#constructiontech CONSTRUCTION TECH Examining how the multi-trillion dollar construction industry is being reshaped by technology #constructiontech The technology market intelligence platform. CB Insights software lets you predict, discuss, and communicate emerging technology trends using data in ways that are beyond human cognition. www.cbinsights.com 2 #constructiontech www.cbinsights.com 3 See what other customers have to say at http://www.cbinsights.com/customer-love A FEW OF OUR HAPPY CUSTOMERS The most publicly reference-able customers of anyone in the industry Pat Grady Sequoia Capital, Partner "Think of the fundamental value chain of venture capital If we play the clock forward, the finding and assessing of investments will be almost entirely done by technology, not human beings. And the company that is today positioned to be the market leader in that evolution is CB Insights." #constructiontech Nikhil Krishnan @nikillinit nkrishnan@cbinsights.com www.cbinsights.com 4 ABOUT THE LEAD ANALYST Research Analyst, CB Insights Focuses on Healthcare, Consumer Packaged Goods, Industrials, and VC Trends Published research and data analysis have been featured in The New York Times, Wall Street Journal, Financial Times, Bloomberg, and CNBC, among other major media outlets. Graduate of Columbia University #constructiontech 7 8 15 24 30 36 51 What Is Construction Tech? Macro Trends Private Market Activity Role Of Corporates Caterpillar Case Study Business Models, Approaches, and Trends Emerging Technologies www.cbinsights.com 5 TABLE OF CONTENTS #constructiontech What are we analyzing in Construction Tech? We'll be analyzing how private companies are changing the design, process, and execution of construction projects. Private market funding data will be focused on companies that use technology as a key differentiating point where construction is the primary use case. www.cbinsights.com 6 #constructiontech Construction Tech: MACRO TRENDS www.cbinsights.com 7 #constructiontech TRUMP INDICATES HE'S SERIOUS ON INFRASTRUCTURE SPENDING November 29, 2016 INFRASTRUCTURE IN THE SPOTLIGHT www.cbinsights.com 8 #constructiontech Spend into construction has rebounded to pre-recession highs, hitting $1.1 trillion levels in 2016 www.cbinsights.com 9 FRED CONSTRUCTION SPEND HAS REBOUNDED #constructiontech Construction is expected to see a boom, yet we're already seeing record lows of unemployment in construction. This could suggest a labor shortage in the construction market. www.cbinsights.com 10 FRED CONSTRUCTION UNEMPLOYMENT AT LOWS SIGNALS POSSIBLE LABOR SHORTAGE #constructiontech CONSTRUCTION IS ONE OF THE LEAST DIGITIZED SECTORS Construction is towards the bottom when it comes to digitization, with only agriculture and hunting falling beneath it. Many of these areas are less complex and could reduce the cost of services if automated (eg., transactions, business processes, etc.). www.cbinsights.com 11 McKinsey #constructiontech Tracy Young CEO, PlanGrid www.cbinsights.com 12 Construction Dive "When we look at all industries and sectors, by and large, everyone has figured out how to use software and computing power to be more effective. When you look at construction, we're spending less than 1% of revenues on software while our counterparts in aerospace and manufacturing are spending closer to 3.5% to 4.5%. Over the last 20 years, everyone else has figured out how to be twice as productive while construction has not only flatlined but declined." #constructiontech PEOPLE ARE LOOKING AT CONSTRUCTION + TECHNOLOGY Interest in technology use within the construction industry has begun to increase significantly. CB Insights Trends mines a massive corpus of media articles to enable a data-driven, real-time method to discover, predict, and plot the arc of rising expectations and excitement. www.cbinsights.com 13 CB Insights Trends #constructiontech Construction Tech Funding Trends: DEALS, DOLLARS, ACTIVE INVESTORS www.cbinsights.com 14 #constructiontech Global equity funding since 2012: $778 MILLION across 165 DEALS www.cbinsights.com 15 #constructiontech CONSTRUCTION TECH STILL SLOW While 2015 and 2016 have seen more deal activity than previous years, the area as a whole hasn't seen too much activity compared to other tech sectors. 