Q2 has ended with the broader market uncertainty at the same high level it was at the beginning of the quarter. Despite this uncertainty the AEC industry has skyrocketed its spending within the AEC market, driving historically high numbers that are largely in part of the emerging tech solution offerings within the space. Industry 4.0’s growth involves the development of advanced industrial facilities such as autonomous manufacturing plants, data centers, and last-mile warehouses are what has led to these significant investments in the construction sector. Venture capital funding within the built environment is segmented into three categories: Infrastructure Tech, Building Tech, and Construction Tech. This piece will be unpacking BuiltWorlds' State of the Built World: Q2 2023 Venture Report and the three categories within venture capital funding.
Interested in Exploring the 3 Venture Categories?
Q2 Infrastructure Tech
Infrastructure Tech encompasses a wide range of tech solutions that are focused on monitoring, optimizing, and maintaining the vital components of a building’s functionality and public usability. This includes managing essential components such as electricity, utilities, roads/highways, bridges, broadband and other infrastructure elements that ensure seamless integration and operations. This tech encompasses systems and innovations that are needed to improve the performance and efficiency of the underlying systems within infrastructure that keeps large-scale initiatives running smoothly.
This tech has emerged within the built environment as a significant focal point for venture capitalists, with a notable convergence towards sustainability initiatives. In the United States, there are substantial government incentives, amounting to tens of billions of dollars, that are encouraging businesses to adopt more sustainable principles. The European Union has set stricter regulations that are compelling companies to adopt cleantech solutions to avoid legal repercussions.
The key categories within Infrastructure Tech that are attracting the most noteworthy investments are EV charging, clean energy systems, waste management, and water management solutions. The increased investments within reflects the ongoing government incentives, which will help to foster innovation and progress within the industry.
Q2 Construction Tech
Construction Tech, often referred to as Contech, is made up of cutting-edge tech that is employed within the design, engineering, and ultimate construction of buildings and their underlying infrastructure. This group of forward-thinking innovations plays a fundamental role in streamlining the construction process, while also improving the efficiency of a project. From advanced tools such as reality capture and 3D printed builds, to modular and prefab projects, Contech includes everything involved in constructing a building from a project’s inception to its final build stages.
Investments in Q2 of 2023 within Contech experienced a decline that has reached the lowest deal count since 2020. Notably, the average Series A investment size dropped below the standard 8-digit mark for the first time in nine quarters, dating back to Q1 of 2021. In April, Equipment Share’s significant $290M growth equity round accounted for 46 percent of total quarterly capital inflows in Q2. This deal was instrumental in driving a +38.2% YoY deployment growth within the venture category, as without this investment, Contech would have experienced a dip of over -25% YoY capital inflows.
When looking at historic top capital drivers, some areas were within modular/prefab solutions, 3D-printed concrete, and material and supply chain management tech. Due to the current market shakeout within Contech these areas have received little to no support from venture capitalists.
Q2 Building Tech
Building Tech consists of tech solutions that are designed to enhance various aspects of a structure, from its composition, what materials it’s made with, and its ongoing performance and sustainability. This tech covers innovations in new building materials, sustainable practices for operations and management, digital-twin technologies that simulate and improve building performance, and other solutions that help to create resiliency, efficiency, and environmental consciousness.
During Q2, investments in Building Tech witnessed a major decline of -21.2% compared to 2022, as the influx of capital that was poured into early-stage PropTech investments began to diminish. The average Series A deal size within this category has nearly halved, declining from an average of $27.14 in Q2 2022 to $14.45 within the most recent quarter. Investors have become increasingly cautious about deploying capital within the already saturated market, only supporting their most promising portfolio companies.
One encouraging aspect within Building Tech is the investment in energy management solutions for buildings. This aligns with the agnostic investment niche of Climate Tech, as building energy usage is responsible for 27% of global CO2 emissions, according to the International Energy Agency.
Technology’s widespread integration into all aspects of the built world is continuing to become even further implemented, offering economic stabilization within the space. The AEC industry is in need of a digital enlightenment and this sentiment has been recognized by industry players and leading corporations alike. The ongoing digital transformation of the built world provides a powerful opportunity for progress and growth within the industry, enabling companies to thrive and remain at the forefront of the industry’s advancement.