Welcome Suppli to the Equal Ventures Portfolio
By: Richard Kerby, GP & Co-Founder @ Equal Ventures
At Equal, we love partnering with founders that are building verticalized software platforms. We believe that there are many markets and sectors with important nuances that horizontal solutions are unable to fully capture, and the construction industry is no exception.
As we published in our Look into Construction Tech last year, construction is a massive industry with over $500B of materials purchased in the US every year. Much of these purchases occur via painstakingly manual and slow processes and delayed payments costing the industry $136B in 2021, mostly due to process inefficiencies and fraud.
Enter Suppli, a payments solution custom-built for construction material suppliers. The Suppli team is building the digital transaction layer for the construction materials industry, starting with a payments platform that helps suppliers get paid faster and reduce risk while providing a superior customer experience. While we met with more than a few awesome teams working on improving construction payments, we found Suppli’s approach to the market to be the most compelling for the following three reasons.
We believe that AR / AP or procurement is a better wedge than a B2B materials marketplace. While we wholeheartedly agree that product discovery is still a problem for the long tail, we have reservations about a pure marketplace model. Given the immense amounts of dollars that go into building materials and the already low margins of the industry, it will be difficult to achieve significant take rates through a materials marketplace. Experienced contractors and builders generally already have meaningful relationships with distributors and suppliers and given the relationship-based nature of the industry, the risk of disintermediation is quite high, even for new supplier-contractor relationships created by the marketplace. We believe that enabling existing relationships to work better, such as optimizing the procurement or the AR / AP process, is a superior wedge into the critical flows of cash. This is exactly the approach that Suppli is taking, by leading with software that digitizes and automates mission critical workflows that are unique to the construction industry.
We believe that distributors represent an easier point of entry than contractors. There is no doubt general contractors and subcontractors can benefit from better software and access to credit; however, the go-to-market motion for this segment can be challenging. Given the difficulty of selling software to the mid-to-long tail of general contractors and subcontractors, CAC / LTV ratios are likely to be challenged. Discussions with experts at contractor associations indicate that selling to contractors is mostly a ground game. SME contractors make up ~97% of the market and technology providers are blanketing local association chapter events and going to industry events to build relationships. As one Director of Innovation said, “You can’t sit behind a desk and call people. We are still an old school industry.” Typically, local or regional suppliers already have a significant existing book of business with general contractors and subcontractors and are likely to be larger businesses more interested in adopting technology. Onboarding one mid-market distributor brings on their entire book of business, likely many multiples of general contractors and distributors. While the sales cycles are likely to be longer, the LTV of a mid-market distributor far outweighs that of individual general contractors or subcontractors.
We believe that the mid-market distributor is the right segment to attack. Mid-market distributors are likely to see a greater ROI from adopting a payments software product. Not only are they likely to have back-office FTEs devoted solely to AR, but a distributor with a $200M book is likely also lending out $15–20M to their customers at any time given typical net 30-day payment terms of the industry. No distributor wants to be a lender to their customers, so a platform that can expedite payments and potentially provide liquidity for the distributors would solve a massive pain point. In addition, the mid-market is underserved by existing players. Most mid-market distributors do not have a software solution today, but those that do are using horizontal solutions that do not have construction-specific features and functionalities. This is also where the freemium counter-positioning strategy kicks in. Underpricing the software product while delivering better performance, given the platform’s vertical focus on construction, should ensure a faster and more efficient go-to-market.
Perhaps the most compelling reason behind this opportunity is the founding team, Ryan Ayers and Thanasi Skafidas. Prior to founding Suppli, Ryan and Thanasi ran a material distributor where they personally experienced the challenges of managing collections and payments within the construction industry. We love backing founders with domain expertise and Ryan and Thanasi fit the bill, and their product is resonating with customers. Today, Suppli’s customer base processes hundreds of millions in revenue across a variety of material products.
We are beyond excited to lead Suppli’s $3.1M seed round and help support material suppliers and are fortunate to have Audacious Ventures, Dash Fund and leading industry operators join the round. Please join us in welcoming them to the Equal family and visit Suppli to learn more!
