Watch Episode 1: Origins

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Inception

Foundamental's origin story defies VC norms, blending diverse backgrounds into a cohesive vision.

We founded Foundamental in January 2019 with a thesis, a prior track record, and $60 million in commitments. Five years later, we've grown to more than $250 million. As of 2024 and our third fund, we're flush with the available financial air power to back and cover the most ambitious builders, starting at their day zero.

Our journey began with an unlikely proposition. As Patric Hellermann recalls, "One of us was approached by an LP and the discussion eventually went, 'Hey, we have diligenced multiple funds that invest in construction tech, and we like none of them, but we like you. Why don’t you found that firm?'" Why indeed.

This opportunity kickstarted a rigorous 9-10 month diligence process. We had to ask ourselves: could we deliver exceptional returns over the next 15+ years? It wasn't just about seizing an opportunity; it was about betting our careers on a sector we initially knew little about.

None of us came from construction, architecture, or design backgrounds. Two of us were in prior VC partner roles at revered firms, while one came from executive roles in the industrial world. This diversity became our strength. Shubhankar Bhattacharya explains, "We decided that the winning approach, at least in the beginning, will have more to do with best-in-class principles in VC than going very heavy on industry knowledge."

Our backgrounds may have seemed like a "random mash-up" to outsiders. But we felt like the obvious team to build the pre-eminent vertical technology investment firm for the real world due to our unique takes and willingness to put in the work.

We approached our firm's creation with the same rigor we apply to our investments. We even analyzed our personality types to ensure complementarity. As Shub notes, "Patric and I are at the complete polar opposite of personality types." This diversity in thought and approach has proven to be a cornerstone of our success.

Our commitment goes beyond just raising funds. Patric emphasizes, "Most VCs raise funds because there is fundraising opportunity, not because there is what we call DPI opportunity - distributions to paid-in capital opportunity. The difference is, well, some people raise funds because they can raise it, and some people raise funds because they can return it exceptionally well."

At Foundamental, we're firmly in the latter camp. Our mission isn't just to help ambitious founders in AECS change the world - that's the job of the founders we back. Our job is to allocate capital efficiently and return it with very high performance. This clarity of purpose has guided us from day one and continues to drive our strategy as we grow.

Global

Foundamental's global approach isn't just a tagline - it's our core strategy for generating outsized returns.

When we set out to create Foundamental, we made a conscious decision to be truly global from day one. This wasn't just about having a presence in multiple countries; it was about creating a unified global brand that could leverage insights and opportunities across diverse markets.

Shub explains our rationale: "I don't believe that in any single geography, you will be able to identify and drive enough companies that will create absolutely generational DPI (distributions to paid-in capital)." By operating in multiple regions at different points in their economic cycles, we gain better access to liquidity and a wider range of investment opportunities.

Our global approach isn't just about geographical diversity; it's about leveraging different market dynamics. Patric elaborates, "Being in different global markets in different S-curves and having access to different company profiles with different IPO liquidity allows you to much better drive DPI than if you're in a single geography."

We've structured our team to reflect this global mindset. Our investment teams spread across North America, Asia-Pacific, and Europe, each led by a General Partner born and raised in the region. This allows us to embed deeply in local markets while collaborating globally.

Our approach goes beyond what we call "GINO" - Global In Name Only. As Patric points out, "Global in name only is like, 'Hey, I have most of my partners and the investment committee sitting at the West Coast, and then I will do some deals in Europe and some in India.'" That's not us. We've invested in creating a truly unified global platform.

This global strategy isn't just about diversification; it's about creating a unique moat for Foundamental. Shub reflects:

"If we judge our prospective investment targets on the basis of whether they're defensible or have a moat, it's only befitting that we ask that question of ourselves."

Our global approach, when done right, becomes a source of defensibility that sets us apart in the VC landscape.

Our global reach allows us to identify trends and opportunities that might not be apparent to regionally-focused firms. For instance, we've been early movers in backing managed marketplaces in construction, many of which have come from India. This experience gives us an edge when evaluating similar models in other parts of the world.

As of 2024, we have partnerships with founders in more than 22 countries who serve more than 75 geographies across the Americas, Asia-Pacific, and Europe. This isn't just about having a wide reach; it's about fostering cross-border knowledge transfer that the best founders find invaluable.

Our global strategy demands more from us as investors. It requires us to project ourselves into different local market contexts during every deal discussion. But this challenge accelerates our learning and sharpens our investment acumen. As Shub puts it, "It's a muscle we have trained enough as a firm where we are now able to do it, and even when we get younger people into the team, they also have developed a playbook to do that."

Craft

We approach VC as a craft, not a factory, nurturing individual strengths to create unique outcomes.

At Foundamental, we've come to realize that venture capital isn't a science, nor is it purely art. Instead, we view it as a craft. This perspective shapes everything from how we make investment decisions to how we structure our team and processes.

