Foundamental, an early-stage investor in the construction and design space, will soon hold a final close soon on “around $120 million” for its third fund, co-founder and general partner Adam Zobler tells Venture Capital Journal exclusively.
Fund III is a substantial step-up in size for the Berlin-based firm. Foundamental raised $60 million for its debut fund in 2019 and $85 million for Fund II in 2022.
Zobler says when Foundamental launched five years ago, VC investment in the construction sector was “a bit of an oxymoron; there was no capital being deployed in the space.” He and his co-founders quickly realized there was opportunity in the white space, he adds.
“This is by far the largest industry in the world, around $13 trillion by spend, $1 trillion by waste per annum, it employs like one in 14 people, so we started charting the efficiency graphs and construction was negative,” Zobler says. “If you offer tech-enabled solutions that could maybe buoy and right the proverbial ship you’re going to have an unfair adoption advantage, and nobody was really doing it at scale in terms of investing.”
Foundamental is led by three general partners: Zobler, who oversees its investments in North America; Patric Hellerman, who manages its activities in Europe; and Shubhankar Bhattacharya, who manages investments in Asia-Pacific. The firm also occasionally makes investments in new markets, including Latin America and Africa, just “to get boots on the ground,” Zobler adds.
Fund III will continue the firm’s strategy of investing at the pre-seed and seed stages in companies across the construction, supply chain/logistics, workforce and 3D/design industries.
The new fund will have an average check size of anywhere from $500,000-$5 million and that it will reserve roughly 60 percent of its capital for follow-on rounds in its best performing companies.
Zobler declined to share how many investments the fund will make, but says it will not invest as frequently as it did from its first two vehicles, which have collectively made more than 100 investments.
“Your Fund II is almost like you found product-market fit in your thesis, and when we closed that all of the transient investors retrenched to spaces they do know, and that just opened a void for us to lean into,” he says. “We ramped up a crazy amount in 2022 and 2023, but we’ve tapered off a little now.”
Foundamental is currently the most active investor in construction start-ups, ahead of Brick & Mortar Ventures, Building Ventures and SOSV, according to data from Shizune, which helps company founders find the most active investors in a variety of industries.
Zobler declined to share the names of LPs, but says the firm’s investors are “a consortium of large multinational incumbents in the space – architectural and engineering firms, general contractors, building material producers and other similar organizations.”
He adds that the expertise of Foundamental’s LPs gives the firm an advantage. “We wanted to find the deep pain points that these industry stakeholders are experiencing on a day-to-day basis that could help refine and perfect our thesis,” Zobler says. “Early in the company lifecycle you have all these really expensive earned learnings and our job is to collapse those as much as possible. If we can provide some insight on how the market will absorb you, or assist you on pricing methodology, and especially with our LPs we can give you an unfair advantage in what these acquirers want.”
All of Foundamental’s existing LPs invested in Fund III and “about 50 percent” doubled their commitments, Zobler notes. He added that fundraising for Fund III, while “still a grind,” was made easier by the fact that Fund II currently boasts a net IRR of 35 percent.
The firm has completed a number of exits amid a relatively frozen IPO and M&A market. Online procurement marketplace developer Infra.Market, which Foundamental backed with its debut fund, filed to go public on an undisclosed exchange on August 30. Last year, Foundamental used the secondary market in March to sell its stake in interior design platform Dekoruma, also a Fund I portfolio company, to an undisclosed buyer.
Zobler notes that the firm has completed at least two exits from Fund II, but the details of the deals are not yet public. He also predicted that M&A will pick up in the next year to year and a half, which could result in an even higher IRR for Fund II.
“I think due to the IPO market being frozen for awhile that the incumbents in our space are going to gobble up and acquire a lot of companies,” he tells VCJ. “Especially in the design space, all of these competitors want to hire people to compete against the design stack at Autodesk, so they’re going to be looking to acquire these firms, and it’s going to be in and around these 15 months because it’s growing parabolically.”
As for Foundamental’s name, Zobler says he and his partners opted to keep it simple. “We chewed on it for awhile and decided we wanted to be founder driven/founder first and fundamentally thesis oriented, so we just squished those two together.”
