Advancing Construction Companies into a Promising Future

Stewart Lynn, Partner at Serent Capital

1. We are witnesses to a surge in innovation in construction. Some of that innovation has emerged within existing architectural, engineering, and construction companies, and some from established software vendors, but the most exciting developments are in Construction Tech startup companies.  As the partner of a venture firm that invests on attractive industry, what are the most promising innovations you see in the start-up landscape today?

At Serent Capital, we partner with bootstrapped, growing software businesses that have a great product, happy customers, and happy employees. We have developed deep vertical expertise to help our companies look around corners and move quickly.  Since our founding in 2008, we’ve invested in more than 10 companies in the construction technology market and we’ve developed deep industry expertise.

As we consider the future construction technology stack and value chain, there are three areas of promise that we will continue to double down on going forward:

● End-to-end project management platforms

◦ One of the consistent functionalities found in construction software are project management platforms for build sites; however, many of the same legacy names have been around forever with little innovative adoption to current needs of digital-native owners/contractors.

◦ At Serent Capital, we are excited about the up-and-coming systems that can capture elements of the design, field and roll-off management elements of a project through internal updates or M&A of innovative point solutions in the market.

● Labor management

◦ The COVID-19 pandemic upended the manner in which workers communicate, collaborate and execute project workflows.

◦ As workforces become more distributed, hiring stays competitive and the new generation of digital-savvy labor enter the market, there are multiple categories of software that will better enable these trends

◦ Several that we are monitoring closely at Serent include fleet management, connected worker/IoT, digital messaging platforms, and EHS/compliance.

● Payments/billing software

◦ We are seeing an abundance of software tools that allow contractors to get paid faster and in a more streamlined fashion, as well as other actors in the precon/build/post-build process.

◦ Getting paid on time is historically a top pain point for contractors in both residential and commercial construction, so the utilization of neat technology to optimize this process (and integrate with ERP software systems) shows incredible promise.

2. In a world that is permeated with nascent start-ups focused on construction tech, how do you identify truly revolutionary innovators to invest in?

While there are many factors we consider when choosing how and where to spend our time in construction technology, a couple of the top details include:

● Customer satisfaction

◦ Are you a market leader in your category for NPS scores, and are you solving for massive pain points in the construction stack for your customers?

● True platforms vs point solutions

◦ Is this business targeting a neat subvertical/category and scalable to the point that it can either capture multiple phases of the construction value chain in an end-to-end fashion, without hitting a growth ceiling imposed by the legacy/strategic ERP or project management systems?

◦ Or, is this company simply a point solution that will inevitably be acquired – or worse, displaced – sooner than later by a larger, broader platform?

● Resistance to cyclicality

◦ Given the cyclical nature of the industry and the constrained budgets often found at the lower end of the market for purchase of technology solutions, is your business offering system of record-esque solutions that would be irreplaceable during tough times?

The possession of one or more of these traits helps us get comfortable with the opportunity to invest in solutions that may or may not be more nascent to the construction vertical than others.

3. As the leader of the private equity firm that has launched dozens of companies to success, what are some of the strategies that you follow in supporting the companies in their growth journey?

The primary mechanism by which we accomplish these initiatives is our Growth Team: the Growth Team is the vessel for our commitment of significant resources, including in-house domain expertise and human capital/recruiting leaders, to help our companies accelerate growth. Serent never charges our companies management fees, consulting fees, or board observation fees.

Some of the key areas that we’ve helped inflect growth in our construction technology businesses include:

● Engaging on critical areas at time of investment partnership launch such as pricing and bundling, payments monetization buildout, and go-to-market sales execution

● Providing sophisticated infrastructure capabilities to strengthen Product and Technology

● Leading day-to-day management of top executive searches for the business

● Codifying best practices for benchmarking of legal and HR processes

4. You are also Board Director at several other firms. What are some of your experiences that empowered you to enhance your business model at Serent Capital?

Serent Capital was founded by operators and entrepreneurs, and much of our firm today consists of high-performing individuals with similar DNA. We strive to be an involved, value-added investor, capable of providing significant operational and strategic support to our portfolio company CEOs on the most critical issues that they face as their companies scale.

5. As an ending note, what is your advice for other investors, partners and VC’s during this economic condition?

At the core of every investment thesis at Serent Capital is the importance of strong underlying fundamentals and ROI-driven investments.  Strong fundamentals may mean (sometimes but not always) profitable growth but almost always healthy gross margins, retention characteristics, customer acquisition costs, customer lifetime value, etc.  The past decade has seen an enormous influx of commoditized capital often detrimental to the long-term health of companies as they think pursue “growth at all costs” without considering the customers fundamentals.

We don’t pretend to be macroeconomic forecasters and naturally, the future is unknown.  Even if we enter a more volatile period, Serent Capital views the correction as an opportunity for investors to back market leaders with healthy fundamentals and to help those companies capitalize on opportunities. 

We are strong advocates for the wellbeing of the founders, the board members and advisors, the employees who put considerable sweat equity into scaling their businesses through bootstrapped mechanisms. Our message for all investors is to think hard about the opportunity ahead to partner with great leaders through the lens of a more grounded VC and PE ecosystem.