April 28, 2023

#007 – Eliyahu Rapaport – Transcript

Bricks and Bytes
Bricks and Bytes
#007 - Eliyahu Rapaport - Transcript
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Show Notes

Construction tech companies do take longer. At least now, I don’t expect this to be forever, but I’m seeing companies that are four or five years old that are only at the round day, and they’re phenomenal companies. They’re just having a very hard time penetrating a very traditional industry. I would say that usually when I look at companies and the age of how long the company’s been around and hasn’t been able to grow is a big red flag for me. But specifically in construction, I just think that it’s the market dynamic and the life cycle of closing a deal for these companies that take so long. Welcome to the Bricks and Bytes podcast. I’m Owen Drury and together with my co-host Martin Peacarch, we will be interviewing the people involved with transforming the construction and property industries through the latest and most innovative technologies. Construction technology is an industry that is experiencing rapid investment growth. In 2021, over $4 billion US dollars was raised by construction tech firms, compared with just over $2 billion in the previous year, almost double. On today’s episode, we speak about the construction tech market, investment opportunity, and what a VC might look for before deciding to invest. All the way from Israel, Eliyahu Rapoport, CEO of Global Construction Tech, joins us to discuss his insights and experience. If you enjoy this episode of the Bricks and Bytes podcast, please check us out on your favourite podcast platform. You are listening to Bricks and Bytes, a podcast where we take you on a journey in construction, technology and business. Alright, let’s get this episode started. Looking at your LinkedIn profile and based on some discussions we have had and some of the content you post, it seems you have invested in a few things, mostly construction technology based. 

What is it? Can you tell us a bit more about what you do? Yeah, I’d love to. So I’m really focused on innovating the construction industry, which basically means streamlining the process of, we’ll say, startups or technology, gaining more application and more implementation in the traditional construction that we’re doing today. So, essentially, what I’m doing all day is I’m just really passionate about the construction industry and the technology in it. I’m looking at a lot of technology, reaching out to many construction companies to get their feedback, understand their needs. And then hopefully, when I have both the technologies and the companies aligned, I look at distributing the products that I see the most need and demand for. So that’s what I’m doing all day. And I mean, because of this focus on this industry, I’ve broadened the scope of what I’m willing to do within the industry. So I’ll really work with anybody who has the same goal as me, which is, you know, the emphasis on innovating the industry. This means I work with VCs, accelerators, innovation programmes, companies and the startups themselves. So it’s a lot. It’s a lot of work, but they’re all focused on one goal: innovating the industry by any means possible. Yeah, I think you know what it is. It’s just so nice. I started getting involved more from an investor perspective. And then, while I was looking at very attractive investment opportunities, I couldn’t help but feel some hesitation. Construction technology, like construction tech startups versus almost any other vertical, the construction sector, the technology sector is so much slower. It’s just so much slower. The growth patterns are much slower. 

Companies four years in are doing what? Let’s say fintech companies are raising an equivalent after the first year of being incorporated or being created. I was very hesitant to start investing from, I would say, just a distant, like just as an investor kind of base relationship where I invested and waited for my investments to bear fruit. It was, I knew that if I wanted to get involved in this space, I had to, it’s just a must, to get more involved and see that I could help these companies grow faster than what I would say today is pretty much prevalent in the construction tech space. So I really started, like, while I was looking at these companies, thinking, “You know what? These are really good companies. Let’s see if I can move them. Let’s see if there are companies that I know that I could talk to that would be interested in using them first before I invest.” And that’s how I kind of rolled into Global Construction Tech, more like a hands-on investor approach where I initially start with distribution. Okay. So you are based in the UAE, but you travel quite a lot to Israel and the US, right? Yeah. How did you get interested in construction and technology in general? I’ve been involved in the, I’d say, just the tech sector in general. I’ve been a lawyer in my background and I specialised in corporate and high tech law. I also worked as a general counsel for a startup that is still very focused on business development in Africa and large projects. One of the opportunities I got was working closely with other venture capital funds who were interested in investing in, they were a fund of funds looking to invest in different funds that invested in technology. When I had that opportunity, I learned about the different strategies and how I would say some of the best investors in the world are thinking and looking at this very fast growth-paced venture capital world. I just really loved their perspective. 

