Legendary ConTech Ventures In 2025: The Generalist vs. Specialist VC Debate
An in-depth discussion between Foundamental and Lakestar on leveraging idiosyncrasies in construction markets to build generational startups. Explore how innovative models like fixed-cost production and variable-cost sales are reshaping ConTech.
If you believe - like us - that technology transforms industrial sector in waves, then the implication is that generational and legendary startups do not repeat. Each new category creator will have its unique blend of ingredients. That will be even more true the more quirky, nuanced and idiosyncratic the underlying market is that they operate in. The most quirky of all might be our sector: Construction. That's why we here at Foundamental have long believed that construction breeds legendary companies that look, taste and smell different in their early years. But what exactly does "different" then look like?
In this in-depth conversation, we bring together two distinct perspectives on how startup founders can use the idiosyncrasies of the global construction markets to come up with unique and generational models in construction-tech (ConTech). Patric Hellermann, General Partner at global construction tech specialist VC firm Foundamental - known for backing constru-tech's across global markets like Infra.Market, PermitFlow, or Snaptrude - and Enrico Mellis, Partner at global generalist venture investment firm Lakestar - known for backing category-creators such as Spotify, OpenDoor and Revolut - discuss how the interplay between fixed and variable costs is reshaping business models in construction and adjacent industries.
Together, they unpack a fascinating paradigm: how companies can create outsized returns by converting variable cost into producing fixed costs, but selling them as variable costs to customers, particularly in project-based industries like construction. Their conversation offers a comprehensive look at this business model innovation that's driving value creation in construction tech and beyond.
Through the conversation, Patric and Enrico elaborate the details of what it can mean to convert and produce fixed cost, but sell variable cost, and how it allows to scale with your construction customer's revenue.
Understanding the Market Context
Before diving into the specific business model innovation, can you provide some context about the construction technology market?
Patric: "The construction technology market represents a fascinating dichotomy. We're looking at a $10-12 trillion industry globally, contributing between 8-15% to local GDP in every country. Yet historically, it has received only about 0.15% of global venture capital investment. However, we're seeing a significant shift - in the last two years, construction and AEC have caught up to about 0.5% of global VC. That's a 3x proportionality increase in just two years, signaling a major transformation in how capital markets view this sector."
Enrico: "What makes this market particularly interesting is its complexity. Unlike many other industries where technology adoption follows a relatively straightforward path, construction involves numerous stakeholders, long project cycles, and significant regulatory oversight. This complexity has historically been a barrier to innovation, but it's now creating opportunities for companies that can navigate these challenges effectively."
A Core Thesis: Fixed Costs Production, Variable Costs Sales
Let's dive into the fundamental concept that's driving some of the most successful business models in construction tech. How would you describe this innovation?
Patric: "The core thesis is about the relationship between how costs are produced versus how they're sold in project-based industries like construction. The construction sector has developed over decades, if not centuries, to externalize risk by delegating work to subcontractors and suppliers. This creates an interesting dynamic where customers prefer to pay for work results on a variable basis, rather than taking on fixed costs themselves."
Enrico: "What's fascinating is how this model aligns with the industry's natural tendencies. Construction firms have always preferred to externalize risk and buy outcomes rather than assets. This creates an opportunity for startups that can leverage technology to produce fixed costs internally while selling their services as variable costs that scale with their customers' projects."
Why This Model Works in Construction
What makes construction particularly suited for this business model?
Patric: "Construction is inherently a project sector characterized by fixed deadlines, fixed work results, and fixed budgets. Typically, the larger the budget and work result, the greater the risk. This is why the construction sector has evolved to delegate extensively to external partners - subcontractors, suppliers, and temporary workers. It's about risk distribution and specialization."
Enrico: "This is different from traditional SaaS models. While we all love recurring revenue in technology, the typical SaaS model doesn't scale with the variable costs or sales of the customer. You might get some step-function growth with more seats or users, but it's not directly tied to the customer's revenue growth. In construction, if you can align your revenue with the customer's project volume, you create a powerful scaling mechanism."
The SaaS Paradox in Construction
How does this model differ from traditional SaaS approaches that have been successful in other industries?
Patric: "This is where it gets really interesting. In technology, we all love the SaaS model with its recurring revenue - it's predictable, secure, and you don't have to repeatedly sell the same ticket year after year. But there's a significant downside: it doesn't scale with your customer's variable costs or sales. You might see some step-function growth when a customer adds 100 more seats, but that's not proportional to their revenue growth."
Enrico: "Exactly. Traditional SaaS models often hit a ceiling in construction because they don't align with how the industry actually operates. Construction companies think in terms of project outcomes and risk management, not software seats or monthly subscriptions."
