State of The Built World: Weekly Venture Update & 3 Highlighted Deals

The markets have been rumbling back to life on Wall Street & Sand Hill alike as annual reports of corporate behemoths and VC-backed deals begin flooding the 2023 news wire. Investors are beginning to breathe a sigh of relief with new data pointing to hints of economic optimism – record low unemployment, better-than-expect earnings brightening 2023 outlooks, and inflationary pressures notably decelerating.

BuiltWorlds Venture Dashboard tracked 14 (in scope) early-stage VC deals totaling more than $182M in fresh innovative capital this past week. Investments ranged from a $7M Seed round for a Canadian collaborative design solution (Digs) to a sustainable window startup (LuxWall) raising a $33M Series A.

Venture capital deployment into built-world startups is defying the traditional economic implications of what has become the most aggressive monetary tightening cycle in over 4 decades. The resiliency of AEC innovation aligns with the value-supported long-duration nature of this still-developing venture niche (lowering near-term exposure), allowing these investors to look beyond transient economic vulnerabilities, and toward the future of the built ecosystem.

Annual Earnings in the Built Worlds 

On the publicly traded side of the built world, the latest set of year-ending financial reports depicted better-than-expected results, with boosted 2023 projections, providing a nice springboard price action for a number of valuation-compressed AEC leaders.

Despite demand thwarting rate hikes, leading US home builders like D.R. Horton, PulteGroup, & KB Homes were able to maintain strong operational buoyancy. The early innings of 2023's home buying activity are already showing revived demand as rates revert back towards the norm - The Fed is expected to stop hiking, and in fact, drawback its benchmark Fed Funds rate towards the neutral 2.5% in the back half of 2023, pulling the average 30-Year mortgage rate down a full percentage since December.

Leading publicly traded built world innovators are yet to report with Trimble (TRMB) releasing its year-end earnings Wednesday morning (2/8), Procore (PCOR) & Autodesk (ADSK) reporting next Thursday (2/23), and Bentley Systems (BSY) releasing its results the Tuesday after that (2/28).

Year-concluding reports from these building-tech leaders will set the tone for AEC-tech across maturity levels as they will reveal the building market's appetite for the adoption of innovation.

Spreading the Intellectual Wealth

Despite fear-mongering headlines surrounding mass layoffs in tech, initial January employment data suggests a hiring boom to kick off 2023. +517,000 net new jobs (seasonally adjusted) were added to the US economy this past month, blowing economists' +187,000 estimate out of the water, outpacing January 2022’s hiring frenzy by +10.7%, and sending the unemployment rate down to 3.4% for the first time in more than half a century (which some worry may be granting the FOMC too much ammunition in its monetary tightening approach).

Layoffs in big tech aren’t translating to a decline in employment due to the prevailing US labor shortage (11 million job openings still at the end of 2022) placing these highly qualified individuals quickly back into the workforce promptly.

The Amazon’s, Apple’s, and Alphabet’s of the world egregiously overhired in the wake of the pandemic’s digital acceleration. Whether driven by overzealous expectations, overcapitalization, or a more cynical strategy of hoarding intellectual human resources, it was only a matter of time before bloated tech giants were forced to spread the "intellectual wealth."

Big tech layoffs rapidly redistributed some of the best and brightest of our future workforce to sectors that are desperately in need of their digitalizing skill sets.

The Federal Reserve pushed their benchmark rate up another 25 bps last week (now at 4.5% to 4.75%), matching market forecasts like clockwork as Chair Powell continues to employ an especially market-appeasing monetary approach – the publicly traded bank hedging tool, Fed Fund’s futures, have shaped the FOMC's rate hike path (evolving with the macroeconomic backdrop).

Corporate America is shaking off the ease-money excess of 2021 (& spilling into early 2022) by leaning up bloated operations, and rapidly implementing worker augmenting and operationally optimizing tech. The paper-trailing construction space is riper than ever for a "gentle disruption."