A lot of people make money from the lack of transparency in the industry. That’s very true. But let’s say the transparency big one is things are working, you know, innovation and doing and basically adopting technology isn’t about always replacing things that are broken. It’s about improving things or amplifying something that works well into working in a fantastic or phenomenal way. And that takes a lot of courage and vision and leadership to do, to like lead and pioneer in a path that also includes testing new things, being experimental, being willing to test boundaries to do things in a way that does bring risk to the business, but also brings tremendous upside. Okay. So when you look at the company, what sort of factors help you decide if you want to invest in this or not? And maybe if you can tell us about a recent example that would show that, how did you decide to invest into the business? The main things that I really look for, I would say are three. One, I only work with companies that already have a proof of concept, that have a product that are being used and have already a lot of proof that they work well. The reason why is for me is I want my strategies to distribute first and then invest. That’s number one. Is that making revenue or profitable or just literally proof that there is a need for this? Yeah. I know it doesn’t have to be profitable yet. It just needs to be substantial. evidence that there’s a need for it and that the product works. So they’re not just a theory, it’s not just a presentation or a prototype. It’s something that works, it’s something that companies are using and that they have a good, I’d say, proof of concept. Another thing that I look for is I’m looking for also other investors in this space. I’m looking at who else is involved. 

What kind of stakeholders does the company have that are betting on their success in the future? as a people. I would even say the people are most probably the first thing that I really look at, but I would say I don’t reach the people until I don’t see the first two um um criteria’s. But the people are definitely the most important. I look for people that I believe have tremendous value that they could uh bring to the table and they’re kind of usually if it’s founders they compliment each other. They’re very visionary. They don’t take no for an answer. They’re super driven. They have a very good their vision is something I think aligns with the industry, especially the construction tech space. It’s not very attractive at first to get in. I mean, whoever’s looking at the, I’d say the crazy founders that get into the space and are willing to kind of venture into the construction industry are ones that they usually cannot afford to have a get rich quick mindset because industry doesn’t, that’s not what it’s doing. It’s a get rich slow. and capture significant market share and get, and then at some point, a tipping point, God willing to just tap into the unbelievable, like I mean, construction industry, being able to tap into a $12 trillion market. You know, you have like, today, like you’re looking for people who are resilient, that they have that courage. Regarding investments in a specific company, I’m actually, right now I’m currently still in the process of deploying a few investments. And I will love to talk with you guys on another podcast in which I’ll share with you guys how successful they are. Well, after the deployment, but at this point, I can’t really talk about them. But but I mean, that’s cool. We’re looking forward to it for sure. You mentioned team has been like a huge the terminate factor of success. But and specifically in construction technology, is there is there anything else like is it the idea? Maybe. Is it? network, is it how quick you can get your idea rolled out onto a project? 

Do you think there’s anything else that’s worth mentioning that could be a big deciding factor for success? I would say that something that’s important to me, and I think it should be important for other investors in this space, is what kind of strategic value are you bringing to the table? Because I shared from day one, me getting involved in the industry, I really started getting involved once I figured out what would be the right strategy to be able to ensure that my investments are successful. For me, the only way to do that is actually being able to help a company grow. Actually being able to make not only an introduction, but making sure a company gets a chance and opportunity to succeed within a construction project. I think that investors in this space getting involved should not just invest and sit back because they’re investing with other lead investors who have that strategic value that they bring. But as an investor, I think that it would make a lot more sense for people to get involved in companies they think they could help or believe they could help and also getting their hands a little bit dirty in terms of getting there, asking, “What can I do for you?” and then really pushing to help the companies they invest in. And I would say, obviously, the idea is super important, and the idea is important as a given, if there’s a very strong proof of concept that proves to me that the idea is good enough, and I don’t, as much as I learn and try learning every single day more and more, I still stay humble and say, “I don’t know what the best ideas always are for the industry. And if you prove that your idea is amazing, then I’m good. I’ll join you for the ride.” Well, that sounds good. So, in terms of your research, you said that one of the things that you look into is the proof of concept for the product and people. How do you do your research to find the companies or people or the products that you think might succeed in the future? How do you research your potential startups, you’re welcome? 

