Apologies for the hiatus in publishing, but our regular programming has resumed.
Last week, Crunchbase published some interesting data on Series A metrics from 2023. On average, startups that successfully raised a Series A last year had the following metrics:
The Series A is important to delineate because it’s the make or break round for a startup. At seed stage, metrics matter less. You are still building the engine to the machine and are selling the dream. With an A round, things become more objective. Less dream, more reality. Since you likely have built the entire engine now, the market’s judgment has arrived. What does it think? It’s hard to persuade an investor to back your vision when the early market signals are disagreeable.
Speaking for many built environment founders, the average metrics in the Crunchbase dataset can feel unattainable. In our market, growth is often lumpy and slow early due to market fragmentation, project-based work, and enterprise adoption cycles. (For example, it took Procore ten years to reach $5M in revenue). But lest we forget that we’re building technology to support a flourishing physical world and we must integrate into that very physical fabric or the risk-laden processes that construct and govern it.
Alas, most generalist VCs aren’t giving out term sheets for nobility of missions alone. This leaves built environment founders looking to raise a Series A today with three paths:
Paths 1 and 2 should be black and white. There should be no debate if you fall into these categories. However, there will be great debate. There is much incentive for founders who don’t fall onto Paths 1 or 2 to believe otherwise.
A sure signal is that you’re debating it. Another signal is that you’re having to raise bridge rounds.
The reality is that most existing BE seed stage startups should pursue Path 3. Path 3 means accepting that you are unlikely to raise a Series A and acting on it. It buys you time and optionality while figuring out the missing pieces to your puzzle.
If more BE startups pursued Path 3 when growth wasn't humming, they would be flexible enough to prioritize value creation over capture without the existential threat of not raising their next round. It’s the path of fewer resources but in exchange for extreme focus and survivability. Operating within these constraints should quickly bring clarity on where to focus your energy – Why is demand lighter than it should be? Is it a product value issue? Market timing? Poor distribution strategy? What are the key inflection points that will change things?
Path 3 is the freedom to focus on your demand issue.
The last hype cycle revealed that the factory model of VC (where founders package their business for each funding series – A, B, C, etc.) was a poor fit for most built environment startups. It lowered the bar to raise venture rounds and incentivized startups to pursue venture who hadn’t solved their demand problems (or their core economics). Look to the modular/offsite construction space for an example. Complexities of the capital stack, service area, scale limitations, and crowded competitive landscape make these poor investments for the venture capital model. Taking on large amounts of venture capital and needing high growth arguably killed both Veev and Katerra.
In challenging funding environments, there are fewer illusions and more hard truths. Would you really prefer it any other way?
Check out the Pro-Builder Q+A With Founder Brent Wadas: How BotBuilt Is Automating Home Construction. “BotBuilt's secret sauce isn't that it uses off-site construction methods but that it's using software to create flexibility in manufacturing, making industrialized construction efficiencies accessible to every builder.”
