Brick & Mortar Ventures’ Darren Bechtel On His Journey to Contech VC

Last week, Proptech Insider spoke with Bechtel about his journey to venture capitalism and why his San Francisco-based investment firm — which he leads as managing director — focuses solely on the contech sector of real estate.

The interview has been edited for length and clarity.

PropTech Insider: What is your focus at Brick & Mortar Ventures?

Darren Bechtel: We focus on the construction, facilities and maintenance side of the broader built-world space. We don’t focus on the sort of real estate infrastructure investors’ side — except for trying to solve costs associated with development, schedule overruns, construction defaults or defects. Then we try to have more optimized operations and maintenance phases once the construction is done. We try to carve out and own this category of construction tech. So our whole shtick is that we say we invest in emerging technology to help improve the way that the world designs, builds, operates and maintains the built environment. 

Historically, that’s been an industry tough to serve because the work happens at the work face instead of in the office or the trailer. It’s the people on the job site actually erecting a structure or digging the hole or tunnel, or running initial fiber lines. That’s the sort of ultimate mobile or remote work face. In many cases they’re operating in a place with limited infrastructure, without reliable access to power because they’re installing power. That was the world I was born and raised in. 

Talk a little about your background.

Our family business, Bechtel, was started nearly 125 years ago by my great-great-grandfather, who had two donkeys and a scraper. Fast forward to today, it’s the world’s largest private engineering and construction company, with my brother [Brendan Bechtel] as the current chairman and CEO. Like my brother, I grew up working on job sites. I joke and say my first job-site experience was when we moved into a job-site trailer in the jungles of Borneo when I was 6 months old. I worked summers ever since I was of legal age, in a variety of different roles on job sites.

By the time I was 18, I’d been a gopher on a home-building crew, finish carpenter, mason, forklift operator, a field engineer on a light rail project, and then spent the summer of my 18th birthday overseeing a team of pile drivers on the expansion of the world’s largest coal terminal in Newcastle, New South Wales [Australia]. Back when coal was a thing.

When I graduated school [Stanford], I thought I was blazing my own trail, branching out beyond the family business. I worked at a commercial architecture firm as a designer and engineer for a number of years, and then I found myself entering a world of medical devices as an R&D [research and development] engineer. I designed a breast cancer biopsy device that we took from early prototypes through to FDA [Food and Drug Administration] approval, and then early commercialization. That was my first exposure to the world of startups. Definitely caught the bug. 

Eight years later, I was the turnaround CEO trying to launch that same medical device company out of bankruptcy restructuring following the subprime mortgage crisis. I took that gig two weeks before I graduated Stanford business school and loved it, but it nearly killed me.

How did you go from that experience to proptech venture capital investing?

During that journey of mine, I started doing angel investing — I’d like to think, angel investing with venture principles. I was seeing a lot of my classmates from business school launching new businesses out of the different classes and programs, and fortunately I was in a position where I could actually back them, and in many cases lead their first round of funding to try to breathe life into these ideas that they were cooking up.

I enjoyed the operating role in the med device company, but I really started to fall in love with venture investing. Frankly, it kept me sane and excited. I would get beat up all day in the med-device world, but then be able to have these sort of PTSD-, war veteran-like moments talking to first-time founders, helping to tell them what the real world might be like when you actually step on the battlefield. It was exciting and I felt like I was in a position to try to help them avoid some unnecessary headaches.

When I finally had to throw in the towel on the med device company, I focused full time on the venture investing, grew the portfolio to about 40 different direct investments, all early stage and industry agnostic. It became clear that what I wanted to do was venture, but I believed that, to really excel and ensure that you can get access to the best deals and hopefully build out something that has a legacy of its own, I had to institutionalize the platform and raise capital from outside investors. That kind of keeps everybody honest and accountable, but also it sets up a more sustainable and scalable platform.

What made you concentrate on contech venture capital?

Part of my thesis — this was 2015 — was that early-stage capital was really becoming a commodity at the time. AngelList [a U.S. website for startups, angel investors and job seekers looking to work at startups] was starting to gain some traction. Angel investing was exciting. Good founders were able to raise at least the first couple hundred of thousand, or a low number of millions, of dollars, fairly easily if they were pretty articulate. With that sort of increased competition for deals, I thought there was a need for a sector-focused approach, whether around a specific technology or a vertical. I looked at my legacy portfolio and, lo and behold, what appeared to be the top-performing portfolio companies all fell into what is now Brick & Mortar’s investment thesis and narrative.