So, I do a few things, one is I sit down and just do it, which doesn’t give too much information, but it’s just sitting down and working. Sometimes I do this till past midnight. That’s the hardest part, right? Hard work. Yeah. So that’s the first thing. First thing is sit down and do it. The second is I approach it kind of strategically. The way I look at it is, again, I’m looking for companies that have proof of concepts. Okay. So, for example, I don’t only look for companies that have already proven their concept. I try getting involved in startups way prior to that stage. So I hopefully can identify something that’s really good and be part of the proof of concept stage, although I won’t focus on them until that point, but I’ll do everything in my ability to help them reach a stage that I could also get involved. 

In general, my approach is I reach out to companies all the time. I would say that part of my research methodology is also getting in touch and plugging myself into institutions like universities and accelerators that might contain construction technology startups. That way, I get an early start on my knowledge of what companies could be good and what companies are good, as well as I also have a broader strategy of looking at other accelerators that have already been proven to create really good companies in the construction space. So, following some great accelerators in the space, and there are many of them. 

And I would also say, I will always read. I’m reading all the time news about the industry, about who’s doing what and how they’re doing it, and what would be interesting. So, I guess my research methodology really starts off with sitting down, reading, looking online for almost any magazines or anything that talks about technology, looking at the innovation hubs, the accelerators, the investors in the space, reaching out to universities, reaching out to other institutions that might be working with early entrepreneurs. And then just saying, “Let me know if there’s anything interesting. Let me help if I can.” That’s kind of what I do. 

When you say help, what would be the first thing that you say to these companies that you could help them with? My first thing is listening. I think a lot of companies’ initial challenge is creating a product-market fit, and just listening to them instead of rambling off helps me understand what they’re trying to do. I then share insights that I’m hearing from other leaders in the industry and from actual construction companies. This might either encourage or discourage them, but my intention is to give them raw feedback from the industry. 

Another important thing is, since I’m doing so much research, I tell them about other companies attempting something similar and ask how they’re being different or what added value they want to bring. I share my market research with them, and if someone reaches out to me, I’m more than happy to put them in touch with other experts in the space that might add value. This could involve connecting them with another founder who dealt with a similar challenge or an industry expert. And, of course, investors are essential players in the space. If I see a company that’s ripe for a good investment, I’m always happy to introduce them to friends or someone else. If they already have a strong proof of concept, then I would look to invest in them and maybe bring a few co-investors with me. 

It is exciting, I love what I’m doing. Now, regarding red flags, I’ll start by saying what I don’t think is necessarily a red flag in the industry, but people may think it is – the age of the company. Construction tech companies do take longer to develop, at least for now. There are companies that have been around for four or five years and are only at the round A stage, yet they are phenomenal. They’re just having a hard time penetrating a very traditional industry. I would say that usually, when I look at companies, the age and how long the company’s been around without significant growth can be a big red flag for me. 

But specifically in the construction industry, I don’t see it that way. I do think that it’s the market dynamic and the life cycle of closing a deal for these companies that takes a while. So that’s just one thing I’ll say aside. Aside from that, bad founders are a big red flag. People who are cocky, don’t listen, aren’t interested in listening, and already think they know everything can be a red flag. It doesn’t mean that all cocky founders don’t end up succeeding, a lot of them do. But for me, it’s a red flag because as an investor, my value that I could bring them is going to be very low. Secondly, I don’t want to deal with people that I don’t like dealing with. And thirdly, they’ll most probably not pay attention to red flags that they’ll need to pay attention to on the way, which could mean risk – even if they’re successful, at some point they might fail. 

The founding team is probably the most important factor, and it’s not only about cockiness; there’s a whole bunch of different things. People who are in disputes, argue all the time, or don’t get along don’t show much potential for a company that’s not aligned within to grow significantly. Companies that do not have a good go-to-market approach, either targeting too small of a market or just a very specific geographic area, are also a concern. There are many other factors, depending on the solution they’re offering, and whether the company is proving themselves, growing, committing efforts, not burning money, and working with the right people. The list could go on. 

