In episode 001 of our Super Series featuring Foundamental, we gained exclusive insights into this innovative venture capital firm that’s making waves in the construction tech space. Founded by Patric, Shubh, and Adam, Foundamental stands out for its unique approach to investing globally in the architecture, engineering, construction, and supply chain (AECS) sectors.
The Origin Story
Foundamental’s journey began when an LP approached one of the founders, expressing dissatisfaction with existing construction tech funds but seeing potential in them. This sparked a 9-10 month period of intense diligence, during which the team projected forward to ensure they could deliver high returns over the next 15+ years.
What sets Foundamental apart is their commitment to being truly global. Unlike many VC firms that claim global reach but primarily focus on one region, Foundamental distributes its first checks equally across three major geographies. This approach allows them to tap into different market cycles and gain a comprehensive understanding of global trends in construction tech.
The Why Behind Construction Tech
The team shared compelling reasons for focusing on construction tech:
• Exploding demand: The world is projected to add one New York City every month until 2060.
• Declining labor productivity: Revenue and margins per employee are shrinking annually.
• Labor shortage: There’s a significant lack of qualified workers in the industry.
• Knowledge-driven market: Construction companies rely heavily on billable hours and expertise.
These factors create a perfect storm where technology becomes crucial to bridge the gap between increasing demand and decreasing efficiency.
Investment Philosophy
Foundamental’s investment philosophy is rooted in their belief that VC is more of a craft than a factory. They nurture individual personalities and strengths within their team, allowing each partner to bring unique perspectives to the table.
The firm focuses on delivering high DPI (Distributions to Paid-in Capital) rather than just raising funds. This approach leads them to cap their fund sizes, typically around 100 million euros, to avoid deployment pressures that could compromise returns.
Their investment strategy involves writing initial checks ranging from 500k to 1.5 million euros, with the potential to invest up to 10 million in winning positions. Uniquely, they allocate 50-60% of their fund to follow-on investments, often increasing their ownership in high-performing companies.
Global Perspective and Decision Making
Foundamental’s global structure demands a unique approach to decision-making. The team has developed a muscle for immersing themselves in different geographical contexts during deal discussions. This allows them to leverage insights from various markets and identify trends that might be leading or lagging in different regions.
Their process involves intense debate followed by a “dissent and commit” principle. Once a decision is made, the team fully commits to it, avoiding reopening discussions unless circumstances change significantly.
Building Credibility and Fundraising
In the early days, Foundamental focused on convincing people who already had conviction in them as individuals. This approach made fundraising easier, as they only had to prove their strategy and market understanding, not their personal credibility.
The firm maintains a concentrated LP base, currently at 10 and unlikely to exceed 20. This allows them to provide a boutique experience to their investors, discussing market trends, macro factors, and mega shifts in depth.
Looking Ahead
As Foundamental continues to grow and evolve, they remain committed to their unique approach of global, sector-focused investing in construction tech. With their third fund now underway, they’re poised to continue making significant impacts in the AECS space, driving innovation and returns in this crucial yet often overlooked sector.
By combining global reach with deep sector expertise and a craft-like approach to VC, Foundamental is carving out a unique niche in the investment landscape, proving that sometimes, thinking differently is the key to success.
Check out the rest of the eight-part series HERE.