2015 saw a funding spike thanks to large rounds to Procore, PlanGrid, and OnShape. www.cbinsights.com 16 CB Insights #constructiontech www.cbinsights.com 17 CB Insights COMPANY AMOUNT/ROUND QUARTER SELECT INVESTORS $80M/Series D Q3'15 Andreessen Horowitz, New Enterprise Associates, North Bridge Venture Partners $76M/Private Equity Q3'12 TA Associates $50M/Series F Q4'15 O'Connor Ventures, Bessemer Venture Partners $40M/Series B Q4'15 Founders Fund, Sequoia Capital, Y Combinator CONSTRUCTION TECH: TOP DEALS 2012-2016YTD (as of 11/28/2016) #constructiontech DEAL SHARE INTO CONSTRUCTION TECH Deals into Construction Tech indicate a developing space. There has been growth in early- stage deal share, with three-quarters of deals in 2016 YTD happening at the seed or Series A. There have also been more mature companies slowly raising Series C, D, and E+ recently. www.cbinsights.com 18 CB Insights #constructiontech CONSTRUCTION TECH HASN'T SEEN MANY EXITS Despite the fact that the number of Construction Tech exits has been increasing, overall the space has seen relatively few liquidity events. www.cbinsights.com 19 CB Insights 5 5 6 8 9 1 1 2012 2013 2014 2015 2016 CONSTRUCTION TECH EXITS M&A IPO 2012 - 2016 YTD (11/28/2016) #constructiontech THERE HAVE BEEN SOME LARGE EXITS There have been several $500M+ exits in the space, all of which happened this year. There are also publicly traded Construction Tech companies with multibillion dollar market caps like Trimble and Autodesk. www.cbinsights.com 20 CB Insights Acquired by Ritchie Bros. Valuation: $758.5M Acquired by Oracle Valuation: $663M IPO Valuation: $321.9M Acquired by Roper Technologies Valuation: $663M #constructiontech NUMBER OF UNIQUE INVESTORS RISES AND FALLS While the number of unique investors participating in Construction Tech has seen some volatility, 2015 saw a peak of 87 unique investors. 2016 seems to be sustaining the same level of interest, with 79 unique investors through 11/28. www.cbinsights.com 21 CB Insights 35 69 46 87 2012 2013 2014 2015 YEARLY UNIQUE INVESTORS INTO CONSTRUCTION TECH # of Unique Investors 2012 - 2015 #constructiontech MOST ACTIVE INVESTORS Few investors have 5 or more Construction Tech companies in their portfolio. The only two that do are both accelerators. Some funds are being raised with a focus on real estate, construction, and design (eg., Brick & Mortar Ventures). There's also a notable absence of corporates investing. www.cbinsights.com 22 CB Insights #constructiontech Construction Tech: THE ROLE OF CORPORATES www.cbinsights.com 23 #constructiontech CORPORATES SHOW LITTLE INTEREST IN CONSTRUCTION TECH Compared to other tech industries which typically see 20% or more participation in deals, Construction Tech has yet to break 16%. Google Ventures was the only corporate to make multiple bets in Construction Tech since 2012. www.cbinsights.com 24 CB Insights 88% 84% 86% 87% 84% 13% 16% 14% 13% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 2016 CORPORATE PARTICIPATION IN CONSTRUCTION TECH DEALS 2012 - 2016 YTD (11/28/16) No Corporate Participation Corporate Participation #constructiontech CONTRACTORS ACQUIRE FOR MARKET SHARE Large contractors in the construction space typically acquire consultancies and other engineering/design firms. Several have made acquisitions or investments in the energy space as well. www.cbinsights.com 25 CB Insights Business Social Graph #constructiontech SOFTWARE INCUBMENTS ARE MORE ACTIVE Incumbents in the software construction space are much more active, with more than 119 transactions since 2010 between 6 firms. Autodesk was the most active and also has its own venture arm. www.cbinsights.com 26 CB Insights Business Social Graph #constructiontech CONSTRUCTION PRODUCT COMPANIES ARE ALSO MARKET SHARE FOCUSED Companies focusing on construction products also tend to invest or acquire companies that directly compete or are involved in compounds/additives to improve their products. However several have set up active venture arms including Posco and Caterpillar. www.cbinsights.com 27 CB Insights Business Social Graph #constructiontech CORPORATES ALSO PARTNER WITH STARTUPS Corporates don't just invest or acquire companies, but also partner with private companies for a variety of reasons, from sourcing potential acquisition targets to providing more immersive training and education. www.cbinsights.com 28 CB Insights CONSTRUCTION CORPORATE PARTNERSHIPS #constructiontech Doug Oberhelman CEO, Caterpillar www.cbinsights.com 29 Source: Equipment World "Our business runs on uptime for our customers. If we do it at a lower cost than our competitors, we win If we don't do this, somebody else will. We decided that maybe we better disrupt ourselvesin our own way before somebody does an Uber to us." #constructiontech CATERPILLAR IS RAMPING UP ACTIVITY Caterpillar is ramping up its activity in private markets, including setting up an active venture arm. The investments span a broad range of sectors, from autonomous robots, to exoskeletons, to energy distribution and storage. www.cbinsights.com 30 CB Insights Business Social Graph Jan 2010 December 2011 Jan 2015 October 2016 #constructiontech CATERPILLAR HAS INCREASED ITS PATENT ACTIVITY Caterpillar has noticeably increased its patent activity in 2014 forward. This spike in filings coincides with its ramp up of activity in private markets as well; several patents coincide with investments. *Patent filing process involves a significant time lag before the publishing of applications. This delay can range