Regarding geographical location, my greatest excitement is the Middle East. The UAE and the GCC, in general, are phenomenal markets for this area of innovation because they’re building so much. They also have a yearning for innovation. It doesn’t mean that they’ve already managed to adopt technology on a high level, but there is a keen interest in it. The market needs a lot of encouragement to be willing to not only want to dabble but actually engage with the technology. They’re building tremendously; if you look at NEOM, there’s just so much building that’s going to be happening. I think they announced $500 billion right now in projects in Saudi Arabia, and the UAE is also building tremendously. 

They have, I was reading about it, they need to build another 500,000 residential units, like apartments and such, for the people they’re expecting to move into the UAE. Just think about all the projects that are going on. So, in terms of a market that I’m very excited about and that I really believe in, the UAE and the GCC are phenomenal. That’s where I focus a lot of my energy on, and I’m hoping to be one of those pioneers who manage to play a role in the innovation of many construction companies in the region. On the other hand, the US is undoubtedly the best place for any startup to raise money. We are in a very volatile market right now, and we’re not sure exactly what direction everything’s going to go, even though most of the cues are saying it’s going down. But, optimistically, I’d say the market and the place that knows how to invest in valuable startups at their highest potential is the US. I also work a lot with the US, and they tend to be relatively good early adopters. So the US is a good place for companies to get their trial and error out, which, by the way, is not so true for the GCC. It’s very difficult for a very early-stage startup to get initial pilots in the GCC. I’m not saying it can’t happen, it does happen, but it’s very, very difficult. So, I would say the US is a huge market that anyone innovating in the construction tech space should not ignore and should really be thinking about. 

As for Europe, do you notice any activity happening there? My impression is that because the industry is very old, Europe is slow in adopting new things, partially because of the European Union and the way it’s structured. So it doesn’t capture innovation that quickly. But is there anything happening there? I’ll tell you, for me, I have more experience with the US and the UAE and the GCC than I have with Europe. Europe is such an interesting place from my limited perspective, but when I see Europe, I do think they adopt technology. I also think that European construction companies tend to be the biggest in the world. The issue with Europe is a bit of fragmentation in terms of language and a few barriers for a company to grow across Europe relatively quickly. That’s why there is a tendency for many construction technology companies to be very localised or geographically focused in Europe, like the UK. 

You have a lot of companies that just cater to the UK, and they’re more than happy to do that because the UK seems to be enough of a market for them to make good money and just be happy. They’re not after the pursuit of becoming a unicorn, a $10 billion company. They’re after the pursuit of just making a few good million pounds a year, and that’s good for them. For an investor like me, that’s not what really excites me that much. I’m looking for a company that I could invest in and 10x, 100x my money. That’s where I’d love to be. 

So, it’s a little hard for me to really say if Europe tends to be more advanced in technology adoption. My impression is that Europe has actually been relatively good at adopting futuristic standards like the latest BIM standards, which are usually applied in the UK first. I think Germany and France have some great technologies there. They just tend to be very localised. And for foreign tech companies, entering these markets seems to present relatively more barriers than to other markets that share a common language or culture, like the GCC countries that share Arabic. Okay, there are variations, but they share Arabic. They also mostly speak English at a very high level. And in the US, if you get into one state, you can easily go and replicate into other states, and the regulations are usually very similar. 

So, I think Europe has advanced and has some phenomenal technologies coming out of it, but it’s a more complicated market. I don’t know what the other countries are like that you have experience in, Elioho, but Europe, as well, has lots of different cultures within the continent. One thing in one country is completely rude in another country and vice versa. And also, if you look at the way buildings are constructed, it’s completely different from country to country. UK construction is completely different from Greece, for example. So, everything is completely different due to climate and water ingress and all of this risk mitigation. That’s probably also an issue. Whereas, in the US or maybe in the UAE, the way they construct buildings is more similar across the country, which allows them to scale the solution. And you might be quite fragmented just because of this fact. It makes sense, and I very much agree. 

What are the biggest trends and perhaps things that you’re personally looking at right now, both as trends and as a collective industry? I would say the trends vary depending on the vertical within the construction industry we’re looking at. However, there are many trends in terms of improving design, leading to more digitalisation within the entire design planning process. This provides a lot of tools for smarter and more sophisticated planning and designing of construction projects, which is very exciting. 

