtel had hired Curtis Rogers and they were just investing Darren's personal capital into the startup space. So Darren had done a lot of super angel investing more on a generalist side. So he invested in all different types of startups, but saw that there was a big opportunity to focus on the construction technology space, and he wanted to formalize his investing process by starting a fund. But it's really hard to raise if you don't have any kind of official track record or background. So he did that by kind of testing out the Brick and Mortar Ventures investment thesis through his own personal capital until he had enough of a track record to raise outside capital.
That was kind of the official forming of Brick and Mortar Ventures as a fund. So we did a closing of that first fund, I think, in 2018. And that was all from large corporate corporate partners in the construction value chain.
Brian:
Do you wanna talk a little bit more about what Brick and Mortar is and what your focus is in the startup space?
Alice:
So what Brick and Mortar Ventures does is we invest in early stage construction technology startups that are really going to grow in scale very quickly within a 6-8 year timeframe. When Brick and Mortar Ventures was first founded, it was actually before Plangrid got acquired by Autodesk. It was before Procore went public and it was really before there were any kind of proven unicorns in the space. So I think from a timing perspective, Brick and Mortar was one of the first construction tech focused funds.
And we're now I think leading the way in terms of number of construction tech startups funded. So how we define, I guess, construction technology or the construction process that we invest in is that that process starts from design, goes through pre-construction construction, handover, commissioning, and operations and maintenance. And we believe that this process is pretty common across many different market verticals in terms of the types of assets that you're building. So we invest in technologies for not just single family residential and commercial real estate, but also oil and gas, mining, infrastructure, and industrial. So that really sets us apart from a lot of the prop tech funds that are investing in construction tech, but more focused on building construction.
Brian:
So investing in the built environment more broadly rather than just housing or whatever. Cool. Can you expand on the Brick and Mortar investment thesis? Is it just, “we know construction and we can spot a good company in the construction space”, or do you have some idea of why specifically this is an attractive space to fund startups in?
Alice:
So there was this first wave of technologies and startups for the AEC space probably 20, 30 years ago, which included things like Revit. But the more recent, what I call the second wave of AEC tech, was really predicated on smart devices - iPhones, iPads, etc. Before that we saw people trying to bring computers on-site, with things like ToughBooks. But there were a ton of issues with that, and it really wasn't until like iPads were invented that construction could actually leverage computers for taking information into the field.
After that we started to see a lot of apps being built for construction that were native to iPads, doing field tracking and things like that. So I think it really wasn't until then that there was kind of this renewed interest in developing technology for construction. That was the first time that it was very easy to build technologies for the field.
In order to be a standalone fund, there needs to be enough people interested in building technologies for it. There needs to be interest from industry in adopting these technologies. And of course there needs to be interest from a capital perspective.
We’re now starting to see this landscape changing. There's now startups that are being founded by founders from outside of construction. We're starting to see generalist investors putting money into construction tech. And we're now starting to also see large construction companies setting up corporate venture groups, investing in tech. The industry is kind of showing that it's ready for a change and doesn't wanna be disrupted, and is putting a lot more focus on working with startups and investing in that space.
Brian:
Have you had to change your thinking at all about something that you thought “oh, this is gonna be a huge thing”, and it turned out not to be?
Alice:
So this is a really good question because like I mentioned, I used to work at DPR, and DPR is one of the most innovative general contractors out there. So because of that I had this idea that a majority of construction was using BIM. A majority of construction was doing all these pilot projects with new technologies, and a majority of construction was doing lean last planning. So a lot of the technologies and processes that were implemented at DPR were very much kind of ingrained into how I thought about construction.
And now coming to the venture side of things, I actually had to learn that not all contractors do those things. Not all projects use BIM, not all construction companies have a budget for piloting new tech. The reality is that the appetite for implementing new technologies is actually very different from my view pre joining the venture capital world.
So now I'm looking at technologies that are applicable to many different contractors of different sizes, and can scale across different geographies. And there's definitely game changing technologies that can do that, but there's a much bigger emphasis on “what are the needs of 90% of construction companies” rather than “Hey, let's invest in this super game changing technology”. For some new technology, the ENR top 10 might want it, but it may take five to 10 years before it makes sense for the rest of construction to actually adopt. So I've really had to take a step back and think “this is great for industry, but is it a venture backable company?”
