Why Menlo Ventures Backed Construction Tech Firm Fieldwire
[Corrected 9/17/2019, 8:58 a.m, and 9/18/19, 4:53 p.m. See below.] Fieldwire, whose mobile app helps builders and construction crews coordinate their work, announced today it has lined up a total of $33.5 million across two newly disclosed fundraising rounds.
The San Francisco-based construction tech company says it raised $8.5 million in a Series B funding round in 2017, and it has just added another $25 million from a Series C funding round led by veteran Silicon Valley venture capital firm Menlo Ventures.
“The funding amount is significant because we are already a cash-flow positive company, and as such, the new funding doesn’t need to cover any existing burn,’’ Fieldwire CEO Yves Frinault says.
Menlo invests broadly across consumer, enterprise, and life sciences companies. After being approached by Fieldwire, the VC firm assessed the growing sector closely, and saw marked opportunities. [A comment attributed to Menlo about this investment being the firm’s first deal in construction technology was removed. A similar reference was removed from the headline. Menlo clarified after publication that Fieldwire is its second investment in the sector.]
For one thing, the construction industry is a massive market that clocks in at an estimated 10 percent of global GDP or more, Menlo partner Tyler Sosin tells Xconomy. Openings for tech innovation within the sector fill a wide range, including surveillance drones that track construction progress, 3D printing, virtual reality training tools, and software that can make building projects move along more efficiently. Task management software is a natural niche for construction projects, which involve so many participants, Sosin says. However, the rise of cloud computing and mobile apps didn’t filter into construction operations until it had already reached deeply into other fields, he says.
“Construction has been one of the last industries to convert,’’ Sosin says.
That doesn’t mean that Fieldwire faces little competition from other companies. The young company is elbowing its way into an arena populated by other, more established construction management software businesses, such as Procore and PlanGrid, which was acquired for $875 million by construction, engineering, and design firm Autodesk (NASDAQ: ADSK) in 2018. But Fieldwire lays claim to considerable headway since its founding in 2013 by CEO Frinault and COO Javed Singha, former colleagues at the French video game company Ubisoft who have also worked at other tech firms.
Fieldwire says its app has been used in more than half a million construction projects in various countries, including a four-story digital classroom building at Washington State University erected by major US firm Clark Construction Group. Fieldwire claims its app saves an hour a day for each user by speeding communication among project managers, engineers, general contractors, subcontractors, and crew members on the job site.
Any group of five users or less can try the Fieldwire app out for free, while larger customers pay a monthly fee per user on a scale that goes up to $89 a month. Fieldwire says it has more than 2,000 paying customers, including Clark Construction, Australian firm Built, and EllisDon of Canada. Each of those, the three largest of Fieldwire’s enterprise customers, have thousands of active users.
Even so, Sosin says Menlo Ventures took a careful look at the more entrenched construction management software companies before deciding to invest in their rival Fieldwire. “There are other players in the construction space that are doing well,’’ he says.
PlanGrid started a revolution in the field by digitizing construction plans, Sosin says, but it left some openings for Fieldwire to fill. Fieldwire maps out the tasks that need to be done to execute the construction plan, and helps orchestrate the workflow at the detailed field level, he says.
Sosin says Procore has done well. But in his view, it’s geared more toward project management at a higher level than the labor in the field. [A comment attributed to Menlo stating that Procore originally sold on-premise software has been removed. Procore says its software has always been cloud-based.]
By contrast, Fieldwire has grown its customer base from the ground up, by introducing it to construction crews—who start with downloads from an app store—then securing paying customers on individual projects within a larger construction firm, and later selling to the entire enterprise, Sosin says in a Menlo Ventures blog post co-authored by Croom Beatty, a principal at the VC firm.
When Fieldwire approached Menlo Ventures early this year, it was growing at 100 percent per year and boasted positive cash flow, according to the VCs’ blogpost. All this in the challenging construction industry.
“Construction firms are discerning buyers who have been historically slow to adopt technologies, and construction workers are no-nonsense end users,’’ Sosin and Beatty note. “If a product is not user-friendly, they simply will not use it and deployment will fail. It was therefore extremely compelling to us that Fieldwire could spread virally—within construction crews on one project—and then across projects.’’
The Menlo Park, CA-based VC firm’s investment in Fieldwire was the third bet made from its $500 million Inflection Fund. Menlo launched the fund early this year to support companies that seem ready for a growth spurt.
Along with Menlo Ventures, investors in the Series C funding round include previous backer Brick & Mortar Ventures; Hilti Group, a large construction tools, software, and services company based in Schaan, Liechtenstein; and venture capital firm Formation 8, which led Fieldwire’s Series A round in 2015. Although the three founders of Formation 8 have disbanded their partnership, the fund is still active, and it has invested in Fieldwire’s Series B as well as its Series C round, Fieldwire says. Brick & Mortar Ventures, which specializes in construction technology, announced last month it raised a $97.2M fund—its first.
With its new money, Fieldwire’s fundraising total is now $40.4 million. The company plans to continue an international expansion, support further research and development, and increase its staff of 65 to 150 employees by next summer.
Venture firm backing for construction technology is on the rise, according to a Pitchbook report in mid-2018. Back in 2008, only two companies got funding, for a global total of $4.5 million. That total rose to $538 million spanning 40 deals by 2017. By mid-2018, venture firms had committed more than $900 million to construction tech firms. But that total includes a sort of whale in the bathtub—an $865 million funding round, led by the SoftBank Vision Fund, for Katerra, a construction firm that uses software to streamline its design, architecture, supply chain, and building processes, as well as the manufacture of its own door frames and other construction materials.
In the same report, Pitchbook also lists a dozen VC firms or other investors that have backed at least four construction tech companies: Brick & Mortar, FundersClub, Y Combinator, Andreessen Horowitz, 500 Startups, Almi Invest, Danhua Capital, Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, Reilly AlphaTech Ventures, Right Side Capital Management, and True Ventures.
Menlo Ventures hadn’t gone looking specifically for a construction tech firm when it got interested in Fieldwire, Sosin tells Xconomy. Instead, the firm looks for young software-as-a-service companies from any sector that fit into a particular pattern. In their blogpost, Sosin and Beatty lay out the traits required to qualify as the kind of promising business they call a “trifecta.’’
First, such companies digitize and automate workflows, giving them an entrée into a certain cohort of customers. Second, their services accumulate important data sets that can be valuable to businesses beyond their original group of customers. Third, they can draw on their data to offer services to new market participants.
“They become the operating system of that industry,’’ Sosin says. “Others want to connect to that hub.’’
Menlo has already invested in three companies it sees as trifectas: Carta, whose cap table management software keeps track of the equity stakes of investors in companies; Indio, which manages digital insurance applications; and Qualia, a cloud-based system for the documents required for real estate closings.
Sosin says Fieldwire qualified as a trifecta. By making it easy for construction teams to keep records and photos of tasks completed, change orders made, and inspections done, it can create a “system of record’’ that becomes valuable not only to the construction team in the field, but also to the later owner of the building, for example. The construction firm could grant the building owner and operator permission to access the records, to better understand how the building is wired, and plumbed, and braced.
“It’s data that will ultimately allow Fieldwire to expand beyond stakeholders in the field,’’ Sosin and Beatty write in their post.
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