But I would say one trend that I particularly like and find important is the pursuit of more data in construction projects. A lot more information is being gathered, whether it’s through sensors or from the beginning, creating more sophisticated models, such as BIM models, and more sophisticated ways of monitoring and controlling compliance and quality checks of what’s actually happening. Being able to view live or even just create very smart data analytics about the progress of construction and scheduling is something I find very exciting. It will tremendously improve our ability to build more efficiently in the future. 

Also, material engineering is really exciting. I’m seeing it in a lot of different ways, whether it’s coatings for buildings that are interesting, replacing certain concrete or other construction materials, or creating smarter methodologies using more environmentally friendly materials. I see that as very exciting too. 

Another trend is robotics, which I find particularly important. There are labour shortages in the construction industry, and embracing robotics could help address that issue. 

And so, robotics are very exciting. 3D printing is also fascinating. It’s a branch of robotics or manufacturing, and the materials that can be printed today are becoming increasingly sophisticated. This allows for much more versatility in how we’re building and constructing. There’s a lot to discuss in this area, but I find these things genuinely exciting. I believe that in 10 years’ time, the industry will be working in a far more futuristic way, with greater use of robotics and a more data-driven and efficient approach. One of the reasons I’m doing what I’m doing is because I love the impact that construction technology can have on the world. We could significantly reduce the cost of buildings, potentially cutting project costs by at least 50%, and also considerably reducing the time for execution. These aspects excite me, partly due to the impact they can have on people and their ability to find shelter and have a home. 

Speaking about construction having an impact on the world, we have to touch on ESG, which stands for environmental, social, and governance. Construction is undoubtedly one of the most polluting industries. 

So, what are your thoughts on this in terms of investing in startups, and do investors speak about ESG mandates when they invest or is it something yet to come? I’ll tell you what, almost every technology in the construction space is contributing technology because, at the end of the day, almost every technology’s goal is to, if you’re planning smarter, you’re making fewer errors, which will significantly reduce the amount of emissions that a project has. If you’re implementing robotics, you’re also reducing a lot of unnecessary labour involved, which is not only a significant cost but also usually more efficient with materials because the robot works in a very consistent manner and typically applies only the amount of material it needs to. So, across the board, almost anything in the construction industry, which is also quite exciting, automatically improves tremendously the emissions that the industry creates, which is really significant. 

I think, from a broader perspective, it’s not only about the construction project itself and the building itself, but it’s also about creating more sustainable environments for the long term in terms of maintenance. A majority of emissions, around 24% according to some reports, are just the electricity or the energy that buildings consume after they’re built. So, how we build like building from the start is an important consideration. I’m looking at technologies across the board. Definitely, I would say it’s a crucial factor to consider how a company is contributing not only to the sustainability of the ongoing project but also in the long term of what the solution is bringing. 

As an investor, there are a few reasons for this, not only because I’m value-oriented and driven by the impact as a millennial who loves the world and wants to make it a better place, but also from a financial standpoint. I think many governments are putting incentives in place for companies to adopt ESG-friendly solutions. There are also financial incentives to be driving and standing behind companies that reduce both costs and environmental impact. So, for someone inexperienced in venture capital and interested in investing in early-stage proptech or contech businesses, it’s essential to consider these aspects. 

How would they start thinking about doing it? Investing in venture and startups is pretty tricky in general. I mean, there’s a lot of common sense involved. Just to clarify, there’s no financial advice on this podcast. I was just thinking the same thing. Yeah, definitely no financial advice. But what I would say is that, first of all, start by doing your research. I’d recommend looking at least at 100 companies before you choose one to invest in. Also, there’s so much great content out there from people who are much more experienced and smarter than me, who can share their take on why and how they invest. I wouldn’t want to spoil their experience of learning and getting that information from the source. 

In terms of investing specifically in construction and PropTech, I would say there’s an additional layer of learning that needs to be done about the space. Try understanding not only the market but also never take face value from a founder about an issue or a challenge in the market. Always try to go to the end consumer and ask them questions regarding a company that you’re interested in investing in; I think that’s one of the most important things. Also, try going in with other investors who are more knowledgeable and have experience. 