Patric explains this philosophy using an analogy: "There's companies and industries that operate like a factory, and then there's companies and industries that operate like art. The difference in a factory is I focus on getting the exact same outcomes consistently and repeatedly... While in a business that operates like art, these businesses repeat neither the outcome nor the accountability for generating another great outcome (”oh this is art, it’s supposed to be like that”). We view our business more like a craft, the main difference is you don't want the same outcome every time, but you train the way you drive the tool. In a craft, you find it desirable to have every high quality outcome be unique, but you hone with much routine and practice your brush swing.

This craft mentality is crucial in venture capital, where we're chasing power law outcomes - those rare, generational companies that define categories. As Patric puts it, "The definition of us chasing power law outcomes, very big generational companies, is there can only ever be one of them, and the next one that we chase needs to have its own attributes."

In practice, this means we don't try to implement rigid, one-size-fits-all processes. Instead, we nurture the individual strengths and personalities of our team members. Shub elaborates, "Each person has their signature style to it, and we sort of act almost like a council."

This approach extends to how we evaluate deals. Rather than trying to fit every opportunity into a standardized framework, we leverage our diverse perspectives. Patric might be approached for a direct, analytical opinion, while Shub might be consulted for market context and empathy on a specific opportunity.

Our craft mentality also influences how we interact with founders. We believe in truth and transparency over building trust through artificial means. As Patric states, "Founders resonate with my directness, authenticity, and honesty. I always tell them:

Truth + transparency = trust.

We've found that this approach resonates particularly well with top-tier founders who appreciate candid, substantive discussions. It allows us to build deeper, more meaningful relationships with the entrepreneurs we back.

This craft approach doesn't mean we lack structure or rigor. On the contrary, it requires a deep understanding of our individual and collective strengths, and a commitment to continuous improvement. As Shub notes, "It allows the freedom for each professional to express themselves in their own unique signature style, but you're responsible for the product you've created."

By treating venture capital as a craft, we're able to adapt to the unique needs of each founder and opportunity, while still maintaining the discipline and expertise necessary to generate exceptional returns. It's a delicate balance, but one that we believe is crucial to our success in backing the next generation of legendary technology companies in the real world.

Thesis

Our investment thesis is rooted in the massive, irreversible shifts occurring in construction and real-world industries.

When we founded Foundamental, we weren't just looking at short-term trends. We were betting on massive, irreversible shifts in the construction and real-world industries. Our thesis is built on a deep understanding of both macro factors and industry dynamics.

From a macro perspective, we saw a clear pattern in how capital gets allocated to technology sectors. Patric explains, "The time it takes from when a sector reached 5 billion of cumulated VC funding to 10 billion, it's always two to four years. From 10 billion to 50 billion, it's always two to four years." When we started Foundamental in January 2019, construction tech was at 4.5 billion. This analysis gave us confidence in the sector's growth trajectory.

But the real power of our thesis lies in understanding the underlying dynamics of the construction industry. Patric breaks it down into four key points:

Inflecting demand: "We're going to add one new York City to this planet every month until 2060." This exponential growth in construction demand is an irreversible mega shift.

Declining labor productivity: "The labor productivity per FTE in construction has been shrinking." This means companies are getting less revenue and margin on a per-head basis each year.

Qualified labor shortage: "In Europe, we're already short 900,000 construction workers in 2024, projected to be short 1.5 million by 2030. In the US, we're short 500,000, projected to be above a million in the next few years."

Idiosyncratic market features: "The AECS markets are project businesses, they are services businesses, and they are knowledge businesses." This means revenue is completely driven by billable hours and the knowledge applied in those hours. And the sector prefers buying outcomes over tooling.

When you combine these factors, you get a perfect storm: exploding demand, declining productivity, and a shrinking workforce. As Patric summarizes, "I'm looking at an exploding market that asks me to do more, but I'm doing less. I'm doing it less efficiently, I have less knowledge, and that's why technology is so important to the sector."

This thesis isn't just about identifying a market opportunity. It's about recognizing a fundamental shift in how the construction industry must operate to meet future demands. We believe that technology is the key to bridging this gap, enabling the industry to do more with less and to scale knowledge and expertise in ways previously impossible.

Our thesis also extends beyond just construction. We look for vertical singularities in 3D and design, construction and renovation, blue-collar workforce and robotics, supply chains and logistics. Opportunistically, we also take early bets in industrial manufacturing and aerospace due to their similarities to the spaces we have built deep competencies in.

By focusing on these areas, we're not just following trends – we're positioning ourselves at the forefront of a massive transformation in how the physical world is built and managed. As Shub notes:

"We are actually in my opinion just at the dawn of AECS as a category to invest in."

This long-term, thesis-driven approach allows us to look beyond short-term market fluctuations and identify the companies that have the potential to become category leaders. It's why we're willing to bet on ideas that might seem contrarian or ahead of their time. As Patric puts it, "We're not talking to our competition. We're always talking to, in the end, who is your business partners, right? And in our case, that is founders we work with."