from several months to over two years. www.cbinsights.com 31 CB Insights Patent Data 66 159 285 334 752 660 913 10 43 92 246 419 610 405 2010 2011 2012 2013 2014* 2015* 2016* CATERPILLAR PATENTS OVER TIME Number of Patents Published Number of Patents Granted 2010 - 2016 YTD (11/28/2016) #constructiontech ANALYSIS OF CATERPILLAR PATENTS Caterpillar's patents have primarily been focused on the actual parts of the machines themselves. One consistent focus seems to be fuel across the board. www.cbinsights.com 32 CB Insights Patent Data OVERALL TOP PHRASES BY SIGNIFICANCE 2009 - 2016 2009 2010 2011 2012 2013 2014 2015 2016 hammer truck pump fuel fuel hood implement plate exhaust wheel loader actuator valve display filter machine implement module treatment wheel valve speed position component ground valve cab motor grader circuit truck power ground track hole housing grader fluid track cylinder implement fuel bracket fluid loader seal power piston position housing pressure signal motor asphalt transmission operator pressure tip side plate treatment device power fuel motor tire pump valve position piston hood speed position plate machine implement plate first end armature rear portion wheel brake ground track combustion signal indicative mount fuel motor tank control system fluid body indicative shovel component pressure pressure body grille bearing fuel passage track control system plate valve body chamber second end #constructiontech ANALYSIS OF CATERPILLAR PATENTS Caterpillar's patents have primarily been focused on the actual parts of the machines themselves. One consistent focus seems to be fuel across the board. www.cbinsights.com 33 CB Insights Patent Data OVERALL TOP PHRASES BY SIGNIFICANCE 2009 - 2016 2009 2010 2011 2012 2013 2014 2015 2016 hammer truck pump fuel fuel hood implement plate exhaust wheel loader actuator valve display filter machine implement module treatment wheel valve speed position component ground valve cab motor grader circuit truck power ground track hole housing grader fluid track cylinder implement fuel bracket fluid loader seal power piston position housing pressure signal motor asphalt transmission operator pressure tip side plate treatment device power fuel motor tire pump valve position piston hood speed position plate machine implement plate first end armature rear portion wheel brake ground track combustion signal indicative mount fuel motor tank control system fluid body indicative shovel component pressure pressure body grille bearing fuel passage track control system plate valve body chamber second end #constructiontech CATERPILLAR'S INVESTMENT IN UPTAKE HAS RELEVANT PATENTS Caterpillar is an investor in unicorn startup Uptake Technologies, which also has a patent to monitor the health of equipment based on different indicators. www.cbinsights.com 34 CB Insights Patent Data #constructiontech Construction Tech: BUSINESS MODELS AND APPROACHES www.cbinsights.com 35 #constructiontech HARD OR SOFT COSTS? www.cbinsights.com 36 TheRealDeal #constructiontech PLACEMENT IN THE PROJECT LIFECYCLE Understanding the points in the construction process can help sort who the buyers of software/products are and the specific pain points that they're solving. www.cbinsights.com 37 Design Procurement Construction Operations #constructiontech www.cbinsights.com 38 REPLACE CREATE ENABLE REPLACE, ENABLE, OR CREATE Do the companies replace a part of the existing process, enable workers in different parts of the chain to be more efficient, or create entirely new workflows that did not exist before? #constructiontech DESIGN TOOLS Design software and tools focused earlier in the project lifecycle generally make designers more efficient. Some also create new processes for them by providing additional insight or design possibilities they may not have had before. www.cbinsights.com 39 CB Insights DESIGN TOOLS #constructiontech PROJECT MANAGEMENT SOFTWARE Software that helps monitor a project from start to finish as well as create a centralized area of information for all stakeholders across the process. www.cbinsights.com 40 CB Insights PROJECT MANAGEMENT SOFTWARE #constructiontech EQUIPMENT MARKETPLACES Marketplaces for equipment to help with the procurement of machinery for projects, typically simplifying the process for both sides of the market. www.cbinsights.com 41 CB Insights EQUIPMENT MARKETPLACES #constructiontech ROBOTICS AND DRONES Robots and drones can both replace certain parts of the construction process as well as create new processes that didn't exist before (eg., Drone operating and analysis). www.cbinsights.com 42 CB Insights ROBOTICS AND DRONES #constructiontech THE DISTRIBUTION OF CONSTRUCTION PRODUCTS IS ALSO CHANGING Construction products are also finding new points of sale and distribution methods that are closer to the end customers (removing nodes in the supply chain). www.cbinsights.com 43 CB Insights