Patric: "The magic happens when you can leverage technology to create fixed costs internally - perhaps through development of software or robotics - but then sell it in a way that scales directly with your customer's project volume. This creates a 'scissors effect' where your margins expand as you scale, because your fixed costs are largely front-loaded while your revenue grows with your customer's business."
Real-World Applications: Robotics and Automation
Can you give some concrete examples of this model in action, particularly in robotics?
Patric: "Take Monumental, a robotics company from Amsterdam. Instead of selling robots outright, they operate as a subcontractor on projects. If a customer needs 10,000 bricks laid, that's one price. If they need 100,000 bricks laid, that's another price. The robot stays on Monumental's balance sheet, but they sell the outcome - properly laid bricks - as a variable cost that aligns with industry norms."
Enrico: "We see similar models in logistics. For instance, Dexery, a company we invested in, provides warehouse inventory robots. Instead of selling the robots outright, they offer them as a service that costs a fraction of a human worker's salary. The logisticians don't want to take the risk of owning and maintaining the robots - they just want the outcome: accurate inventory counts."
Risk Management and Pricing
How do companies in this space approach risk management and pricing?
Patric: "In construction, there are often established price norms and standards. Take brick laying - in mainland Europe, it's roughly one euro per brick laid. Whether you're a manual subcontractor or a robotics company, that's your benchmark. The difference is in your cost structure and efficiency. If you can deliver the same outcome more efficiently through technology, your margins expand while still fitting within the industry's established pricing frameworks."
Enrico: "This standardization of pricing actually helps technology companies because they don't have to educate the market about pricing. Instead, they can focus on delivering better outcomes within existing price structures."
Patric: "And importantly, the customer doesn't care about your internal costs or processes. They just want the outcome - properly laid bricks, accurate calculations, or whatever the deliverable might be. As long as you can deliver that outcome reliably and take on the associated risk, they're happy to pay the market rate."
Beyond Construction: Adjacent Industries and Market Evolution
How does this model translate to other industries, and how do you see it evolving?
Enrico: "In logistics, we're seeing this model gain traction because, like construction, it's an industry where the costs of not delivering are immense. Companies like Sender succeeded by taking over entire performance guarantees rather than just offering a marketplace for freight capacity. They internalize the complexity and risk while selling the outcome."
Patric: "We see it in cloud infrastructure too. Companies like AWS or Databricks have significant fixed costs in building their infrastructure, but they sell to customers based on variable usage. Another interesting example is in defense, where companies like Anduril develop hardware but can choose to sell either the drone itself or the drone flight as a service."
Innovation in Supply Chain and Materials
Can you elaborate on how this model is transforming construction supply chains?
Patric: "InfraMarket provides a fascinating example here. They've become the world's largest cloud manufacturer for building materials, approaching $3 billion in annual revenue. Their innovation was in how they approached capacity utilization. They went to manufacturers, many of whom were operating at suboptimal capacity, and essentially said, 'We'll guarantee you 70% capacity utilization instead of your current 60%, but we want preferential pricing in return.'"
Enrico: "This created a powerful flywheel effect. By aggregating demand and guaranteeing volume to suppliers, they could secure better pricing, which in turn allowed them to offer more competitive rates to customers while maintaining healthy margins."
Patric: "What's particularly clever about this model is that InfraMarket remains asset-light. They're not building factories or carrying inventory in the traditional sense. Instead, they're creating value by optimizing the existing supply chain and taking on the risk of capacity utilization. It's another example of creating fixed costs through technology and relationships while selling variable costs to customers."
The FinTech Angle: Financial Innovation in Construction
How does financial technology fit into this model, and what opportunities do you see in the intersection of fintech and construction?
Patric: "Look at Factus, a company both our firms backed. They provide invoice financing in construction, but instead of charging fixed software fees, they take a percentage of the financed amount. Their costs in building the underwriting technology are largely fixed, but their revenue scales with their customers' project volumes."
Enrico: "This is particularly powerful in construction because financing is often the primary pain point. For many construction companies, especially in the size order that Factus targets, access to working capital is their biggest challenge. By aligning their revenue model with project volumes, they've created a solution that scales naturally with their customers' needs."
Technology Integration and Process Change
How do companies manage the challenge of integrating new technologies into established construction processes?
Enrico: "This is where the risk-externalization model really shows its value. In logistics and construction, you're often dealing with processes that are running at 100% capacity with very little room for error. No one has time to rebuild processes, undergo training, or change infrastructure. The costs of getting it wrong are enormous."
Patric: "That's why successful companies in this space don't try to force their customers to change their processes. Instead, they take on the responsibility of integration and deliver outcomes that fit into existing workflows. It's much easier for a customer to buy a guaranteed outcome from a specialist than to try to implement new technology themselves."