Our thesis isn't static. We're constantly refining and evolving our understanding of the market. But the core belief remains: technology will fundamentally reshape how we build and manage the physical world, and we're here to back the founders leading that change.

Execution

Our execution strategy focuses on concentrated bets, global insights, and a commitment to founder success.

At Foundamental, our execution strategy is designed to maximize our ability to identify, support, and scale the most promising companies in our focus areas. It's not just about making investments; it's about creating the conditions for outsized returns and transformative impact.

One key aspect of our execution is our focus on concentrated bets. Unlike many VC firms that spread their investments across hundreds of companies, we maintain a more focused portfolio. This allows us to dedicate more time and resources to each company we back. As Patric explains, "We reserve more than 55% of the funds we manage for follow-ons, something else that makes our early-stage strategies unique."

This concentration strategy extends to our LP base as well. Patric notes, "Our philosophy is to build concentrated LP bases. Currently, we're at 10, and we currently cannot see ourselves being above 20 ever." This approach allows us to provide a boutique experience to our investors, fostering deeper relationships and alignment.

Our global structure is crucial to our execution strategy. By having partners deeply embedded in North America, Asia-Pacific, and Europe, we can identify trends and opportunities that might not be apparent to regionally-focused firms. Shub elaborates:

"We have realized that certain models in which each geography is on a different trajectory, on a different curve in terms of are they leading in certain models, are they lagging in certain models."

This global insight allows us to make more informed investment decisions and provide valuable cross-border knowledge to our portfolio companies. For example, our experience with managed marketplaces in India gives us an edge when evaluating similar models in other parts of the world.

We've also developed a unique approach to deal evaluation that leverages our global perspective. Patric explains, "If you were to hop in today into one of our deal meetings, in for example the context of a marketplace in, let's say, a non-Asian geography, our discussion would revolve a lot around the market conditions." This ability to compare market conditions across geographies gives us a significant edge in identifying truly generational opportunities, and finding deal sweet spots.

Our execution strategy also emphasizes eye-level partnerships with founders. We're not just looking to write a check; we're committed to supporting our companies throughout their journey. In return, we expect our founders to treat their shareholders as partners, and be vulnerable with us. This mutual trust level is reflected in our follow-on strategy. As Patric notes, "With us, we like to lead pre-seed rounds and seed rounds. It's our go-to move. We don't like to follow rounds anymore, but that will not stay the largest check if you perform."

We've backed this approach with significant capital. In our second fund, which was 84 million euros, we allocated 55-60% for follow-ons. This allows us to double down on our winners, and support firms during temporary adversity, often writing checks that far exceed our initial investment.

Our execution strategy is underpinned by a rigorous, yet flexible, decision-making process. We leverage the diverse perspectives of our team, treating each investment decision as a unique challenge rather than trying to fit opportunities into a standardized framework.

As Shub summarizes, "We sort of act almost like a council in the sense that, let's say I really love an opportunity, and the way we approach an investment committee is not so much me trying to get validation from Adam and Patric, but they are sort of my counselors trying to see if there may be other ways in which I could look at the opportunity."

This combination of concentrated bets, global insights, founder support, transparency, and rigorous decision-making forms the core of our execution strategy. It's how we aim to not just participate in the transformation of the AECS industries, but to drive it, backing the companies that will define the future of how we build and manage the physical world.

Continue Watching

Ep. 1: Origins

Ep. 2: Patterns

Ep. 3: Fallacies

Ep. 4: Convictions

Ep. 5: Singularities

Ep. 6: Disruptions

Ep. 7: Destinations

Ep. 8: Freestyle

tl;dr

Inception: Foundamental started in 2019, bringing together diverse backgrounds to create a unique VC firm focused on construction tech. We bet our careers on a sector we initially knew little about, driven by the conviction that we could deliver exceptional returns in a market about to inflect generationally for decades to come.

Global: Our truly global approach sets us apart, allowing us to leverage insights across different market cycles and geographies. We're not just "Global In Name Only" - we have deep roots in North America, Asia-Pacific, and Europe across a globally unified team.

Craft: We view VC as a craft, not a science or pure art. This approach allows us to nurture individual strengths, adapt to unique opportunities, and build deeper relationships with founders.

Thesis: Our investment thesis is rooted in massive, irreversible shifts in construction and real-world industries. We see a perfect storm of exploding demand, declining productivity, and a shrinking workforce, creating a huge opportunity for technology-driven solutions.

Execution: We focus on concentrated bets, leveraging global insights, and committing to long-term founder success. Our execution strategy emphasizes transparency, rigorous decision-making, and significant follow-on investments in our winners.

Crafted Proudly In Partnership With Bricks & Bytes

This video and associated content was produced alongside Bricks and Bytes. Please support the amazing work they are doing for the AEC founder community by visiting their full Super Series page here.