This week:
What features in ConstructionTech startups the Foundamental investors have come to love over the years
Why M&A is picking up, and yet how 15 buy-side M&A professionals think the M&A process is broken and painful
How venture capital in ConTech is shaping up in recent weeks
$100M-$300M is the M&A sweet spot in construction tech (in 2023)
According to Patric, "The sweet spot that everyone seems to be striving for is these 100 million to 300 million acquisitions."
Corporate buyers want deeper startup relationships pre-M&A
Buyers say that if a banker pitches a startup they don't already have a relationship with, they likely won't do the deal. They can't properly assess risk, validate synergies, or build founder relationships in a short banker process. Buyers want to start engaging with a startup 6 months beforehand at a minimum, though earlier is better. Banker-led deals mean too much noise and competition. Buyers focus on startups they already have relationships with.
As Patric says, "Corporate buyers, strategic buyers, as well as private equity buyers that are active in our industry want earlier relationships with companies that they really struggle with banker led M&A processes."
Early stage rebound, more late stage ahead
While late stage funding has been frozen, the climate is thawing. Valuations in Europe are more aggressive than the US for pre-seed and seed. As investors see profitable startups at appealing prices, regret may spur a buying spree. More skeletons will emerge in the next 6 months, but real time improvement will be obscured by delayed negative news.
"It feels like things are opening up, mind you, really slowly, like really slowly, right? I have to say it feels to me like in many models, in many markets, the sort of generic sentiment of lumping together high quality companies with poor companies has boiled down to very, very cheap discounts or low willingness to pay," says Shubhankar.
Profitability and cash flow are attractive to investors
In the current VC climate, profitable startups with positive cash flow are appealing to investors. Founders should examine their overhead and burn efficiency. Trimming excess costs to reach profitability can strengthen negotiating leverage and make a startup the kind of asset buyers want. Investors encourage startups to focus on fundamentals like product, distribution, margins and cash flow.
As Shubhankar says, "It feels like things are opening up, mind you, really slowly, like really slowly, right? I have to say it feels to me like in many models, in many markets, the sort of generic sentiment of lumping together high quality companies with poor companies has boiled down to very, very cheap discounts or low willingness to pay."
Fundraising relies on psychology, tap your investors
Raising capital relies heavily on psychology factors that influence supply and demand. Founders should tap their investors for fundraising advice rather than inexperienced angels. Investors repeatedly fundraise in various market cycles, spot patterns, and offer needed perspective. But many founders aren't utilizing this investor expertise.
Patric notes, "Markets are psychology. Whether demand moves, whether supply moves, everything is psychology."
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Keywords: construction tech, aec, m&a, vc funding, fundraising, profitability, relationships, psychology, early stage, late stage, investors, angels, exits, mergers and acquisitions, corporate development, private equity, startups, founders, buildertech, proptech, renovation, 3d design, cash flow, growth, pre-seed, seed, series a, series b, europe, united states, latam, macro, deal flow, valuation, dilution, ownership, fundraising strategy, investor strategy, corporate innovation, emerging tech