No tree, it is said, can grow to heaven unless its roots reach down to hell. After a long streak of growth, construction tech (Contech) funding has slowed down in the previous year in terms of invested capital. However, even though the amount of inbound cash has slowed down, the number of deals is still on the rise.
Construction Dive reports that the seemingly unstoppable growth of construction technology funding came to a screeching halt last year, as total investment in the space dropped to $3 billion in 2023 from $5.4 billion in 2022, a 44% decrease, according to an annual report from Cemex Ventures. The total number of deals increased to 236, however, up slightly from the previous annual total of 228.
According to Cemex Ventures Investors were more conservative due to macroeconomic factors such as steep interest rates, geopolitical conflicts, inflation, and politics, and upcoming elections. However, there remains a silver lining for the construction industry. The decrease in Contech funding from 2022 to 2023 was slightly less than for total VC investment, which fell 54%,
However, Contech has continued to make up a broader part of the overall venture capital ecosystem, per the report. In 2020, contech represented 0.60% of overall VC investment, and it rose to 1.06% in 2023. In a time where cash is no longer in abundance, Contech is growing relatively compared to other investment areas.
Distribution of deals still shows a weighting towards early-stage funding, showing that the deal flow of inbound companies receiving funding is still healthy.
Looking at what type of companies received the most funding, the category Enhanced Productivity received the most investment in number of deals, followed by green construction, which overtook Future of Construction as the 2nd most popular focus area by number of deals and 1st in terms of total investment (US$), demonstrating the industry’s commitment to going green.
With a high level of geopolitical uncertainty, Cemex Ventures expects Contech investors to approach the first half of 2024 with caution, as the war in Ukraine and the Middle eat as well as the upcoming US election creates uncertainty for the sector. However, Cemex Ventures expects investments to stabilize for 2024 as a whole and remain at the same level as 2023, with a potential decline in average valuations.
Investments in enhanced productivity are expected to still make up for most of the deals. As the industry seeks to become more data-driven, solutions that allow for real-time data capture, analysis, and decision support will be favored compared to competing solutions.
See more at Cemex Ventures.