Frida Rustoen, Investment Manager, Idekapital Fund
A successful construction project is completed according to the requirements and is delivered on time and within the budget frame. However, both time and cost overruns are common, and there are often disputes on whether projects are delivered according to the predetermined specifications. It is common knowledge the global construction industry is under-digitized, and productivity growth is low. According to McKinsey’s report “Reinventing Construction” (2017), the US alone sees almost $180 bn in labor costs on non-productive activity. The same report says productivity growth has been a meager 1 percent per year over the last 20 years, compared with 3.6 percent in manufacturing and 2.8 percent in all other industries combined.
Idekapital is a venture capital (VC) investor, investing in Norwegian Business-to-Business (B2B) technology companies that operate globally in large and growing markets. We have been actively following the construction industry for several years.
From the investor’s perspective, the construction industry is interesting for several reasons. It is simply gigantic, making room for several players within the different areas. There are a plethora of interesting niches. Being the technology laggard, the industry has huge potential for enhancing efficiency overall and saving billions of dollars in non-productive labor hours.
Even though a lot of work is still done by pen and paper, there is no doubt the construction industry going through a big transition to digital, changing the way we work and the tools that help us do our job. COVID-19 has catalyzed the need for virtual collaboration and accelerated this industry evolution.
The challenge for investors is to understand the underlying trends and identify the products and tools that work, that people will ultimately be willing to use. We all know that change is hard. As in any industry, people are generally unwilling to change the tried and tested ways. We are looking for people who understand this and address it in a clever way, and thus can motivate a big change to an old and traditional industry.
There are many exciting companies popping up in the proptech and construction tech space in Norway, and because software is easy to transport, they are quickly gaining ground in international markets. In 2020 Idekapital invested in Fonn, after meeting with several software companies aiming to improve project management in the construction industry.
“Even though a lot of work is still done by pen and paper, there is no doubt the construction industry going through a big transition to digital.”
After rigorous due diligence on product and technology, as well as lengthy interviews with some of their largest clients, we learned that Fonn has made wise choices for their project management solution by focusing on usability and accessibility. We were simply amazed by the satisfaction level of their users (their G2 product review confirms this).
So, what will it take to succeed in the construction tech space? On a general level, we believe B2B software increasingly will have the look and feel of consumer software, as users are now accustomed to simple and intuitive user interfaces and will demand this when they go to work as well (why shouldn’t they?). Usability should be a key focus, and your product should be available to your users on their mobile devices.
Besides user-centricity and -friendliness, it is important to gather and use data to continuously improve products and processes to further fuel productivity growth. By measuring performance across projects, machine learning can be used to build a forecasting model for project success. When the model is ready, you can use it to predict project outcomes, allowing for better and more precise specs as well as more successful construction projects.