The Pre-Emption Playbook in Construction Tech

May 7, 2025

In this episode of Practical Nerds, we unpack the seductive yet risky world of investor preemptions in construction tech. Learn when early offers are truly a sign of conviction — and when they're just a play for information.

Shub Bhattacharya

Patric Hellermann

The Pre-Emption Playbook in Construction Tech

We're about to hit episode 70 of Practical Nerds. Two whole years of rambling conversations recorded for posterity with no idea who's listening. And yet here we are, still sharing insights on the wild world of construction tech investment. Today's topic? The mysterious dance of preemption — when investors throw money at you before you've even asked for it. Sounds dreamy, right? The reality might surprise you.

This Week On Practical Nerds - tl;dr

Genuine preemptions require real investor conviction not just information gathering

Internal preemptions from existing investors often trump external ones

Successful preemptions happen when you're NOT actively fundraising

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Genuine preemptions require real investor conviction not just information gathering

How can founders spot genuine preemption interest?

The dream scenario for any founder: an investor approaches, eager to lead your next round before you've even started fundraising. The capital markets equivalent of being asked to prom by the quarterback when you hadn't even planned to attend. But here's the kicker — most "preemptions" aren't what they seem.

About 50% (or more) of supposed preemption attempts are merely information-gathering missions. VCs whose job requires keeping promising companies on their radar will use preemption interest as a way to extract details about your business that wouldn't otherwise be accessible.

Out of roughly 180 fundraising rounds across their 60 portfolio companies, Patric estimates only about five genuine preemptions occurred — defined as situations where there was true intent and the preemption actually happened.

For a preemption to be legitimate, there needs to be a foundation of relationship-building. Patric has "never seen a preemption that eventually we were happy with... done by a person that hadn't known the company for at least six months." The investor doesn't need granular data about your business, but they should have comfort with your vision, direction, and most importantly, chemistry with you as founders.

This doesn't mean founders should avoid investor conversations between rounds. Quite the opposite. The key is controlling what information you share. Talk about yourself, your journey, your long-term vision — but keep specific metrics close to the chest. A practical strategy? Decline virtual meetings but accept coffee when investors visit your city.

The truth is, if you're actively shopping for investors, you're not being preempted — you're fundraising. Great preemptions happen when you're genuinely off the market, creating the scarcity that makes investors willing to pay a premium.

Internal preemptions from existing investors often trump external ones

Why choose familiar partners over new money?

When it comes to preemptions, founders often face a fundamental choice: take money from existing investors or welcome new ones. While new investors might offer higher valuations or flashier brands, both Patric and Shub strongly favor internal preemptions in most cases.

"If you can get the same process from an internal investor that you like... that's always the preferred option," Patric explains. The reasoning is straightforward but profound: you already know each other. You understand their limitations, how to work together effectively, and how to align expectations.

The greatest risk with external preemptions is bringing in partners without genuine conviction. When investors jump in based on signals rather than deep understanding of your business model, problems often surface later. The hosts have silently witnessed numerous preemptions which they eventually regretted two or three years down the line.

One particular danger lies in valuation-driven preemptions. In the recent past, external investors would often enter with artificially high valuations to successfully execute the preemption. This creates an unrealistically high hurdle for the company to clear in the next round. The frequency of this pattern is staggering - they've witnessed around 50-60 companies raise at inflated valuations only to later require down rounds.

The coordination challenge resembles adding multiple co-pilots to a plane you once flew solo. Suddenly you have five or ten people reading the map with you, and reaching agreement on the destination becomes nearly impossible. With each new investor, alignment risk increases exponentially.

When evaluating a preemption offer, a simple thought experiment helps clarify the decision: would you rather work with this interested investor or another equivalent fund offering 10% higher valuation? What about 20% higher? If the valuation gap exceeds 20-25%, something may be broken—either the preemption offer is too low or founder expectations are unrealistic.

The bottom line? Founders typically overestimate the external benefits while underestimating the internal benefits of working with existing investors.

Successful preemptions happen when you're NOT actively fundraising

What conditions must exist for preemptions to work?

The counterintuitive truth about preemptions: they only work when you genuinely don't need them. Patric and Shub emphasize that successful preemptions require creating information asymmetry in the market.

"You must truly not be on the market," Patric states emphatically. "The market sniffs you out if you're doing a roadshow and you're just calling it a preemption." When you're genuinely heads-down, laser-focused on execution rather than fundraising, you create the scarcity that makes your company desirable.

For preemptions to materialize, specific conditions need to align like rare celestial events. First, company-specific factors: you need to be executing exceptionally well, consistently outperforming promises, and establishing yourself as a leader in your space. Second, investor factors: you need a champion within a VC firm who has fallen in love with your opportunity—ideally someone with decision-making influence who can "bang the table" in investment committee meetings.

Velocity is the magic ingredient. Companies need to demonstrate not just growth but extraordinary velocity in their metrics. This performance signal needs to somehow leak into the marketplace, creating interest without actively soliciting it.In construction tech specifically, successful preemptions are exceedingly rare—perhaps only two globally each year before Series A when companies aren't yet obvious. The number increases slightly for later-stage companies with clear traction, but even then, the global total might be just five to ten annually.

The paradox of preemption creates a significant challenge: when companies receive additional capital before hitting their planned milestones, discipline becomes crucial. Founders must treat the preemption as their actual next round. Using preemption capital to achieve milestones they were already funded for creates capital inefficiency. The right approach is using the original capital to hit the milestones for the preempted round.

Market volatility introduces another dimension. When storm clouds gather on the macroeconomic horizon, taking preemption capital can provide essential runway. But this requires exceptional organizational discipline.

The rarity of well-executed preemptions underscores their complexity. Among thousands of construction tech companies globally, perhaps only a handful each year navigate this process successfully. For the right company with the right investor at the right time, preemption can be transformative—but the stars must truly align.

Conclusion: The Preemption Reality Check Framework

Create relationship depth with select investors between rounds while restricting detailed metrics
Demand next-round valuation for the risk and competition avoidance benefits investors gain
Prefer internal preemptions when possible as relationship alignment trumps marginal valuation gains
Maintain capital discipline by using "old money" to hit milestones even after preemption funding

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