The BuiltWorld’s venture investment community, which encompasses the leading innovators & legacy giants in the architecture, engineering & construction (AEC) space, has been exhibiting a noteworthy trend in deal-flows toward sustainability-focused startups.
The AEC innovation ecosystem is thriving as FOMO-fueled VC & cash-rich strategic funds from leading construction/equipment/tech firms race to get on the ground floor of game-changing building technology.
Adaptability is becoming a competitive necessity as we enter the digital renaissance of the Roaring 20s, and there will be no room for corporate complacency in our global economy.
Sustainable investments have become a central focus across sectors, and the margin-expanding opportunity that surrounds much of this is still nascent. Building tech has, thus, become an incredibly attractive niche for AEC venture investors – fueled also by new regulations making it close to impossible for some businesses to operate into posterity without these sustainability driving innovators.
ESG vs. Sustainable Investing
ESG investing – taking ownership in companies that are Environmentally conscientious, Socially responsible, and upholding exemplary corporate Governance – has become one of the “trendiest” investment niches. An estimated $120 billion in capital poured into this ambiguous “fringe” investment scope of ESG & sustainability, more than doubling the just over $50 billion cash infusion it saw in 2020.
Unfortunately, the lack of standardized methodology & regulation surrounding the ESG classification in the financial markets has led to this term being all but debunked in the world of investing. There have been a growing number of accusations against Wall Street’s biggest and baddest financiers who ostensibly exploited the ambiguous nature of “ESG investing” as profiteers – equity in sustainability-oriented companies has been given a valuation premium in recent years and we are now seeing numerous lawsuits & probes being brought against some of the world’s most influential asset managers.
Despite the tainted ambiguity of the ESG classification in the investment community, the widespread focus on sustainability is a very real investment trend. This space saw record (net) capital inflows of $69.2 billion in 2021, over 35% above the record it set the year prior, and for good reason: sustainability is becoming synonymous with secular profitability.
The Sustainability Premium
The existential threat that COVID & its resulting lockdowns seemed to have catalyzed a ubiquitous shift in humanities’ sentient focus toward the health of our precious planet. At the same time, technological advancements have finally propelled many sustainable practices past a profitability threshold where it is now becoming a competitive necessity, and regulatory administrations across the globe are incentivizing these efforts.
Equity in sustainability-oriented companies has been given a valuation premium in recent years by activist investors and savvy money managers alike.
The innovation-fueled sustainability boom has become a primary venture niche in the building tech space as its margin expanding potential, and regulatory incentives drive a swelling amount of capital into these initiatives.
Since June began, cash-flush AEC investors have poured $120 million into 6 uniquely positioned sustainability-focused AEC tech startups from a product/scalability development & market-fitting seed stage to growth supporting series C funding – accounting for roughly half of the private investment activity in this growth-juiced space since June began.
For more emerging trends in the BuiltWorld’s venture ecosystem, watch out for our Q2 2022 – Investment Activity report (currently on pace for a second consecutive record quarter of activity), which will be available the first week of July. If you haven’t yet, make sure you take a look at BuiltWorld’s Q1 Venture Report, which tracked over $2.5 billion in deal flows in the industry.
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