Because there's a lot of technologies out there that are gonna be very impactful for the construction industry, and they should get funding, but they may not be a venture backable company that's going to grow to a hundred million in revenue within six to eight years. And those are very different profiles.
Brian:
So on the one hand you have traditional big building product suppliers and they're always trying to introduce new products, Simpson is coming out with a new hanger or whatever. And then there's venture backed stuff, which is the stuff that can scale up and reach some level of return in some window of time. Do you think that covers the space of possible innovations? Or is there stuff that takes longer than a traditional venture backed investment, but isn't a good thing for a more traditional player to tackle. Do you think there's like a hole in the sort of construction innovations that we’ll see because there's just no funding mechanisms to deliver them?
Alice:
I don't know if it's funding mechanisms that need to change, I think it's more like some of the policy and culture needs to change. Contracts and BIM are a good example. BIM has been around for 20, 30 years now, though it's mostly been the last 10 years when it's been a little bit more of a standard. But if you look at BIM, there are certain contracts that make it very hard to collaborate and share data and share models. And I've worked in places where architects believe that they should charge money to hand over a BIM to the GC.
The construction industry culture has always been kind of adversarial, asking “what's in it for me.” That's why we have all these silos. Things like that are ingrained in the culture of construction that need to be changed that will then allow for a lot of other innovation. And I think those are the things that technology isn't really gonna solve.
I know there's IPD out there, and there are new contracting methods that try to make it more collaborative, but then that goes to how do we change the culture so that people are collaborating, beyond just being forced into this collaborative contract. So I think those are some of the things that are not gonna be tech, are not gonna to be monetary, but there are things that we need people to start thinking about and trying to figure out how to change that for our industry.
Brian:
On the other side of that, is there anything that has been adopted or been successful way faster than you expected? Or has been a huge success when you didn't see it coming at all?
Alice:
That's hard because I think there are certain things that I wish were adopted faster. I was pretty keen on drones in construction, just because I worked on large construction projects. And the ability of having a new site logistics plan every day, and then being able to plan on an overall site perspective. I was very keen on that. I think it was the early 2010s when there were a bunch of construction focused drone companies. And now a lot of them no longer exist.
I think Skycatch and 3DR were the main ones, and I think 3DR got acquired by DJI or squashed or something. But anyway a lot of the drone companies ended up not doing so well, even though it was something we needed. But the pricing and the value prop probably just wasn't there for construction. So I feel like over the next couple of years as drones and robots and the software for them become less expensive to build, I think all of that cost is gonna come down and there is going to be much wider adoption.
And I think the other one is, well, I've always been a little bearish on VR headsets, but I am just waiting for when it makes sense to have VR for at least construction.
Brian:
I'm exactly the same way. It's like, as soon as it's good enough. It's going to be such a huge potential benefit that it would be astonishing if it didn't show up. And then of course, when that shows up, you have to, to change your design software and your processes and all that other stuff. So yeah, I'm surprised that that doesn't seem to be getting as much attention as I think the potential benefits imply that it maybe should.
Another big question I have is that the venture capital world is driven by a very small number of huge successes, right. Facebook and Airbnb and Uber and whatever, you have a handful of companies and they're responsible for some huge fraction of the returns in the overall space. And in construction, we haven't seen any truly huge venture-backed companies yet. We have Procore, and they’re a unicorn and perhaps the most successful one in this space. But there hasn't been an Airbnb of construction yet or a Facebook of construction. Do you think that that will change, and we’ll start to see huge 10 billion or hundred billion dollar companies in this space?
Alice:
I think we'll definitely see it. I think construction technology is still fairly young, and I don't think we've just reached maturity yet. Some of our older construction tech portfolio companies are just at the series B and series C stages. So they're just kind of reaching the point where they're making tens of millions of dollars in revenue or more. So I think over the next, maybe five to 10 years, we'll probably see some of these fairly large exits. There's definitely a couple that we have our eyes on that could be those 10 billion dollar companies. Construction finance, for instance, is an area where there's a ton of opportunity. Even on the project management side, we know that there's Procore there, but there are other sources of data and other parts of the supply chain that could produce some of these really large kinds of operations management tools out there.
