On Growing Up a Bechtel, His Early Stage Investment Philosophy, Whether Now is Actually The Time for the Built Environment, and Advice to New Startup Founders
At our Venture Conference, BuiltWorlds’ Director of Communications, Nick Durham, had an opportunity to sit down with Darren Bechtel, the Founder and Managing Director of Brick and Mortar Ventures. Their conversation covered quite a lot of ground, including Bechtel’s unique upbringing, his investment philosophy, trends he’s bullish on in construction tech, and advice to new founders searching for venture capital and product market fit. The transcript of their conversation is below.
Darren, to give the viewers an idea of your background, do you want to start talking your last name and how you wound up here speaking at a Venture Conference?
Haha, yes. My name is Darren Bechtel. I usually spend a fair amount of time early on [in conversations] explaining that while I work closely with our family business of the same last name, I launched a separate fund called Brick and Mortar Ventures, which is independent of the family business. We have a number of corporate partners and investors in the fund, and we are trying to service the broader AEC and facilities management industry, which was the world I grew up in.
I started working every summer since I was 14. My first summer job, I was on my hands and knees plugging in network cables. And then, over the next few years, I did everything from working for a local residential builder as the gopher to the gopher on a homebuilding crew; a finish carpenter; a mason...I was hanging drywall; I was a forklift operator...and then on some of the Bechtel jobs, I did field engineering on a light rail project in Portland, Oregon and I oversaw a team of pile drivers on the expansion of the world’s largest coal terminal in Newcastle, NSW, Australia, so really I was kind of all over the place and it was a sprint pace rotation to understand the full spectrum of construction ranging from local residential through to major industrial and infrastructure. And that was all in a condensed period before I turned 18.
That's quite a childhood upbringing.
It might seem strange, but it's par for the course if you are growing up in the Bechtel family. You’re expected to work hard.
We have a policy in our family for those interested in working for the family business, we are encouraged to actually go work somewhere else for at least two years following college.
So I went to Stanford and got a Mechanical Engineering degree with a focus on Product Design. Some people are not familiar with Stanford’s d.school or Ideo and their concept of user centric-design. It's this idea of starting with understanding the unmet needs of your users. Then go through an iterative design process of rapid prototyping, testing it, improving it, until you ultimately get to a commercially viable solution that solves the true unmet needs of the customer you're trying to serve.
With that sort of blend of engineering and design training, I followed the design side and joined an architecture firm out in Washington D.C. where I was told I was being hired as an architect and I showed up and it turned out they hired me as a CAD monkey. I was converting hand drawings into CAD models. Within a couple of months after taking a stab at a few design concepts they made me an architect, so I started doing some of the design work while still doing engineering reviews and CAD modeling. When they realized that I knew construction, they had me start leading up some of the construction administration work. So I wore a lot of hats, but I really missed the hands-on tinkering and problem-solving. Architects are regularly coming up with beautiful design concepts, but they aren't necessarily deeply involved with the “How do you bring this to realization?” process. “How do I build this concept?” I really am a tinkerer at heart.
It what was a fairly large pivot for me at the time, I came back to California and joined a medical device startup as an R&D engineer, where I got to draw upon the rapid prototyping and iterative design process that was core to my undergraduate training. I started at a low level as a junior engineer and then, over the next eight years, I moved my way up from engineering through business operations, corporate governance, and then ultimately became a turnaround CEO role at that company.
I started off in the engineering and construction world in a variety of different roles, and then I ended up in a startup environment and, in this case, as is always the case in the life sciences world, in a fiercely competitive and heavily regulated industry, and we were developing products that had both hardware and software components. It was basically a simulated environment that has all of the possible stresses of startups in one.
It was a very humbling experience for a newly-minted MBA that thought it was a slam dunk and he could conquer the world. I really kind of cut my teeth in the startup world in that operations and management role. It gave me a much better appreciation for the struggles that innovators and founders are dealing with on a day-to-day basis.
Along that journey I started doing some angel investing, primarily backing fellow classmates and young alumni coming out of the Stanford graduate school program. I really loved it. It was a great sort of vent for me as I was getting beat up on a day-to-day basis in the med device world. I could turn and have these sorts of PTSD moments and tell these 90 year-old war veteran stories of “what happened when I was trying to do this” and I found it really rewarding helping coach and enable some of these innovators to get from concept to early commercialization. It became clear to me that I was destined for this world of venture investment.
Interested in seeing more BuiltWorlds content centered around venture?
