Built World Investing Trends

2021 Venture capital activity rebounds from the pandemic

Rahul Daryanani
Dec 7, 2021 · 6 min read
Image: Shutterstock

The “built world” was deeply impacted by the Covid-19 pandemic. In March of 2020, many of us anticipated that venture capital funding activity would slow down amidst the uncertainty of lockdowns, social distancing, and strains on the overall economy. However, according to Pitchbook’s data, 2020 proved to be a record year for venture in the U.S., with $156B invested in startups and $74B raised by VC funds. Also contrary to what pundits might expect in a downturn, corporate VCs (CVCs) nearly matched their 2018 high water mark, investing $68B.

Not every sector followed the overall positive investment trend in 2020. Funding for startups in construction tech, property technology (“proptech”) and real estate tech (collectively, the “Built World”) declined 69% in 2020 to $4.6B versus $14.8B in 2019. Excluding a $6.5B WeWork investment in 2019, Built World funding declined 45% in 2020, driven by uncertainty in these markets during the first part of the pandemic.

A counter-trend has emerged in 2021. Built World funding is rebounding, having reached almost $10B as of the end of September 2021. Drivers of Built World funding include:

  • An increase in workflow automation, like robotic process automation (“RPA”), across manual, high-friction, and fragmented industries

Including data from PitchBook and NVCA’s quarterly Venture Monitor report, this analysis shares highlights from the U.S. VC industry as a whole, as well as observations specific to the Built World startup ecosystem, based on Touchdown’s work with Allegion Ventures, Masco Ventures, Bentley i-Twin Ventures, and other related funds.

Built World & VC Funding Highlights

As noted, 2020 was a record year for VC activity in the U.S., with $156B invested. However, the total deal count decreased from 2019, indicating that VCs concentrated funding in larger deals for fewer companies.

The U.S. Built World sector diverged from the overall market with a decline in funding as measured by value and deal count. Funding in 2020 was down 68.8% from the year prior, to $4.6B, while deal flow declined 9.6% to 385 deals completed, versus 435 in 2019. The sector has rebounded with 2021 funding through the end of the third quarter at $9.9B across 397 deals per Pitchbook, suggesting that investors are interested in funding Built World startups that are focused on solving problems highlighted by the pandemic.

Here is the Built World deal count compared to the overall U.S. market.

The pandemic has exacerbated existing inefficiencies within the construction industry’s skilled labor base, materials supply chain, and workflows in project management, payments, and insurance. Labor shortages have highlighted the need for more efficient and automated construction through project management software, modular construction, and robotics. Disrupted supply chains have spurred innovation within mid-mile and last-mile logistics, visibility, and fulfillment for construction materials. Manual legacy processes have led to the development of payment, lending, and insurance solutions both as embedded services within larger construction platforms and as standalone solutions.

CVC Highlights

In CVC, corporate funds deployed 48% by dollar value and participated in 26% of deals in the U.S. in 2020. As shown in the chart below, the $68B invested by corporations was nearly $10B more than 2019, which suggests CVCs stayed in the market despite economic uncertainty, as my colleague Scott Lenet forecasted in this post from 2019.

CVCs are an important source of capital for Built World startups, particularly for B2B solution providers seeking to digitize and streamline existing business workflows. These startups could potentially accelerate their commercialization with access to a corporation’s manufacturing, construction, and operating experience as well through strategic commercial partnerships. The following CVCs were most active in 2020:

  • JLL Spark, the investment arm of JLL, participated in nine Built World investments in 2020, focused across IoT-driven intelligence for facilities management and construction-site monitoring, reducing electricity consumption, and workplace analytics for space utilization.

Trends in 2021

In the construction materials supply chain, new technologies focus on improving access to and distribution of construction tools and building materials, and we are seeing renewed interest in sustainable materials. Additionally, on-demand access to materials and enhanced supply chain visibility are changing the way procurement is handled across the industry.

There has also been a growing focus on energy consumption and embodied carbon in the Built World. In 2020, the Built World accounted for 40% of all U.S. energy consumption, and the Royal Institution of Chartered Surveyors (RICS) estimates embodied carbon can contribute 35–50% of a building’s total carbon impact even before tenancy begins. Startups are now developing new ways to help companies reduce the carbon impact of the construction industry by monitoring energy consumption, facilitating the use of clean versus traditional energy sources, IoT enabled systems for the electrification and monitoring of buildings, and renewable energy asset management.

Notable Built World Deals and Exits

  • Hippo, a company focused on providing modernized home insurance, raised a $350M convertible note from Mitsui Sumitomo in November 2020, following a $150M Series E in July. The company has since gone public via SPAC and raised a $500M PIPE in 2021.

Built World Innovation in the News

  • 3D printing a 1,500 square foot home — Alquist, a 3D printing construction firm from Iowa, has been hired to print a 1,500 square foot home in Virginia. The walls are expected to take 15 hours to print, and the home is expected to sell for approximately $200,000.

Please contact us directly at BuiltWorld@touchdownvc.com for any ideas or investment opportunities related to this sector. Thank you for reading!

Liked what you read? Click 👏 to help others find this article.

Rahul Daryanani is a Senior Associate at Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.

This article includes information from third party sources believed to be reliable; however, we make no representations as to its accuracy or completeness. References to strategies are for illustrative purposes only and should not be relied upon as a recommendation to engage in any particular strategy or to invest in any particular security. Opinions expressed herein are based on current market conditions and may change without notice and we reserve the right to change any part of these materials without notice and assume no obligation to provide an update. Recipients are advised not to infer or assume that any securities, strategies, companies, sectors or markets described will be profitable or that losses will not occur. Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager. Past performance is no guarantee of future results.

Risky Business

Thoughts on corporate VC from the team at Touchdown…