So we're just a little early. And I think even earlier is the construction robotics space, which is kind of just starting to see startups come into the area. The most mature one is probably Canvas that raises series B in our portfolio. And we just did an investment in Rugged Robotics. If you look at those companies they have the ability to fundamentally change the way that we do construction. So like Canvas cuts down a lot of time in doing drywall finishing by just actually changing the process of drywall finishing rather than following the way that a human would do it. So I think those are some of those step changes in construction that can drastically improve productivity. And because they're a mix of hardware and software, there could be massive opportunities for them to become a public company of some sort. But this is like probably 10 years down the line. So we’re still very early.
Brian:
Related to that, in my mind the traditional way of investing in startups is that you just invest in a whole bunch of companies and you invest in sort of talented founders and they find product market fit and develop their business, and some small fraction of them achieve huge returns. Is it going to look like that construction? Or does the structure of the industry force things to develop in a different way?
Alice:
So if you look at the construction industry, even the largest companies out there, the huge multi billion dollar companies like DPR, are kind of broken down into, you can almost think of it like many different franchises, really. So they have all these different regions and within regions, there’s all these different projects. And the challenge for a lot of the startups in the construction tech space is that most of the time, they're kind of like one off project sales. And depending on what you're building, you may only be able to sell to a project in pre-con or at the end of a job, or whatever. So what that means is it's gonna take a bit longer to reach the revenue growth versus say a consumer based product where they could spend a bunch of money on marketing and actually get people to become customers fairly quickly.
So I think it's just the complexities of the construction project timelines, and how all these companies are set up, make it harder. Which is why for us, what we believe is that at the early stages for seed and series A, it does take a bit longer for the start to reach meaningful revenue. But once they have kind of proven that out and can kind of land and expand within large companies, that's when the revenue growth can actually accelerate a lot. So I think from a growth perspective, it does look a little different from a lot of the other startups. And there is kind of this importance of relationship building and really going out in construction sites and understanding the customer that is very different versus a lot of the other tech.
So when we look at venture capital as a whole, why we exist as a construction focused fund is that our team mostly comes from construction and we get to leverage our construction background to at least provide initial intros or at least have a dialogue around how easy or hard it's going to be, be to sell to certain types of people, different roles on a construction site. So yeah, I think that's kind of the difference.
Brian:
Coming at from a slightly different angle, how do startups have to change how they operate their business if they're doing it in the construction space?
Alice:
I think the main thing would probably be really understanding the customer profile and the go to market strategy. We've talked to a lot of companies that are a technology looking for a problem to solve, and those tend to not work really well. The ones that have done really well are folks that have an open mind. They go out on a construction site and they kind of just talk to people and understand where the biggest pain points are, and then do their research to find out if this is a big enough market to build something for. And then on top of that, it's understanding, “okay, within the overall construction supply chain, is there a group of people that feel that pain point more than others?”
For example, when we evaluate companies that are going after the payment space, there are some folks building technologies for owner developers, some for the lenders, some for the GCs, some building tools for the subs. We actually have an investment in Siteline that is building tools for the subs. And we kind of thought that of the entire construction supply chain, building that tool for the subcontractors, that's probably the biggest pain point, because the subs are managing payment information and POS from a ton of their vendors and distributors. And they're also being forced into using technologies that the GCs are forcing them to use. Whereas for the GC, a lot of the time they have the power to kind of force some technology upstream or downstream. So their pain point is there, but it may not be as much as what the subcontractor is experiencing. So that's just one example. And, as we talk to a lot of these founders and understand what they're building, it's like, okay, let's make sure that within the overall supply chain, it's the best place to start for that type of technology.
Brian:
Interesting.
So we talked a little bit about payments, a little bit about robotics, drones, AR. Is there anything else that you think has a lot of potential, or you're kind of keeping your eye on to see how the space develops, or that you're just excited about?
Alice:
I think there's still a lot of opportunities within construction tech when it comes to communications or logistics. We still haven't made investments in those areas, and there's still a lot more kind of on the operational side. We’re also thinking about whether there are ways for us to almost re-engineer the economics of a construction project via FinTech and InsureTech. So these are two areas that we're kind of following. Over the last couple years, there's been a big boom in FinTech and InsureTech, but mostly focusing on other industries. We're trying to understand if there are opportunities for those types of companies for the construction space. And we're also digging into things that are very unsexy and things that people don't normally think about when they think about construction, such as performance bonds, or other data sources to underwrite risk better. Those are areas that we're trying to get smart about and we're trying to figure out if there are big opportunities to change some of the incentive structures within a construction project.
