Watch Episode 2: Patterns

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Empathy

Foundamental's unique approach stems from deep industry understanding and a commitment to truly empathizing with the challenges faced by builders in the real world.

We founded Foundamental with a thesis, track record, and $60 million in commitments. Five years later, we've grown to over $250 million. Our minds are locked on finding the next 100 legendary technology companies in the real world. This growth isn't just about numbers – it's a testament to our ambition and commitment to find value where others don't see it yet.

Many generalist VCs lack true empathy for the construction industry. They try to apply cookie-cutter approaches from other sectors, which often fail spectacularly in the unique environment of AEC. As our GP Shubhankar Bhattacharya astutely notes:

"A lot of generalist VCs when they hear you say [productization] they'll be like 'oh you know what, let’s slap on a software layer on top of this outcome.' But that's not what outcomes in the context construction tech are really about. It goes much deeper, into the truly amazing idiosyncracies of AEC."

This misunderstanding leads to misaligned investments and wasted potential. We take a fundamentally different approach. Our team is composed of individuals with deep roots in technology, venture capital, and industrial operations. This diverse background allows us to truly understand the nuances of the industry.

We found that embedding ourselves deeply in local markets while collaborating globally is - surprisingly - unique. Our investment teams spread across North America, Asia-Pacific, and Europe. This structure gives us unparalleled insight into local dynamics while maintaining a global perspective.

Our unified investment committee, in which every team member participates weekly, allows us to act decisively. This global, cross-border knowledge transfer is what the best founders find so valuable. We're not just providing capital – we're offering a wealth of expertise and connections that can make the difference between success and failure in this complex industry.

Shub Bhattacharya emphasizes the importance of this approach:

"Our investment teams spread across North America, Asia-Pacific, and Europe, led by one General Partner each who was born and raised in the region."

This deep empathy and understanding allows us to back founders and ideas that might seem counterintuitive to outsiders, but which we recognize as potentially transformative for the industry.

Outcomes

Construction is fundamentally an outcome-driven industry. This shapes how we invest and the companies we choose to back.

For too long, projects running over budget and past deadlines were seen as normal, even expected. We're driving towards a new paradigm where outcomes must be delivered consistently, on-time and on-budget.

Shubhankar Bhattacharya articulates this shift that technology unlocks in AEC:

"When was the last time someone went to construct a home and it got done under budget or within time? It just doesn't happen. And I think that's the paradigm shift we are heading towards - outcomes but with a great deal more accountability towards those outcomes being delivered."

This focus on accountable outcomes is reshaping the industry. It's not just about using technology for technology's sake, but about fundamentally changing how projects are executed and delivered. We're looking for companies that can drive this transformation, whether through innovative project management tools, advanced analytics for predictive maintenance, or AI-powered design optimization.

Shub elaborates on this point:

"I think we what we are moving towards is a situation where the outcome happening by itself is not enough or not considered satisfactory. The outcome happening within a certain budget and within a certain amount of time or within the schedule consistently is going to be the new expectation."

We look for founders and companies that can drive this shift. They may not seem disruptive on the surface, but their ability to consistently deliver superior outcomes is transformative. This could mean supply chain optimization platforms that ensure materials arrive just-in-time, reducing waste and delays. Or it could be advanced robotics systems that increase precision and speed in construction processes.

The key is that these solutions aren't just incremental improvements – they're fundamentally changing the expectations and possibilities within the industry. As investors, we're not just betting on technology, but on a vision of a more efficient, predictable, and accountable construction sector.

Singularities

We search for vertical singularities in our sectors - unique opportunities that are the opposite of regularities, that others overlook due to lack of specialized knowledge or insight.

Construction tech is still in its early stages as an investment category. As Shub Bhattacharya insightfully notes:

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

This nascent stage means the playbook for success is still being written. We can't simply apply lessons from other tech sectors like fintech or consumer apps. Instead, we're helping shape a new playbook specific to construction tech. This requires a deep understanding of the industry's unique challenges and opportunities.

Our global presence gives us unique insight into emerging trends and opportunities. We see patterns across regions that others miss. For example, while construction tech funding has pulled back in some markets, we've seen resilience globally as more investors recognize its potential.

Adam Zobler highlights the advantage this global perspective provides:

"We have many more sandboxes that we're playing and we're probably investing in more geos. So we're investing in North America, Asia Pacific, and as well as Europe and we're using that to our advantage. That's like reinforcing, refining our understanding of the market, market participants, and ultimately what solutions and playbooks find root and grow in some regions versus others."

This cross-pollination of ideas and insights allows us to identify trends early and back companies that are truly ahead of the curve.

We're not afraid to back approaches that may seem counterintuitive to generalist investors. The real category creators often do things that look "insanely stupid and difficult" to outsiders. Our specialist knowledge lets us see the potential others miss.

Patric Hellermann emphasizes this point:

"The real category creators do things that look insanely stupid and difficult to the generic herd heuristic. With the example of the service company, we see this every day and that's actually what makes it so fun being a specialist in this sector because you can violate all these hidden rules or unwritten rules. Not because you violate them, but because you know hey, actually violating them is what allows me to think what a category creator would look like."

This willingness to go against conventional wisdom, backed by deep industry knowledge, is what allows us to identify and nurture the truly transformative companies in the space.