Foundamental, an early-stage investor in the construction and design space, will soon hold a final close soon on “around $120 million” for its third fund, co-founder and general partner Adam Zobler tells Venture Capital Journal exclusively.
Fund III is a substantial step-up in size for the Berlin-based firm. Foundamental raised $60 million for its debut fund in 2019 and $85 million for Fund II in 2022.
Zobler says when Foundamental launched five years ago, VC investment in the construction sector was “a bit of an oxymoron; there was no capital being deployed in the space.” He and his co-founders quickly realized there was opportunity in the white space, he adds.
“This is by far the largest industry in the world, around $13 trillion by spend, $1 trillion by waste per annum, it employs like one in 14 people, so we started charting the efficiency graphs and construction was negative,” Zobler says. “If you offer tech-enabled solutions that could maybe buoy and right the proverbial ship you’re going to have an unfair adoption advantage, and nobody was really doing it at scale in terms of investing.”
Foundamental is led by three general partners: Zobler, who oversees its investments in North America; Patric Hellerman, who manages its activities in Europe; and Shubhankar Bhattacharya, who manages investments in Asia-Pacific. The firm also occasionally makes investments in new markets, including Latin America and Africa, just “to get boots on the ground,” Zobler adds.
Fund III will continue the firm’s strategy of investing at the pre-seed and seed stages in companies across the construction, supply chain/logistics, workforce and 3D/design industries.
The new fund will have an average check size of anywhere from $500,000-$5 million and that it will reserve roughly 60 percent of its capital for follow-on rounds in its best performing companies.
Zobler declined to share how many investments the fund will make, but says it will not invest as frequently as it did from its first two vehicles, which have collectively made more than 100 investments.
“Your Fund II is almost like you found product-market fit in your thesis, and when we closed that all of the transient investors retrenched to spaces they do know, and that just opened a void for us to lean into,” he says. “We ramped up a crazy amount in 2022 and 2023, but we’ve tapered off a little now.”
Foundamental is currently the most active investor in construction start-ups, ahead of Brick & Mortar Ventures, Building Ventures and SOSV, according to data from Shizune, which helps company founders find the most active investors in a variety of industries.
Zobler declined to share the names of LPs, but says the firm’s investors are “a consortium of large multinational incumbents in the space – architectural and engineering firms, general contractors, building material producers and other similar organizations.”
He adds that the expertise of Foundamental’s LPs gives the firm an advantage. “We wanted to find the deep pain points that these industry stakeholders are experiencing on a day-to-day basis that could help refine and perfect our thesis,” Zobler says. “Early in the company lifecycle you have all these really expensive earned learnings and our job is to collapse those as much as possible. If we can provide some insight on how the market will absorb you, or assist you on pricing methodology, and especially with our LPs we can give you an unfair advantage in what these acquirers want.”
All of Foundamental’s existing LPs invested in Fund III and “about 50 percent” doubled their commitments, Zobler notes. He added that fundraising for Fund III, while “still a grind,” was made easier by the fact that Fund II currently boasts a net IRR of 35 percent.
The firm has completed a number of exits amid a relatively frozen IPO and M&A market. Online procurement marketplace developer Infra.Market, which Foundamental backed with its debut fund, filed to go public on an undisclosed exchange on August 30. Last year, Foundamental used the secondary market in March to sell its stake in interior design platform Dekoruma, also a Fund I portfolio company, to an undisclosed buyer.
Zobler notes that the firm has completed at least two exits from Fund II, but the details of the deals are not yet public. He also predicted that M&A will pick up in the next year to year and a half, which could result in an even higher IRR for Fund II.
“I think due to the IPO market being frozen for awhile that the incumbents in our space are going to gobble up and acquire a lot of companies,” he tells VCJ. “Especially in the design space, all of these competitors want to hire people to compete against the design stack at Autodesk, so they’re going to be looking to acquire these firms, and it’s going to be in and around these 15 months because it’s growing parabolically.”
As for Foundamental’s name, Zobler says he and his partners opted to keep it simple. “We chewed on it for awhile and decided we wanted to be founder driven/founder first and fundamentally thesis oriented, so we just squished those two together.”