Brian:
Something I’ve wondered about, but haven’t looked into yet is how much does what you can and cannot get insured dictate what sort of project you build? And if you can change that, with better data or whatever, how much that would affect what sort of building methods you can use.
Alice:
So we've looked at a lot of prefab, modular companies, and for the longest time, probably it wasn't until the last, like one or two years, there were a lot of banks that didn't know how to underwrite projects that were doing volumetric modular, or because the way that they like the way that they do their underwriting process and the way that they feel like they own something is by having a foundation and things on land. Whereas for like volumetric modular, you're gonna be doing a ton of construction and spending a lot of money way before the foundation gets built.
Brian:
Way before you start on site.
Alice:
Exactly. So there were a lot of struggles and issues around, banks loaning to projects that wanted to utilize this new method of construction. So I kind of foresee that there's gonna be similar situations for financing insurance for other new construction methods, or as we get into 3D printed materials, or as we get into construction robotics, there's going to be other ways to underwrite some of this stuff that we just don't know about yet. And it's all very new and we're learning as we go.
Brian:
Cool. Jumping back a bit, you kind of talked previously how the inciting event in the construction startup space was the smartphone and all of a sudden now new things in the job site are possible, and you can build a business in a way that you couldn't before. Is there anything else like that in the construction space, that you're kind of thinking, as soon as this changes, there's gonna be this whole new crop of startups that are possible, or whole new methods of business that we can enable? We talked a little bit about AR, and maybe once this hardware gets good enough, all these other new businesses are gonna be possible. Is there anything else kind of like that you’re kinda checking in on to see how far it's coming?
Alice:
I would say, and going back to the earlier discussion, we kind of saw this with computer vision and robotics. So a couple years ago there were probably just a handful of computer vision companies, but now there's been so much research, and it feels like computer vision is almost becoming commoditized. And I think there are a lot of sensors and robotic parts that the construction industry can utilize because we've seen massive R&D into self-driving cars, so there's all of those sensors that now are at a price point that makes a lot of sense for construction robotics.
I think another big trend is job site connectivity. And we've been looking at this for a really long time and there just really hasn't been anything super compelling. So we have Bluetooth, but there might be something else out there that's going to make it a lot easier to have mesh networks or whatever it is to get data out of the construction site, or for providing connectivity to job site trailers that are currently working off of 3G networks, kind of in the middle of nowhere. So that's one. And then the other part is electrification. So we're trying to figure out what is the next big thing in electrification that can make it really easy for us to understand construction site energy use, as well as making our construction sites more green.
And this isn't any, like, I don't think anyone's really talked about this because the whole ESG sustainability has more been focused on operations of buildings. But there really isn't anything focused on like during the construct phase of a building and how do we make that greener and how can we be more efficient. If there's a way for us to invest in technologies that make it less expensive or just make it easier to manage, we wanna see greener job sites.
Brian:
Speaking of that, it does seem like there's a trend towards stricter and stricter regulations around building energy efficiency, and states are adopting stricter energy codes. And a lot of that has pretty big impacts on how the building goes together. How do you see that interacting with the startup space, do you see opportunities there?
Alice:
I would say that's actually the hardest place for us to invest in. And a lot of that has to do with the need for new materials and material science. A lot of the time, at the early stage, they're still looking for capital to basically still continue with their science, right? Not that they’re science projects, they're very well researched and there's massive upside. But if you look at the trajectory of those companies, the amount of time that it takes for them to get to market is longer than software. I mean, software is super easy, right? You can now build stuff almost overnight. But for materials companies, like you're gonna have to finish all your R & D. You're gonna have to get certifications. You might need approvals for building codes.
You're gonna need engineers to make sure that this actually makes sense. And then from the commercialization perspective, you're gonna have to sell your new product to people whose job is to manage risk. So there aren't that many AEC firms out there that are willing to test out this new material or product or method of construction, no matter how much more sustainable it is. I think there’s a big challenge there. So when it comes to new materials, we've kind of, we've tried to find the things that we can use that do not impact code or structure. So we have an investment in Branch Technology, that's doing 3D printed building facades.