Disruption

True disruption in construction will come from unexpected places, and we're positioned to identify and back these game-changing innovations.

Many focus on obvious trends like AI. While important, we look deeper at foundational shifts reshaping the industry. Labor shortages, supply chain volatility, and energy challenges are creating opportunities for innovative solutions.

Adam Zobler outlines some of these deeper trends:

"If you really kind of cast the eye of Sauron out within 2030, you know a large swath of the labor force is going to be retired. And then you kind of dig a little bit further like, well, the younger demographics that should be replenishing and replacing these retirees are non-existent. So it's we were just kind of like, well man, that's a very bleak future. We're going to be creating the most complex buildings with the least experienced individuals. So how do we correct that?"

This insight leads us to look for companies addressing these fundamental challenges, whether through advanced training and upskilling platforms, robotics to augment human capabilities, or AI systems that can capture and disseminate institutional knowledge.

One area we're particularly excited about is disrupting the services layer of construction. As Shub explains:

"Why can't some or a significant chunk of [services] be done with AI harnessing the collective power of all the composite knowledge we've collected or the wisdom of all these individuals? Why can't the wisdom be funneled into an AI? I think in my opinion that's a very powerful vision."

This could dramatically reduce costs and improve efficiency across the industry. It's not about replacing humans, but augmenting their capabilities and allowing them to focus on higher-value work. Imagine AI systems that can handle routine engineering calculations, freeing up engineers to focus on innovation and complex problem-solving.

We're also watching trends like nearshoring of manufacturing, innovations in logistics and supply chain, and solutions addressing the energy crisis. Adam highlights the potential in energy infrastructure:

"You know, electrification of everything, you know that certainly is going to be demand on the grid. You know, there's data centers... If you really look at the demand pool, the energy pull from the data centers, it was about four or five percent of the grid. They're projecting this to be now about 20 to 25 percent. That's an alarming amount, right? So how do you get around that?"

These may not grab headlines, but could reshape how projects are delivered and operated. Companies that can address these fundamental challenges – whether through innovative energy management systems, advanced materials that reduce energy consumption, or AI-powered grid optimization – have the potential to be true category creators in the space.

Resilience

Construction tech has shown surprising resilience amid macro volatility, validating our thesis and positioning us for long-term success.

While other sectors have seen sharp pullbacks in funding, construction tech investment has remained relatively stable. This speaks to the growing recognition of the sector's potential and its fundamental importance to the global economy.

As Adam notes:

"What we found is if you analyze what's been happening in the last year, year and a half [in 2024], there's not been much of a pullback in relative terms in construction tech, contrary to many other tech sectors."

We see this as validation of our thesis. Construction tech is no longer a niche play, but an essential category as the industry modernizes. The challenges facing the construction industry – from labor shortages to sustainability requirements – are not going away, and technology will be crucial in addressing them.

Shub provides context for this resilience:

"Construction tech all things said and done still remains unfortunately just a drop in the bucket as far as the overall VC activity goes. So how much deeper can you really cut down if it's a small representation? But I think we're now also seeing most large fund managers are seeing construction emerge as this promising new sector where it's not as fickle or as fatty sort of space determined by specific trends."

That said, we don't make investment decisions based solely on short-term trends. We look for opportunities that will succeed regardless of macro conditions - secular trends that are reshaping the industry for the long-term. This could be companies addressing fundamental inefficiencies in the construction process, solutions for sustainable building practices, or technologies that dramatically improve safety and productivity on job sites.

Our approach as a specialist firm lets us lean into our convictions even when others pull back. As Adam puts it:

"We leaned into where others leaned back and I think that's... you can see that with the funds' performance. I think that was the right call."

This steadiness amid volatility positions us to back the most promising companies reshaping construction for years to come. We're not swayed by hype cycles or short-term market fluctuations. Instead, we're focused on building long-term partnerships with founders who have the vision and expertise to truly transform the industry.

Patric sums up our approach:

"We believe that almost all legendary firms, especially category-creators, go through their own adversities in the first five-odd years, and almost never looked obvious to an outsider. Board cycles are critical as a firm matures, but in the early days every decision every day matters. We therefore put in the work outside of Board cycles."

This commitment to deep engagement and long-term thinking is what sets Foundamental apart and allows us to identify and nurture the truly transformative companies in the construction tech space.

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

Empathy: We bring deep industry understanding that generalist VCs lack, allowing us to see opportunities others miss. Our global team provides unparalleled insights and support to founders.

Outcomes: We're driving a shift towards more accountable, consistent project delivery in an historically unpredictable industry. We back companies that can fundamentally change how construction projects are executed and delivered.

Singularities: We seek unique opportunities globally, helping write the playbook for construction tech rather than applying ill-fitting models from other sectors. Our willingness to go against conventional wisdom, backed by deep industry knowledge, allows us to identify truly transformative companies.

Disruption: True industry transformation will come from unexpected places, like AI-powered services and solutions addressing fundamental challenges in labor, supply chains, and energy. We look beyond surface-level trends to identify deep, structural shifts in the industry.

Resilience: Construction tech has shown surprising staying power amid volatility, validating our thesis and positioning us to back category-defining companies for years to come. Our long-term focus and specialist knowledge allow us to remain steady and conviction-driven even in turbulent times.

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.