Blackhorn Ventures — Q&A with Operating Partner
If you’re involved in construction, you’ve likely experienced something that Ray Levitt has been involved with. He immigrated to the United States in the 1970s during the peak of South Africa’s racist apartheid regime, leaving behind an upbringing that has strong roots in construction: his father owned a structural engineering firm that did rebar design-build and his summers were spent working in the field, gaining an appreciation for our industry’s tradespeople.
He was drawn to Stanford due to its cross-disciplinary research culture in both social sciences and computer science and he eventually spent the majority of his career within that university’s orbit.
His list of accomplishments are long but includes: co-founding the Center for Integrated Facility Engineering (CIFE), successfully exiting Design Power Inc. which was bought by Bentley Systems, and providing early angel investment to both PlanGrid and Kahua.
He eventually joined Blackhorn Ventures which is an early investor in U.S. start-ups like Rhumbix, Briq, Toggle, Agorus, and CoFi; in Drawboard in Australia; In Veerum and QuoteToMe in Canada; and in Modulous in the U.K.
You’ve been involved in construction your entire career and in construction software technology since before it was fashionable. That involved time holding the Kumagai Professorship at Stanford. Also during that time, you co-founded a company that was early into design automation. What are your thoughts on how academia plays in the wider construction technology conversation?
I think that universities have a role to play early in the lifecycle of new technologies or new movements towards digitization. At Stanford, we formed CIFE in 1988 at the very early stages of personal computers. We saw how the technologies of database management systems, artificial intelligence, and 3D imaging were coming together.
When the National Science Foundation was not willing to sponsor us, we found a group of companies who would. From the beginning, CIFE has been completely funded by annual contributions from companies, which means that everything CIFE does needs to be relevant to those companies or they’ll stop sponsoring us. It really keeps us focused on early stage tools that can one day be commercialized by software companies.
So CIFE created the first data architecture for object models that would eventually become part of software tools like Revit. We began building a number of tools to do automated planning, scheduling, and safety alerting using this object-oriented model of the project.
How then did CIFE define your own personal trajectory and also the wider evolution of construction technology?
You know, if you’re at Stanford, there’s a start-up virus in the air that’s more contagious than Delta variant. My students develop some cool technology and they’ll say: “Let’s make a company out of this!”
So I used a sabbatical leave. I was encouraged by the dean to do it. He’d done it himself, John Hennessy who founded MIPS which was bought by Silicon Graphics, he said, “I did it, you can do it. Use your sabbatical and go start a company.”
And it was early. The industry, as you know, was late to adopt technology, not because they were stupid or lazy — which they’re often accused of — but because they couldn’t use digital technology on jobsites. When people run around a jobsite, you can’t carry a laptop or a desktop. So until we had smart mobile devices, you couldn’t really digitize.
Blackhorn’s portfolio includes a heavy weighting towards Series Seed and Series A investments in construction tech. Over the years, we’ve learned that there are parts of the construction value chain that are perhaps more difficult to penetrate than others — Katerra comes to mind as the most high-profile failure of late. What style of construction start-up do you feel works best with venture capital and how do you assess a start-up’s chances of success?
The sweet spot for venture capital in construction is ultra-capital efficient because you can’t have long term debt and you can’t make big capital investments in such a cyclical industry. And we see two main ways of doing this on the macro scale: either through prefabrication or in the Apple-model.
To make prefab work in the industry, it needs to be highly capital efficient and needs to deploy only modest amounts of capital. As an example, Ryan Homes in the 1980s had a brilliant model where they would set up a very low cost manufacturing facility, about $250,000 at the time, and they would crank out wall panels and roof trusses that could be served within a 250 mile radius — basically round-trip for a truck in a day.
We have a company called Agorus in San Diego that’s basically Ryan Homes with modern technology. The difference between Agorus and Ryan Homes’ cookie-cutter track developments is that Agorus can build a custom single-family home, but they can also do an ADU and everything in between.
Agorus automates the process of going from CAD to machine instructions for their robotic line. This costs them a few million dollars to set up and they can pay for it with the first ten houses. So there’s no stranded capital and no long-term debt when the industry turns down — which was part of the problem that Katerra had.
There’s an even more capital efficient way to do this and that’s the Apple-model: you design the system and its components and then outsource all of the manufacturing, all of the preassembly, all of the final installation — ultimately orchestrating that entire supply chain.
We have a company called Modulous in the U.K. building low income housing in this way in which everything is outsourced.
You’ve coined the term “death by pilot” to describe the slow death of a start-up through small scale pilots with construction companies. I share similar thoughts about this. Do you mind explaining that term a bit more?
I tell our start-ups: don’t ever do an unpaid pilot and don’t ever do a pilot unless you’ve got buy-in from someone in operations that if you meet certain criteria, which they will set, then they promise to roll out some number of licenses or some number of installations of your product.
Don’t ever go into a pilot with an innovation person that’s dabbling. Don’t do it for free, ever. If they won’t pay for it, they’re not serious. And you could just do one after another and never scale.
And so that’s been a lesson we’ve seen in our own experience with start-ups. Even if you get paid for pilots a little bit — if there’s not a plan and there’s not a set of criteria that you have to meet in order to to get a purchase order for a substantial amount afterwards then don’t waste your time.
Your fund’s thesis has a strong sustainability dimension to it. It’s a hot topic these days now that the construction industry’s contribution to global warming is coming into clearer focus. Meanwhile, many large building contractors are starting to implement sustainability initiatives across their business. What does Blackhorn’s commitment to sustainability entail?
What it comes down to is that we all care a lot about sustainability and the environment. And so we decided we were going to put a sustainability screen on all of our investments. We were not going to be, you know, a concessionary family office or group that invests in things that don’t have market returns, but we won’t do things that work against either environmental or social sustainability either.
Our new fund is going to be even more explicitly focused on improving sustainability by improving resource efficiency in industries that collectively contribute most of the greenhouse gases to the planet: construction, energy, and transportation.
On the environmental side, we’ve invested in a company that makes alternative cement to Portland cement that’s not like companies which save a little bit of Portland cement. This eliminates it completely through substitutes that have almost zero embodied CO2.
This company comes out of the Vitreous Materials Lab at Catholic University of Washington, D.C., where they were developing vitrification of nuclear waste, and they discovered that a lot of those same glass-like materials could be used to make cement substitutes.
If that company scales, and they’re just getting through pilots and hopefully will begin to scale, you get rid of eight percent of greenhouse gases on the planet. I feel very good about that for my children and my grandchildren.
Nate Fuller is Managing Director of Placer Construction Solutions, advising leadership teams to transform their organizations in ways that improve performance and agility at the field level.
He provides construction companies with a field assessment that delivers transformative information about their field operations and is proven to accelerate innovation & technology adoption for Top ENR contractors.
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