My first construction tech investment was as the largest investor in the seed round of PlanGrid. The first deal that I led was the seed round of Levelset. Then one of my first board positions was after I did the A round investment in Fieldwire. In hindsight, it looks like that strategy was working. We’re still in the very early days. If you look at the exits for construction technology startups — and, more specifically, construction software startups — it’s a pretty broad-ranging leaderboard with a handful of IPOs, the most notable being Procore, which I think is now around $12 or $13 billion in valuation.

Is the perception by some that contech lagged the rest of real estate’s adoption of technology still correct? Was it ever?

I would say that construction, and definitely on the engineering and design side, was one of the first industries to embrace technology, because for a while the large architecture, engineering and construction firms were the only ones that could afford the early computers to start running things like CAD [computer-aided design] modeling. But there was a very long pause between those early days and now. 

These days there’s much more widespread experimentation and, ultimately, deployment of new technology. I think it’s partially because of the nature of the construction industry. It’s complex. There are a ton of different stakeholders; it’s high risk with low margins.

What’s the bigger challenge: getting developers to adopt technology or having the actual workers on-site learn how to use tech that they haven’t been exposed to before?

We might be a little bit biased here. Project management solutions are tools that are meant for the team working in front of a desktop computer versus the people out in the field. There’s definitely value to be realized there, but it is our desire to focus on the field or the asset itself and figure out how to make that process or asset better. 

The way to do that is to focus on the person out in the field doing the work, because that person furthest out in the field, lowest on the totem pole, is actually doing the work. That’s where the mistakes happen. That’s where the quality of the work is determined. That’s where the injuries can happen. It’s also your initial raw data entry point. If you are running an optimized project and able to identify areas for improvement, you have to be able to actually measure, have a baseline, and then do improvements as you start to try to innovate and test things out. People aren’t going to innovate for the sake of innovating if they don’t see some sort of positive improvement.

Getting back to the origins of Brick & Mortar — in your $100 million fund in 2019, you assembled a lot of  backing from major entities like Ardex, Autodesk, Cemex, United Rentals, Hilti, Obayashi and Sidewalk Labs. Did you have difficulty convincing those people to back you, or did your family name help?

I was in the very fortunate position of being able to gamble with my own money as we were starting this journey. In 2015, we launched Brick & Mortar, and, at that point, as a branded angel investor of sorts, our website went live and I added a new or narrow focus to my own investing. At that point I already had five construction technology startup investments, including PlanGrid, FieldWire and BuildZoom; and Levelset was shortly after that. 

When this sort of North Star became clear, we spent about three years doubling down on building out the brand and trying to start to develop working relationships with some of the largest corporate strategics from the broader construction ecosystem — even as we realized that we’re trying to be successful in this mission of investing in an unproven category that at that time had not yet had a single unicorn valuation, let alone exit.

We quickly built a name for ourselves in very small circles. We were operating and had a portfolio of about 17 investments when we institutionalized our fund and brought in outside capital in December 2017. With 12 or 13 of these corporate strategic partners, we started meeting, usually when a consulting firm that they were working with called us up and said, “We have a client from the construction world. We’re coming to Silicon Valley, what do you do?” And we would host the demo day and kind of explain a bit of the world according to Brick & Mortar.

Those conversations were frequently interrupted and people said, “Where have you been? We need your help. Are you taking money?” Which was an opposite reaction to the traditional returns-driven limited partnerships that venture funds typically raise money from, because we would pitch them and they would say, “We get it.”

How much of your own money did you put in initially?

It’s fair to say that I continue to roll a significant portion of the proceeds that I realized into the investment funds. I plan to be at least 10 percent into each of our funds now and going into the future. Who knows where the future takes us, but at least for Fund I, I was in 10 percent and that is something we will continue doing going forward. I do think that it says a lot when the general partner commit is one of the larger positions in the fund. Time will tell if I’m a fool with a gambling problem, or if my subject matter familiarity — and, more importantly, the combined knowledge of my team that has a pretty extensive construction and construction technology background —  gives us a unique view of where things are going.

You have had some big exits this year. Was that because you’re some kind of genius or is the timing just right for contech investment?

You know, even a blind squirrel can find a nut every now and then. I think most VCs will say that good outcomes are a mix of some decent judgment, but some luck too. We can’t predict the market, but we make it our business to really intimately understand and know, and in some ways live, the pain points of the industry. We are opportunistically investing in those solutions that really address the chronic, and usually also acute, pain points in the industry.
Philip Russo can be reached at prusso@commercialobserver.com.