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It’s no secret that contech startups have cash, cumulative Venture capital eclipsed $30 billion in space this year. A wave of excitement around artificial intelligence is fueling new possibilities in the space, and upstarts in construction technology are reaping the rewards.
But not everything is rosy.
Despite seeing record funding for contech startups, 2023 has also marked a turning point for incumbents in the space, who are struggling to further grow their customer base and are seeing a decline of invoicing. While a lot of opportunities await smaller contech companies, established companies have struggled to maintain new customer growth rates.
For example, big tech companies pointed to broader macroeconomic pressures in their latest earnings calls. CFO of contech giant Autodesk, Debbie Clifford, spoke plainly about her challenges for the company Third quarter earnings call November 21
“The new normal is that there is no normal,” Clifford said.
Autodesk reported one 11% decrease in turnover, and a 6% increase in deferred revenue to $4 billion, as a result of its switch to an annual billing model from its previous multi-year contract method. The company downplayed any contraction, but nevertheless acknowledged the challenges in the current market.
“While we continue to see general customer caution in this challenging macro environment, overall market conditions and business momentum were similar to what we’ve seen in recent quarters,” said Jim Lynch, Autodesk senior vice president Construction Solutions, in an email to Construction Dive.
Dan Laboe, the director of venture and investment research at BuiltWorlds, a consortium dedicated to the advancement and technology of the construction industry, Procore pointed out as an example of this apparent slowdown in contech adoption growth: Despite a 33% increase in revenue in the third quarter, he conveyed his apprehension about the future.
“In closing, it is clear that we are operating in a demand environment that has become more challenging,” said Procore’s CEO. Tooey Courtemancheabout his Third quarter earnings call November 1 Pressed by analysts, Courtemanche elaborated, saying the trend began “well before” the third quarter began.
“We think, going into Q4, it’s going to be very similar. We don’t see any real improvement in that regard,” Courtemanche said
A contech ceiling?
Laboe tracked the withdrawal of billing to customers who spent less on technology in the second half of 2023.
“Our data indicates that despite their continued secular strength, many construction companies are tightening their purse strings, cutting out technology stack vendors that don’t provide an immediate correlation to value. [or] revenue and be much more selective with new vendors,” Laboe said in an email to Construction Dive.
This bifurcation in the contech market, where startups are swimming in investment cash but incumbents have seen contractor spending slow, illustrates how it can sometimes be easier to launch a company and gain initial traction than to sustain the customer growth once a business is established.
“I don’t think this is a sign that technology adoption is over, but that a period of re-evaluating the technology stack has begun,” Laboe said.
Slowed growth
In a recent blog post, Laboe said the Procore numbers present a new hypothesis: that there may be a limit to the total number of potential contech customers in the broader construction space.
“Procore’s growth slowdown after breaching 16,000 customers this past quarter (86% of which are in the U.S.) could be a signal to the AEC risk market that an addressable market for building SaaS soon will be quantifiable: the total number of actual leads. for building SaaS,” Laboe wrote in his article.
When asked if Procore was facing an adoption hurdle, the company said it was simply focusing on its existing customer base.
“As the largest and fastest-growing technology leader, a large part of our business is expansion within existing customers, which is not reflected in the number of customers,” said Howard Fu, CFO of Procore. in an email to Construction Dive. Fu said he was confident the industry would weather the storm and cited the construction industry’s historical ebb and flow.
“Once the economic cycle turns to the upside, we expect customers to increase their volume commitments on the platform again,” Fu said.
As a potential hedge, Laboe told Construction Dive that he will monitor news channels for expansion and acquisitions, particularly from smaller startups at larger companies.
“With valuations down and investment capital harder to come by, smaller technology companies with niche customer bases can prove attractive acquisition targets for larger companies looking to secure more customers,” he said labo.