Here are three premium videos with insights from Brick and Mortar, Fifth Wall, and Borealis:
Investing in the Smart City - Jesse Devitte, Borealis
Bridging the Gap: How Fifth Wall is facilitating tech innovation in real estate - Reoloff Oppermann, Fifth Wall
Increasing investment in the built world - Darren Bechtel, Brick and Mortar Ventures
Can I ask why you guys didn't create this giant built world fund and why you went to construction side instead of the real estate side?
It became clear to me that with the development and adoption of construction tech being so early in its infancy and sales cycles being so long, our needs as a fund and team would be very different, and there would be limitations on the amount of capital we could deploy. When we started three years ago, I would have been reluctant to take more than fifty million dollars in committed capital from limited partners because I was concerned about maximizing the returns on a fund any larger than that. I had believed at the time that, based on early indications, we would see the market mature; there would be sufficient deal flow to justify a standalone, construction sector-specific fund; valuations would go up; participation by growth stage investors would go up; and exits would come. We did not want to get too far over the tips of our skis and raise too large of a fund too soon, we took a much more conservative and deliberate path, and it wasn’t really until last year that we started seeing some of those early beliefs, or rather predictions, start panning out. We have seen our sector’s first billion dollar exits in just the last four months; we have seen billion dollar valuations; and we have seen startups raise more than a billion dollars. Now, partially driven by these checkbox milestones, we are seeing an increase in participation by later-stage investors and we have greater confidence that startups will have access to follow-on capital...but if we had raised a billion dollar fund, we would not have been able to make the returns we are targeting, especially starting three years ago. But, you could argue that based on how exciting we believe the next ten years are going to be, you could.
When a lot of people set out to raise a fund, they're going to take as much money as they can get, so it is interesting that you tried to control it, and I respect that decision.
I think it's partially that having that long-term view and a desire to build a legacy is kind of at the core of your DNA when you grow up in a family that created a 120-year-old business with five generations of family leadership. We want to make sure that as some of the early movers in the space, we are doing right by the users we're trying to serve. The AEC industry is warming up the technology and having an appetite for piloting and tinkering. We want to make sure that appetite isn't abused.
A fear of mine is that while we're starting to activate the industry to become more nimble, more innovative, a customer has a bad experience. The last thing we want is the people who are willing to risk investing in a new technology to become calloused, shy away, or say we're going back to paper and pen. We have a role of being a bit of a sherpa or innovation advisor and help facilitate setting up technology pilots. If we continue to build this reputation as the trusted, go-to, must-have early stage investor for the built world, we will undoubtedly be financially successful.
A fear of mine is that while we're starting to activate the industry to become more nimble and more innovative, a customer has a bad experience.
We will have access to great deal flow; startup founders will speak favorably about our partnerships; the industry will know that we aren’t just trying to sell them what’s in our bag, but instead have a vested interested in seeing the industry move forward and realize the benefits of new technology. The corporate strategic investors we have in fund one, we want to ensure that if and when we get to fund five, they are excited to continue to partner. The industry leaders and partners we are able to call right now and reach on the phone, we want to make sure they continue to pick up the phone in thirty years.
Alright so confession. I was trying to scope you out for this interview earlier with no luck. You’ve been mobbed all day and have dozens of startup founders lining up to meet and chat with you. Can you spend some time talking about the advice that you're giving some of these guys? What do you need in order to take a meeting with them, and then what do you need to see to fund them?
We like talking to everybody under the sun. I think we are able to see that potential well before an industry outsider would. We won't be investing in a napkin sketch, but we love understanding what's coming and we love to help people get through the earliest days of formation and concept development to the point where they are ready for a potential investment from us. Typically, in most of the cases with our 19 companies -- soon to be 21 companies -- in our portfolio, we have known the founders for six months to two years. In some cases, we were the ones that turned them on to the construction industry at first; we introduced them to their potential customers; and we helped get them their first pilots.
In some cases, you'll have someone that's able to develop a really impressive technology and they are looking for the market, which can be a dangerous approach. You don't want to start with the technology and try to jam it in someplace. With certain founders you can see that they're going through the right motions, they're really evaluating the market opportunity, they're taking the time to do the customer discovery and really trying to develop the right solution for the industry. If we see all of that happening, it helps build our confidence in those founders. That's why we never tell someone to “f*** off,” because true entrepreneurs are hungry and as long as you can give them feedback, it's impressive to see how quickly they might turn around with a refined business model or solution worth reconsidering. Honestly, that's the genesis story of a number of companies in our portfolio.
