Introduction:
Dayna Grayson, co-founder of Construct Capital, is a venture capitalist who focuses on software that transforms industrial sectors. While many are excited about generative AI, Grayson’s interests lie in more practical applications. One of Construct’s recent investments is TimberEye, a startup developing software for the timber industry. Another investment is Earth, a composting startup that turns bodies into soil. Despite avoiding the AI hype, Grayson and her co-founder Rachel Holt face similar challenges as their peers. They launched their first three funds during a frothy market and have portfolio companies struggling with excess capital. However, they are determined to drive industrial businesses into the future. Let’s dive deeper into their journey and insights.
Transforming Industrial Sectors:
Grayson’s focus on software that transforms industrial sectors sets her apart from the AI hype in the venture world. Construct Capital recently led a seed-stage round for TimberEye, a startup aiming to become the marketplace for buying timber. With the global forest products industry valued at $647 billion in 2021, TimberEye has great potential. Grayson’s interest also extends to Earth, a composting startup that offers a greener alternative to cremation. As people become more environmentally conscious, Earth hopes to attract a growing number of customers.
Challenges in the Venture Industry:
Grayson and Holt face challenges similar to their peers in the venture industry. They launched their first three funds during an exuberant market and now have portfolio companies dealing with raised capital indigestion. Despite these challenges, they remain focused on the future and are successfully bringing traditional industrial businesses along with them. Timing has been a crucial factor in their journey.
Impact of Rapid-Fire Rounds:
The rapid-fire rounds during the pandemic did not impact many of Construct’s portfolio companies since they primarily invested in fresh seed-stage companies in 2021. However, Grayson found the process exhausting and believes that such rounds were not a good idea overall. This highlights the need for more measured and strategic investing.
Success Story: Veho:
Veho, one of Construct’s portfolio companies, provides an example of successfully navigating economic turbulence. Despite experiencing some financial market fluctuations, Veho has more than doubled its revenue over the past year. Grayson commends the management team and considers them one of the top brand companies in their portfolio. It demonstrates the importance of stability and strong leadership.
The Role of Venture Capital:
Grayson believes that venture capital firms should provide value to their portfolio companies without trying to control them. While they contribute industry expertise and networks, they do not seek control. Grayson notes that founders often desire support and alignment of incentives from their investors. The pandemic shifted the dynamics between VCs and founders, with the latter seeking more involvement from their investors.
The Evolution of Investment Practices:
During the pandemic, many VCs advertised a hands-off approach to investing. However, the power dynamics have shifted back to VCs from founders. SAFE notes, which are quick and easy to close, have remained popular but have become more complex with side letters. Grayson advises founders to ensure that the cap table doesn’t become overly complicated. She encourages founders to consider capitalized rounds if they need additional support beyond what SAFE notes provide.
Transforming Foundational Industries:
Construct Capital focuses on transforming foundational industries that power a significant portion of the country’s GDP. Their vision is to turn these industries, such as logistics, manufacturing, mobility, and critical infrastructure, into tech industries. They aim to value manufacturing software companies and traditional manufacturers as tech companies are valued today, with similar revenue multiples and EBITDA margins.
Introducing Tech to Traditional Industries:
While some investors are interested in rolling up older industries, Construct Capital takes a different approach. They invest in de novo technology, introducing new services and solutions to traditional markets. For example, they recently invested in Monaire, an HVAC startup that offers a monitoring and measuring service for HVAC health. By backing founders who understand the complexities of these industries and can sell software and technology effectively, Construct aims to drive innovation in traditional sectors.
Conclusion:
Dayna Grayson and Rachel Holt of Construct Capital are focused on transforming industrial sectors through practical software solutions. Their investments in startups like TimberEye and Earth demonstrate their commitment to driving change in traditional industries. Despite challenges in the venture industry, they remain determined to provide value to their portfolio companies. Their approach of introducing technology to foundational industries aligns with their vision of valuing these sectors as tech industries. By backing founders who understand these spaces, they aim to bring about innovation and progress.