Two years ago, venture fund and startup accelerator Dreamit Ventures, based in Philadephia, was trying to determine what their next industry vertical would be — they had previously launched a HealthTech-specific program to much success. After looking at market opportunities, venture activity, and potential startups, they settled on a new category they called “UrbanTech.”“We chose to call our program “UrbanTech” because, at the time, it didn't have a firm definition. We were using it because it captured the industries we liked the most,” explains Andrew Ackerman, the lead of Dreamit’s UrbanTech program. The mid-stage fund wanted to see companies in construction, real estate tech (also called proptech), and smart city technology that could work with private enterprise clients.“The word UrbanTech was elastic enough that we thought people would ask, or in the worst case we would get applications including the ones that don't fit, rather than miss great startups because they felt it wasn't for them,” Ackerman says. The largely remote-based program is the best fit for startups with a sellable product, revenue, and clients, but who need an extra boost to scale.Ackerman formerly worked as a Booz & Co. consultant, then at educational giant Kaplan. He also founded and served as COO at summer camp web services provider Bunk1.com. Immediately prior to Dreamit, he managed investments for a family office with a portfolio over $50M.He shares more about why Dreamit decided UrbanTech was a hot market, how he evaluates whether startups are a good fit for the program, and the biggest opportunities right now in the space.
We looked at this space in a few different ways. One of the things we looked at is how much venture activity there was — it doesn't do us any good to get into a space where we can't get any of our companies funded down the road. We did a fascinating analysis where we sliced the world the way we see urban tech, and we looked at the numbers.We found that activity, in 2016 when we were first looking at the space, was within one percent of the amount of activity in health tech back in 2012, the year before we launched our HealthTech vertical, and that took off. The interesting part of our thesis was urban tech was at the very beginning of that kind of rocket ship-like growth, and we got really excited about being able to get in at that stage — not too early, not too late.Now, virtually every month or two new funds are opening up in PropTech, construction. Over a billion dollars was deployed in the first half of this year in construction tech. So what we're seeing over the past two years since we made this plunge is that thesis is playing out.
We rate all our startups on a scale of one to five across a number of areas. On the metric of ‘team,’ a five is a team is one where they've got deep industry domain, strong technology in-house, prior startups including an exit or two, and ideally great sales experience.A five on 'market' is a multi-billion-dollar market with either entirely fragmented competitors, all mom-and-pop shops or one or two slow-moving incumbents that haven't changed in 20 years.We then look at traction. Startups have to be, by and large, at the stage where we can put them in front of big customers, and the corporate partners don't feel like we're sending them ideas or guys looking for their first big deal. A 5 star on traction would be a company that has a million dollars or more in recurring revenue.
Dreamit tends to work with slightly more mature startups than your archetypical pre-seed, pre-revenue accelerator. So it's more about, how do I scale? How do I figure out what the right go-to-markets are, or how do I get to the right people at the right time and make that a faster, more productive sales cycle? In construction, until very recently, the biggest problem was that no one wanted to change. But that resistance has crumbled over the past couple of years, which is what's so exciting about construction in particular. But you still need to move it through the sales cycle.On the real estate side, there was always a little more openness, depending on what the startup was touching. The more integral you were to the functioning of the building, the less willing a customer would be to take a chance on your startup. Now, the biggest issue is, there are so many startups on the real estate side you have work to stand out.
Number one, you need somebody with real estate or construction experience. This is not a space that has an appetite for doe-eyed, naive founders. You've got to know how the industry works, to have the street cred. Plus, it will help you avoid a lot of silly and naive mistakes.Number two, you need to think more about how you're going to get the first couple of name-brand pilots, then you can build the product. Get those people jazzed about what you're creating before you go out and create. You'll build something they're really willing to use rather than something that a year later, they’re like, I've seen plenty of this, or it’s not that important to me. Very few people want to go first in this industry; they're more open to following someone that's already working, that has already figured out how to work with large corporates, that already has worked out the kinks. You should be focusing on how to get those first referenceable customers even before you've built out their products.
One thing that’s heating up right now is automated zoning-type tools where, and this is on the developer's side in many cases, I'm trying to decide if I want to bid on a specific property or I want to look for off-market properties that are good deals. There are so many layers of zoning complexity, just to evaluate a property I have to bring in lawyers and experts to figure out what else I could do with the property or how high could it go or whether it’s worth my time. That's all amenable to automation. I think that can be a breakthrough in the near future.We're also seeing a lot of amenities services, both on the commercial and the residential side. They’re about tapping a local community, bringing different vendors together. I'm not sure if I can pick the winner in that space yet, and I'm not sure if it might end up being something building owners love but doesn't make for great business. It might be a great product but not a great business because there are not many barriers to entry.One more example is the 3D, 360-degree apartments tours. There's definitely a lot of activity there. I do believe the industry will adopt them increasingly. I have two problems with these: number one is, why now? You could have had a lot of this for over a decade, and it hadn't taken off. Number two, again, there’s no barrier to entry here. That's what we're still thinking through.See Andrew's talk from last year's Shadow Summit in Atlanta, "How to Prospect for Investors", below.
In this panel discussion, Moises Norena and Steve Glenn share the realities of modular construction and how the future could be modular and offsite construction moving from a fad to the future of the construction industry.