Blog #constructiontech TREND 1: DEMOCRATIZATION Tech provides advantages to smaller construction players by lowering costs of large capital expenses, creating pricing transparency, providing more avenues to market services, offering verification for goods & services, and making the construction business less reliant on relationships alone. www.cbinsights.com 44 British Columbia Law Institute #constructiontech TREND 1 (CONT.): DEMOCRATIZATION Democratization means focus shifts to the individuals/smaller players. To avoid longer sales cycles of larger construction firms, many startups focus on small businesses and move from the bottom up (a similar tactic we've seen in other tech verticals, such as Slack). www.cbinsights.com 45 TOP DOWN BOTTOM UP #constructiontech TREND 2: AGGREGATION By providing user-friendly and simplified experiences, users flock to new Construction Tech startups, which in turn allows the platform to have better negotiating power when dealing with the supply side and creating standardization where it didn't exist before. www.cbinsights.com 46 Houzz #constructiontech TREND 3: STANDARDIZATION AND SCALABILITY As more of the construction process is standardized, it becomes easier to scale up the goods and services and scale down the costs. This can be anything from standardizing process (like getting permits) to standardizing parts (prefab houses) and more. www.cbinsights.com 47 #constructiontech TREND 4: MOBILE SEES STRONG FOOTING IN CONSTRUCTION The number of mobile users in the construction industry is increasing, especially in field-related use cases. Increasingly more people within the industry see mobile as an important capability. www.cbinsights.com 48 JBKnowledge #constructiontech TREND 4 (CONT.): MOBILE FINDS STRONG FOOTING IN CONSTRUCTION Since much of the actual construction process is done in the field, mobile devices and tablets have played a key role here with several companies going "mobile-first." www.cbinsights.com 49 CB Insights MOBILE-FOCUSED CONSTRUCTION TECH COMPANIES #constructiontech Construction Tech: EMERGING TECHNOLOGIES www.cbinsights.com 50 #constructiontech DAQRI BRINGS 3D VISUALIZATION TO THE CONSTRUCTION SITE WITH AUGMENTED REALITY SMART HELMET Jan 27, 2016 AUGMENTED REALITY www.cbinsights.com 51 #constructiontech PREFAB HOUSING SEES RENEWED INTEREST While Prefab housing is not a new concept, new players are seeing investor interest with some focusing on more specific niches (smart home, sustainability, etc.) www.cbinsights.com 52 CB Insights #constructiontech PREFAB HOUSING HAS MULTIPLE USE CASES Separate use cases in prefab housing could appeal to different demographics. Cheaper building costs for more affordable housing as well as "house-in-a-box" ease of setup for higher- end homes. This could drive demand in areas that lack affordable housing as well as in more developed areas. www.cbinsights.com 53 NY Daily News, Blu Homes WORLD HOUSING NON-PROFIT CAMPAIGN BUILDING $3000 PREFAB SHACKS BLU HOMES LUXURY EDITION OFFERS $1.3M PREFAB HOMES #constructiontech THE RETURN OF 3D- PRINTING? 3D printing is seeing a resurgence of interest, especially in the construction and industrial areas. www.cbinsights.com 54 CB Insights Trends #constructiontech DEVELOPMENTS IN 3D PRINTED MATERIALS Much of the interest could be attributed to developments that have happened in the actual materials themselves, many of which can be used to create highly customized or precise parts. www.cbinsights.com 55 i.materialise #constructiontech AUTOMATED CONSTRUCTION Parts of the construction process that are predictable and repetitive are seeing automation along with machine- based advantages (faster project times, higher precision, etc.) www.cbinsights.com 56 McKinsey #constructiontech ROBOT USE IN MANUFACTURING SCENARIOS WILL TRANSFER Many of the functions we see robots being used for are primarily manufacturing use cases. Developments in material handling and shaping could benefit work on sites as well. www.cbinsights.com 57 Statista 6% 7% 9% 10% 26% 33% 66% Automotive OEMs Metals Coating & Dispensing Life Sciences Spot Welding Material Handling Automotive Components GROWTH IN NORTH AMERICAN INDUSTRIAL ROBOT SALES TO END- MARKETS Q1 2015, BY CUSTOMER SEGMENT (OVER SAME PERIOD ONE YEAR BEFORE) #constructiontech THESE TRENDS COULD POINT TO ON-SITE TEMPLATED CONSTRUCTION When we take these trends together, we could start to see preformatted houses that are built on- site through a combination of 3D printing and robotics, making scalable and affordable temporary housing. www.cbinsights.com 58 RT #constructiontech QUESTIONS? www.cbinsights.com 59 @nikillinit nkrishnan@cbinsights.com #constructiontech Where is all this data from? The CB Insights platform has the details on all the deals included in this report www.cbinsights.com 60 CLICK HERE TO SIGN UP FOR FREE #constructiontech CBINSIGHTS.COM @ cbinsights +1(212)292-3148