If it's the kind of thing in the first meeting where we look at it and think it's the slam dunk, then they're probably able to raise capital from other people. Some investors say that that's maybe not a wise strategy because we're offering essentially free help and if we help the founders build enough value or a strong enough business before we invest, we have to pay a premium. But we're finding that similar to building goodwill with the industry leaders as sort of a Sherpa helping them navigate this new digital era, startup founders realize that value, too. They realize that we've got a long road ahead together before there's a potential exit. All we look for is fair economics when we come in, because we're typically the first venture check in and if you've got disagreement over ownership or valuation that early and you typically have another five, six, seven years before you get to an exit, it's not going to get any easier.
So we regularly put together these demo days for industry customers and it's a mix of portfolio companies that we like as well as companies outside the portfolio because we're really trying to just promote the best technology. I'd like to think that we're investing in the best technology, so we have a healthy representation of our portfolio when we're sort of putting people on stage. It's satisfying to be in the mix there, in the early stages, trying to help get them to a point where we feel comfortable investing and then the next stage is getting them to the point where we're able to get more seasoned, later-stage, and I'd say more skeptical, investors to also see the value behind the opportunity.
There is a tectonic shift coming and there's a new generation of competition coming in and threatening core businesses.
As honest as you can be, is now really the right time to invest in the built environment. Or are we still a few years away from mainstream tech integration and adoption?
Yes. We are betting it is the right time. For those that have spent any time at these kinds of conferences meeting with startups and the industry of potential customers, meeting with infrastructure investors, going to academic institutions, going to recruiting days, innovation and new technology is the talk of the town, and there is a real sense of urgency. From the builder’s standpoint, it is the first time that a number of 100 plus year-old construction firms are waking up in a cold sweat and saying, we might get "Uber-ed. We didn't think that was possible. We got here because we were the experts, we worked hard at it, we built this company over multiple generations.” But there is a tectonic shift coming and there's a new generation of competition coming in and threatening core businesses. Instead of innovating to try to improve productivity, there is a sense of urgency and need to innovate to survive, let alone thrive. Similar to how in developing countries, depending on how much of a lack of infrastructure there was, some lept right over installing landlines and went straight to cell phones. There is definitely that potential here. And that’s what we are betting on.
As you look at current landscape of the built environment, that are you most excited about right now?
We are excited about this new emphasis on collaboration. There are tools to allow people to collaborate within internal teams as well as tools that allow third parties and all stakeholders in the built world to collaborate. If you believe in a future where we have human-less job sites, we're going to have to have a lot of information. If you believe we are going to be sending in the robots and the drones, they need to have a detailed plan of what is supposed to be and what things are supposed to look like, as well as the ability to capture what exists around them in order to compare a digital twin against a robust plan. If you are doing fully-autonomous facilities management, you will need an accurate as-built model to refer to, and that’s pretty tough to come by these days. The only way that's going to exist -- having an accurate as-built BIM model with rich data to be able unlock all of the potential that that offers -- you need to have all of the stakeholders weighing in, collaborating, and contributing to each other throughout the complete project lifecycle. This rich data might exist in the hands of one stakeholder in the form of a hyper-detailed BIM model. If we can now connect that information to the job site and get that same level of information to the people that are doing work at the workforce, and providing them tools so that they can update, comment on, or suggest edits to the model -- have that one central truth of what we're supposed to be doing and what has been done -- we open up a whole world of possibilities that is particularly exciting. Tied into all of this, there a ton of focus and priority put on safety. We're not seeing as many startups yet in that space, but it's something that we're very excited about. Everyone wants to be able to deliver as promised, do it in a safe way, go home to their families at night, and wake up and do it again. And if you're keeping everybody safe and you're running an efficient project, the industry can cut down on a ton of waste.
Today, you can throw on an Iron Man suit; look through the wall; have a computer do object identification and tell you exactly what wire cut; and overlay additional layers of information on a worker’s field of view to allow them to perform traditional tasks armed with valuable real-time information.
There's a general increase in human productivity and satisfaction when people feel safe.
That's so true. And when safety is a true priority from the project level all the way up to the corporate level, employees can feel it and it makes you feel like part of a family that is looking out for each other. Zero injuries is, or at least should be, everyone’s goal, and I think the industry at large is not that far from being able to more easily and consistently meet this goal. Sensor technologies, better control systems, and a mix of augmented workers and smart equipment will all meaningfully contribute to help keep workers safe. Fundamentally, I don't believe we're ever going to see a human-less job site, but you will see the augmented worker, and we need to provide with the tools to give them superhuman powers.