Another tip that I like a lot, and I implement as well, is if there’s a company you really like, you’ve done research, and you’ve looked at it, try just getting involved with that company that you think you’d like to invest in. Just say you’re willing to do things for free for them. Ask them if there’s anything you could do to be helpful. Get in touch, get friendly. Just put on a value-oriented hat for what you could do to be helpful. Get on good terms with the founders, and then try investing, especially if it’s early-stage. It’s more challenging to do this with a later-stage company, but definitely talk to construction companies and understand how they perceive the need and what they think about it. Most people have some relative who works in the industry.  

You could start there. Are there any platforms that people can invest on, or does that not exist in this industry yet? You know, you’ve got property in the UK. For example, you’ve got, I think it’s called CrowdCube. That’s in the UK or something like that. You can basically crowdfund your real estate project. So, is there something similar in terms of investing in businesses and construction? 

I’ll tell you what, first of all, there are a bunch of crowdfunding platforms that are broad. They allow investments in a lot of portfolio companies of theirs, and especially, they might have a construction company that you could choose to invest in. Usually, they will even start at around $10,000. So, it’s a very easy way for people to dabble in venture investments. It’s not only construction companies. Some of these funds do it on a much broader scale, but you could choose companies that you want to be more invested in, and they do that. 

There are also companies like AngelList that allow different funds or rolling funds to invest in particular areas of startups. I don’t know because I haven’t really looked into it, but I’m pretty sure that they’ll have some startups in the construction technology or PropTech space. PropTech is more prevalent than construction. So, there are a few options. I wouldn’t want to mention specific platforms or give financial advice. 

For sure, there are a bunch of companies, funds, and options to make those kinds of investments. For example, I don’t really take money from random people, but I do have a close group of people who look to invest and co-invest with me. I would recommend someone at that stage who’s really interested in looking up people they know who are investing and maybe join them on an investment. That way, they can get involved with a smaller ticket. 

Or if it’s really early-stage, reach out to the companies themselves. A lot of times, they’d be willing to take some sort of relatively early-on investor for seed or pre-seed funding, and sometimes it’s a friends and family round, and you might just start getting a little bit involved. That’s what I would say. But there are a few platforms, I would say, that are broadly right for the tech industry, but I’m not that familiar with any platform doing it particularly for construction technology. 

Yeah, is there anything, Eliyahu, that you wanted to say or discuss before we shut this thing down? First of all, I love it. Thank you guys for inviting me on. I appreciate the opportunity to talk to you guys. I’ll say one of the things that really drove me to get on and talk to you guys is just my belief that it’s so important for those involved in this industry to create dialogue, talk, and share ideas and insights. The construction industry has such big hurdles in its path that it’s not a one-company job. It’s multiple companies that all share a mission in creating a more fertile environment for innovation within the industry. 

First of all, I’m happy to share, and I’m happy I was able to show you guys some of my insights. I’m always inviting people, and anyone who wants to is always welcome to reach out to me on my LinkedIn or through the company page. I would say a word of encouragement to the corporate venture arms out there: open up, let people reach out to you, be open to speaking, and share information. Construction companies, be open to getting calls from random people like me who want to help you guys and also talk about the challenges you have and share some of those challenges with the founders and the people who are innovating so they can create better products for you. 

To the founders, feel free to reach out, talk, and dialogue. Bring up the different challenges you guys are also facing in your growth so that more people can understand what they are and be helpful for you. And I guess investors, be willing to roll up your sleeves, help your companies, help the people you’re invested in, and just be good people. And I guess that’s kind of my wrap-up, you know. 

That’s a great wrap-up. You’ve done the job for us. So, on that note, I think we can hit stop. And yeah, thank you very much, Eliyahu, for your time. Yeah, we really appreciate it. Oh, and Martin, you guys are awesome. It’s such a pleasure. Yeah. Thank you. 

Thanks so much for tuning in to this episode of the Bricks and Bites podcast. If you are enjoying the show, please feel free to rate, subscribe, and leave a review wherever you listen to your podcasts. We really appreciate it, and we’ll catch you in the next episode. 

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