Enrico: "We've seen this work particularly well in logistics with companies like Dexery. Instead of trying to convince warehouse operators to buy and integrate expensive scanning robots, they offer a simple value proposition: we'll handle your inventory management more accurately and at a fraction of the current cost."
Market Evolution and Competitive Dynamics
How do you see competition affecting these business models over time?
Patric: "This is a crucial question, and honestly, we're still early in understanding how competition will play out. I believe the competitive dynamics will largely be defined by how defensible your technology is. In robotics, for example, building a comparable product might take years, creating a significant moat. But in simpler software applications, competitive pressure might emerge more quickly."
Enrico: "What's interesting is that even as competition increases, the fundamental preference for risk externalization in these industries isn't likely to change. Companies will still prefer to buy outcomes rather than assets or software licenses. This suggests that even in a more competitive market, the basic business model will remain valid."
Patric: "I agree. Take structural calculations as an example. Even if multiple companies can offer automated calculation services, construction firms will likely continue to prefer buying the outcome - the stamped, certified calculation - rather than bringing the capability in-house. The industry's first principles around risk management and specialization are deeply embedded."
Challenges and Scaling Considerations
What are the main challenges founders face when implementing and scaling this model?
Patric: "It's crucial to understand that this isn't just about financial engineering - it's about aligning with how your customers want to buy. In project-based industries, customers often prefer to externalize risk and buy outcomes rather than take on new fixed costs or change their processes."
Enrico: "The capital intensity can be a challenge, especially for robotics companies. You need to finance the hardware that stays on your balance sheet, which is why many robotics companies end up working with debt providers. But if you can solve the financing piece, the model can create powerful scaling effects."
Capital Requirements and Financing Strategies
How should companies think about financing when implementing this model?
Enrico: "The capital intensity of this model, particularly in robotics or hardware-heavy solutions, creates unique financing challenges. You're often looking at significant upfront investment before you can start generating revenue. This is where creative financing solutions become crucial."
Patric: "We're seeing interesting innovations in how companies finance their growth. Some are working with specialized debt providers, others are using venture debt, and some are exploring revenue-based financing. The key is finding financing structures that align with your revenue model and don't create unsustainable pressure on the business."
Enrico: "This is also where the venture capital strategy becomes important. You often need investors who understand the longer time horizons and capital requirements of these businesses. It's not the same as scaling a pure software company."
Future Outlook and Emerging Opportunities
How do you see this business model evolving, and what new opportunities do you anticipate?
Patric: "We believe this model will become increasingly prevalent as more industries recognize the value of buying outcomes rather than assets. The key is finding sectors where risk externalization is valued and where technology can create significant efficiency gains."
Enrico: "I agree, and I think we'll see this model expand beyond traditional project-based industries. As technology enables more precise measurement and guarantee of outcomes, more businesses will be able to offer their solutions as variable costs while benefiting from the leverage of fixed-cost production."
Geographic Variations
How do you see this model playing out differently across various markets?
Patric: "We see fascinating regional variations in how this model is applied. The US has historically been strong in enterprise software, Europe tends to produce interesting construction robotics solutions, and Asia, particularly India, excels in B2B marketplace and supply chain solutions. Local DNA breeds local priorities, which in turn breeds different types of innovation."
Enrico: "These regional differences also extend to technology adoption patterns. European construction firms have often been faster to adopt certain technologies, particularly around sustainability and energy efficiency, driven by stricter regulations. Understanding these regional nuances is crucial for companies looking to expand globally."
The Role of Artificial Intelligence
How do you see AI impacting this business model?
Enrico: "What's particularly exciting about AI in this context is its ability to create additional moats. As these systems process more data and handle more projects, they can become increasingly efficient and accurate, making it harder for competitors to catch up."
Patric: "AI has the potential to significantly improve efficiency and reducing operational costs. However, we are neither AI-bears nor -bulls in 2025. We are wary of AI delivering substance and outcomes for customers in global construction markets, and not fall in love with compelling pitch deck narratives that will meet stiff competition quickly. For example, in CAD - a space we traditionally understand very well - we expect authoring tools or data infrastructure to own large parts of the AI-automatable workflows and embed AI that way. Customers, founders and investors need to pick their AI projects carefully, and if they do, they can generate substantial return."
Conclusion
The fixed costs production, variable costs sales model represents a significant innovation in business model design, particularly well-suited to project-based industries like construction. As technology continues to advance and more industries seek to externalize risk, this model offers a compelling framework for creating value. For founders and investors in construction tech and adjacent industries, understanding and implementing this model could be key to building category-defining companies.
Keywords: construction technology, business models, fixed costs, variable costs, robotics, project-based industries, risk externalization, construction tech, venture capital, outcomes-based pricing