There are a million different exciting worker augmentation solutions in development out there. Today, you can throw on an Iron Man suit; look through the wall; have a computer do object identification and tell you exactly what wire cut; and overlay additional layers of information on a worker’s field of view to allow them to perform traditional tasks armed with valuable real-time information. We're seeing some great applications in augmented reality for welding applications, using high dynamic range imaging so you can now do the equivalent of surgery with the lights on. I'm not sure if you've welded before. In a past life, I was a TIG welding instructor and taught a bike frame building class in college. When you're welding, it's either lights on or lights off, and you can't see a ton of other stuff. You're trying to sort of track and gauge the temperature of the two different materials that you're trying to weld together and you're adding filler material just at the right time. If you can provide the operator with real-time data on temperatures of materials or size of weld pools, you're not automating the welding process, but you're giving that person more confidence in the conditions so that they can make a judgment call of what actions to take, know how things are going, and whether to intervene or change course. Those same technologies could be paving the foundation for enabling autonomous execution of work, but there's immediate value when you can provide someone the equivalent of heads-up display.
Another one that we're really excited about is using virtual reality for training simulations, or ultimately for remote operation. Similar to fighter pilots, on day one of training you don't get put into a jet and told: "Take it for a spin, come back, and we'll talk about it." You can now put people into an immersive environment, go through a simulation of the actual task that they are going to be performing or go through an extremely unsafe condition to try to see how they'll respond without ever exposing humans to that kind of risk.
That's pretty fascinating to see. This question is going to be two parts. Name one contrarian you have in your investing philosophy. And then also tell us about a dark horse technology that no one's talking about.
In terms of a contrarian view, two buzzwords or investment areas that we've seen a lot of money going into and a lot of buzz that we've stayed away from are blockchain for construction, and that’s primarily because I just don't understand it -- a Warren Buffet kind of approach to investing of “If you don’t understand it, avoid it” -- and then drones. For both of those cases, the reason we haven't seen great solutions yet is because they weren't really designed with the end users’ needs in mind. I'm not sure if that was just a lack of knowledge of the use case or if it was trying to fit a square peg into a round hole by starting off with a solution or technology and then looking for a market.
We think there is real potential in drones, but we were never really entirely won over by any single solution.
There are a lot of great applications for leveraging drone technology to automate reality capture scanning technologies to be able to give users real-time actionable insights on stuff that they otherwise didn’t know or couldn’t easily measure. But until someone can develop a purpose-built, end-to-end solution that you can take to a builder and have them say “Yes! This is exactly what I was looking for. This solves a problem for me,” it’s going to be a tough sell. We’re seeing some of the well-capitalized, first-generation “drones for construction” teams are being recapitalized right now. We think there is real potential in drones, but we were never really entirely won over by any single solution. We are very excited about some of the work people are doing on indoor drones and other autonomous indoor reality capture technologies, because the amount of construction that happens outside is somewhat limited to horizontal construction and the exteriors of structures. To be able to capture information once construction goes inside or underground unlocks a whole additional world of opportunities.
A hidden gem technology is some of the additive manufacturing and subtractive manufacturing technologies and applications. There are new manufacturing processes in development that open up the potential for entirely new ways for not just building the built world, but also designing the built world. There's exciting sort of futurist like views on whether we'll be able to use biomimetics to model the built world after things we see in nature like spiders’ webs. Those sorts of concepts we used to not be able to make because of the limitations of traditional building techniques and fabrication processes.
Nick's Final Notes: This interview could've gone on for hours more. Unfortunately, Darren's energy to contribute to BuiltWorlds and the industry at large outlasted the capacity of our batteries : ). So with that, thank you, Darren. We hope this piece can be a place for startup founders and investors alike to not just scan through once, but come back to frequently to consider his words and vision further, and ultimately see the potential of creating and investing in a sleeping giant of a sector.
Want to keep your finger on the Venture pulse?
Over the next year, BuiltWorlds has a variety of ways for you to get involved and meet key players like Darren in person.
- Our Venture West Conference is November 9th in San Francisco. (This event is sold out. Sign up for the waitlist by clicking the link)
- On November 10th, we're hosting a Demo Day for built world tech startups who'd like to meet VCs and Corporate investors. For more info, apply to our Venture Forum.
- Once again, we're hosting a Venture Chicago event in April 2019. Be sure to grab your tickets before they run out!
- Keep an eye out for venture-related insights produced by BuiltWorlds' esteemed Research Team.