CEMEX VENTURES TEAM, January 2023 – Forecasting investment is no easy feat, especially in the wake of volatile macroeconomic and non-market forces desolating even the most absolute of projections. Nonetheless, perhaps almost as important as reviewing Contech activity is projecting it, which is why CEMEX Ventures’ team of investment specialists have analyzed the market, extracted key insights, and summed up their prospects for the industry in 2023 along with their presentation of the 50 most promising startups that will redefine the ecosystem in 2023.
TOP 50: 2023 Industry Insights
2022 Contech performance
2022 marked a critical turning point after a series of challenging and unprecedented years. We experienced the beginning of the end of the Covid-19 pandemic and the return of temporarily limited markets and closed borders, and witnessed increasing commitment to curb temperature increases and shift toward a green, zero-waste economy.
And yet despite record-breaking spending in recent years, total Contech investment in 2022 flatlined–representing a less than a 1% drop from the year prior (2021: $5.4Bn, 2022: $5.38Bn)–due to unfavorable macroeconomic forces, which are expected to continue throughout this year.
However, compared to investment in other innovation-oriented segments, such as Fintech and Proptech, which experienced drastic declines of 30% and 38% respectively, we expect Contech investment to continue its resilience amidst the current macroeconomic conditions. Why? Because Contech is an emerging sector with a less crowded marketplace brimming with opportunities for ambitious entrepreneurs. There are many scopes within construction technology that we expect to evolve and see amplified in 2023, and later in the year we hope to start seeing a light recovery as the sector continues its path towards growth.
Looking ahead: Investment in 2023
Enhanced Productivity received the majority of total Contech investment in 2022, 53%, and will remain an important and large part of Contech innovation in 2023. This is largely because it requires less upfront capital, has a high ROI in the short term, and is one of the most accessible and “straightforward” operational areas to attack.
Enhanced Productivity will always be a popular area for investment because of the high demand for digital solutions that modernize the industry, however, there are also a lot of solutions currently available, meaning the marketplace is quite crowded. With new innovations we expect to see more consolidation at the same time as less successful players disappear.
On the Green Construction front, as governments enforce stricter environmental regulations worldwide and corporations set ambitious environment targets, there will be heightened demand for new processes, products, and services that reduce the negative environmental impacts in the construction industry. We should expect to see not only an increased number of Cleantech deals in this operational area, but also an increase in the amount of money invested in these projects.
Due to the nature of these technologies, there is a certain disparity between the valuations and amount of capital raised between Cleantech and Contech startups because usually pilots of the former are simply more expensive. To keep up with these high valuations, we will see more competition in the early stages of funding, as well as in the search for grants. Heightened pressure to comply with climate targets will undoubtedly fuel the growth of Green Construction in 2023.
Future of Construction
Likewise, past data reveals a promising year ahead for advanced building materials, industrialized construction methodologies, and robotics and machine assisted applications, such as 3D printing robots, BIM, and autonomous equipment. These technologies all fall under the Future of Construction investment vertical. Global labor shortages, the lack of a skilled workforce, project delays and cost overruns, and sustainability targets will fuel the growth of this operational area in 2023.
More specifically, we will see off-site construction as a category of interest. Off-site construction in its different forms, such as industrialized, modular, and panelized construction, will certainly experience growth in 2023.
Construction Supply Chain
Finally, although the projected investment in Construction Supply Chain solutions is positive, we can expect to see it grow at a slower rate. This is because it’s the most difficult operational area to solve. Pain-points in the supply chain are some of the hardest to change given the diversity and large number of stakeholders involved (e.g., distributors, suppliers, trucking, etc.).
Contech innovation is global in nature, however, we can expect North America and Europe to continue as the main beneficiaries of Contech investment. Having said that, we are starting to see concentrated Contech innovation in Latin America and Asia Pacific. However, many of the startups that come out of these emerging markets (e.g., Chile, Colombia, etc.) end up moving to larger markets early on, such as North America, due to their size and maturity.
Most investors in the Contech industry prefer to enter in early-stage funding rounds, and as a result Seed and Series A funding will predominate in 2023 again. This is especially true for corporate venture capitals (CVC) that seek to link startup solutions with their core products, which is one of the most difficult tasks of a CVC but is more likely to be achieved during the early stages of any startup.
In 2023, we will also see co-investing as another mechanism of industry collaboration. There is no doubt that partnerships are necessary to drive long-lasting and sustainable innovation and solve the most critical challenges of the industry. By the same token, co-investing is another way that different stakeholders can bring together their expertise to drive change.
While investing will certainly always be financial in motive to achieve a favorable economic return, co-investing provides many other tangible benefits to startups. With a diverse lineup of co-investors (e.g., venture capital funds, large corporates, etc.), startups can combine financial capital with other valuable benefits such as industry know-how, new networks, and extensive resources. Co-investing will provide real value to the quantity and quality of solutions developed in the upcoming year, which is why its benefits should not be overlooked.
Our recommendation to entrepreneurs
As a corporate venture capital (CVC), we believe in the importance of prudence and collaboration in the year to come. Although we remain hopeful for the upturn of the market late in 2023, be prudent with your cash and valuations for the entire year, but especially in the first half of the year. We are not out of the current macroeconomic environment yet, so stay ambitious while preparing for the worst.
Collaboration is the bedrock of our industry. Look for ways to include your end-user in the design of new products and services, as well as their continual improvements. Collaboration also might be unexpected, look outside of your circle to see what new opportunities or synergies can be leveraged.
In 2023, expect the unexpected.