Construction often gets a bad rep as one of the “dinosaur” industries. This is not entirely unwarranted: Productivity growth in the sector averaged just 1% over the past 20 years versus 2.8% for other industries. Nonetheless, having spoken with many developers, builders, materials suppliers, construction tech entrepreneurs, and investors over the last 12 months, I believe the industry is far more open to experimenting and embracing technology than many realize.
The built environment is confronted with opportunities and challenges of unprecedented scale, including the growing global demand for infrastructure and housing; an ongoing, escalating labor shortage; cost inflation; supply chain disruptions; and ESG (environmental, social, and governance) requirements. These challenges are pushing construction to evolve faster than ever — and there are plenty of ways founders can capitalize on new trends in the space.
Over the last five years, the construction industry has become more sophisticated and well-versed in software. For instance, 84% of general contractors implemented autonomous solutions over the past year. Innovative technology and ideas are influencing construction wherever you look. These new technologies help builders achieve higher levels of productivity, profitability, and safety. Tech founders may find that construction customers are more selective than five years ago when sharing data or buying. Conversely, most general contractors now have a technology budget, well-defined evaluation process, and team.
Construction tech founders who solve the most critical priorities for general contractors — building on budget, on time, and on scope — are well-positioned for growth in 2024.
1. Capitalize on growing subsectors of construction tech, in a hot market for funding
(Please note not all financings completed in 2023 have been announced to date and the number will likely rise substantially.)
Construction tech founders should consider how their products can serve construction and real estate customers.
Venture capital interest in construction tech reached all-time highs in the past four years, and the last three months of 2023 were an incredibly active time for construction tech startup funding. I predict 2024 to be another active year, outpacing 2023, with approximately $1 billion to $1.5 billion in total capital invested (shown in light blue).
In terms of opportunity, IT spending in construction comprises a mere 1% to 2% of revenue (versus 3% to 5% across other industries), so construction tech has plenty of runway. Buyers are also becoming more sophisticated — they increasingly value software tools that digitize workflows and help deliver superior outcomes leveraging data, AI, or automation. Seizing these opportunities and market demand, 2024 should be a good year for founders to launch construction tech startups and raise capital.
2. Bring forth sustainable practices that help customers meet ESG goals
There is an ever-increasing focus on sustainability in today’s construction and real estate industries. Per the International Energy Agency, the built environment accounts for 30% of the global energy footprint and 26% of global energy-related emissions. As such, governments are tightening the screws on builders and real estate owners to ensure buildings are up to code regarding energy consumption and carbon emissions during construction and operations.