So that was a nice, like an early start, but to have a major change in sustainability, you're gonna need new insulation materials or like, new coatings and all that type of stuff. But that timeline to get that to market is a lot longer than the fund life of a VC fund. So when I've talked to a lot of the sustainability ESG or clean tech focused funds, they actually have a 15 year fund life. Whereas we have a 10 year fund life. And that plays into the overall investment strategy, because we need to invest and have the company exit within our fund life. Like, that's the goal. So if they're not gonna reach their full potential before we need to exit out of the company, we can't really invest. So that's the challenge with building materials in general.
But if you look at other areas for an innovation this is a company that we have not invested in. It's a company called Domatic and they've basically rethought the low voltage system from scratch. And I think that's kind of what we need for the mechanical system, the plumbing system, someone from the outside that has technical expertise in some of these things and just redesigning it from scratch. Cause we're not gonna see engineering firms try to design a new piping system or whatever that's gonna save water or anything like that. So I think, yeah, something like a Domatic, if there's other scopes of work or other things like Domatic where rethinking how a building is built and then being able to think of that business model in a way that's kind of value add to the whole supply chain. I know it's a big ask, but, but those are the types of companies that I think that can have a big impact on sustainability and how we use our buildings and how we build them faster.
Brian:
This has kind of been an ongoing theme of this whole conversation, but I’m very interested in what you see as some of the challenges to introducing innovation into the construction ecosystem. Like what are the blockers there that are most important?
Alice:
I think the biggest thing is ROI and everyone seems to struggle with calculating ROI. And I think a big part of that is a lot of the technologies that we see are kind of preventative in a sense. This is probably a theme across all humans, across all industries, that we're just not really good at preventative maintenance or investing in preventative stuff. The preventative stuff that we’ve seen get traction is being sold to people who have kind of gone through that issue before. So as an example there's a company out of Paris called Lili AI. We're not invested in that company, but what they do is they do kind of discovery work for big lawsuits.
So for them, they've been really good at selling their technology to companies that have been hit by some large lawsuit, but they struggle with selling their technology with people who have not gone through that process. And I think this actually translates to a lot of other technologies, like using BIM and doing clash coordination. You're kind of preventing rework and you're preventing RFIs and you're preventing all of these issues, but to a lot of people that just doesn't really resonate because they're like “oh, we've been doing it this way since forever and who are you to tell me this thing is actually gonna prevent issues.”
It's just really hard to justify some of those ROIs, which is why I think it's interesting that the most tangible ROIs tend to be physical tools. It's actually really easy to see the ROI on some of the construction robotics companies, because they're like “Hey, we're paying these people X number of dollars for Y man hours to finish this scope within this timeframe”. But once you bring in this new type of technology, it's like “oh, we can actually do it for this price and this timeframe.” So it's a lot easier to kind of find the ROI there versus like, oh, I'm gonna implement this brand new project management tool. And maybe we save a couple hours a day for each person, but how do you quantify that? You're not tracking how people are using their time granularly enough, so unless you actually go through that exercise of understanding what is the exact process today and what is that future process, it’s hard to see the ROI.
Brian:
To kind of wrap up, what do you think is kind of compelling about the construction space, and why should a founder try to start a startup there?
Alice:
Well, it's a big industry and I think everyone in our industry knows that we have a skilled labor shortage. There's fewer and fewer people coming into construction, and there's a lot of people leaving, and we need a lot more buildings to be built. So how do you solve that, right? I think one of the ways is with new technology to actually become more productive.
And I would welcome any conversation with founders that don't know construction. I would be more than happy to steer them into white space, like where there's a lot of opportunity. And for people in construction, I've actually been trying to convince those that are trying to leave to stay in industry by exploring different career opportunities or working for a construction tech startup. So I think it's a massive industry that has a lot of challenges. I love the industry and, and if you've worked in it, you probably know how challenging it is to work in just given the fragmented nature. So it's a challenge. But I think it can also be very rewarding. And for those that are looking for a big industry to tackle, there’s a lot of opportunity. And need all the help we can get.