Zacua Ventures’ Mauricio Tessi On Making Contech Global

Zacua’s raise surpassed its initial fundraising target by more than 10 percent and is backed by corporate limited partners (LPs) that include Procore, Volvo and Cemex.

In mid-March, Mauricio Tessi, a founding partner at Zacua, spoke with PropTech Insider about the firm’s roots in construction and investment as well as what it takes to bring technology to a global built world environment.

The interview has been edited for length and clarity.

PropTech Insider: Let’s start with the basics. When did Zacua Ventures start and where does it operate now?

Mauricio Tessi: I started my career working for a large construction company, mainly on-site infrastructure projects for about five and a half years. Then I quit, because I was fed up with how inefficient the industry was. I decided to switch careers. I’m originally from Argentina but moved to Madrid to do an MBA. During that time I started working with a few startups, and that’s when I really fell in love with the fast-paced environment of startups compared with the corporates.

After the MBA, I joined Rocket Internet, where I worked for two years, before briefly trying to launch my own fund together with a couple of friends. But that didn’t work out. And that’s when I connected with Cemex, which is a large building materials company that was thinking about opening their own corporate venture capital fund. That was by mid-2016. So by the end of 2016, I joined Cemex to help them structure Cemex Ventures. We officially launched it in March 2017. I’ve been investing with them or leading the investment team for about five years.

So Zacua came out of Cemex Ventures?

Yes. It was during this period that we started to see the upward trend in construction technology and the entrepreneurs coming into the industry, as well as companies adopting more and more technology. Cemex had a very open mind in terms of investing across the value chain of the industry. Hence, in order to do that they wanted to partner with companies that were experts in each stage of the industry. So we partnered with engineering companies, construction companies, developers, software companies, and that is when I first I got to know my co-founders, Juan Nieto, who joined Cemex Ventures one year after me, and Vivin Hegde, who was leading Hilti Venture, the investment arm of Hilti.

When did you close your first fund?

Our fund had its first close in March 2022 with Cemex as the anchor investor and about five or six other investors. That’s when our fund became a completely independent entity. We made our first investment in March 2022. We finalized the fund with $56 million in December last year. As of today, we have made about 20 investments across 14 portfolio companies from around the world.

Who are your LPs in Zacua?

The fund focuses on early-stage construction tech startups, so a majority of our LPs are big companies in the construction industry, because we want to keep pushing these connections between startups and construction companies.

One of the unusual things about Zacua is its principal partners and operations are global.

The fund is in the U.S. and we have two main headquarters, one in San Francisco and the other one in Madrid. We have a global investment scope. We knew that in order to be able to invest globally, we also need Zacua to be located globally. We don’t believe in everyone being in one city, but rather we need to be closer to the entrepreneurs, to know the regions and local cultures’ way of doing businesses, and the spatial dynamics of the industry in the different regions, which is why we actually set up this global fund. 

So, as of today, we have team members based in San Francisco, New York, Mexico City, Madrid and Dubai.

Zacua’s first fund was huge for contech, especially in the face of a constricted investment environment. To what do you attribute raising such a large fund?

When we started at the end of 2021, the fundraising was super fast. Then, in 2022, the environment changed completely and that was super tough from there. The main thing that made our investors trust in us is that we had a completely different model. A few things define our model. First, as I said, our target LPs are corporate investors in the construction industry that are very interested in technologies. These are companies that are forward thinking and leading in their fields.

Secondly, our background was in construction and in working in corporate VCs. So we really understood why they would be making an investment in a fund. We’re talking about companies that are making $5 billion investments. Getting five times the return on their money is not going to move their needle. And there’s other objectives for them. These are strategic objectives, including being in front of innovation, wherever that innovation is happening — understanding how these innovations are changing the dynamics or the processes of the industries, and, of course, how this could affect their businesses.

From our perspective, the only way of being able to provide those strategic goals is by doing our internal process of finding startups and the due diligence to understand what their potential impact is in the industry. So we bring them on board, and our LPs evaluate these technologies, as they’re in the best position to identify those technical details and really underwrite these technologies and let us know, “Yes, we see potential,” or, “No, we don’t see potential.” 

Last, but not least, we put the startups in front of a lot of potential customers very early on, which helps us as well.

In February, Zacua was the lead investor in the $9 million seed round for data infrastructure company Flexnode.

Our conviction with Flexnode was because of many things. First, we believe that the micro trends are leaning more toward the necessity of data centers. However, large-scale data centers are very hard to build and take a lot of time. They take years to build and are complex projects. Flexnode is creating these micro data centers by installing data capacity increases super fast. They do that by utilizing unused spaces in commercial buildings because of the modularity in their construction. Plus, their cooling technology is revolutionary. It allows them to drastically decrease water consumption. So it’s actually more sustainable than traditional data centers. This combination of things, together, of course, with a very knowledgeable team, gave us the conviction in this company.

In selecting companies in which to invest, do you find any cultural or regional differences that are roadblocks that you have to take into account in trying to assess a startup?

Indeed. One of the main reasons why we decided to have a global investment scope is because we see different trends come in different regions. 

Let me give a quick example: Europe. Its regulations and compliance around sustainability are super strong, and that’s pushing a lot of entrepreneurs to launch new businesses in this area. In the U.S., we’re seeing other trends coming, including a lot of digitization technology and a lot of AI technology coming into the market. This is because the adoption of these technologies by the construction companies is higher than in other regions. Hence, we see a lot of these technologies come from the U.S. Another example is robotics technology coming from Asia, because of other market or economic situations there.

So the first reason why we believe that having a global scope makes sense is because we’re able to spot these technologies wherever they are emerging first, but the technologies will soon be very scalable. So, as the U.S. is doing more compliance and more regulation around sustainability, we should be in a very good position to support taking one of the European startups to the U.S. and vice versa.

As for cultural changes, we do see that entrepreneurs tend to differ culturally, and that’s why we also need to understand the local market. I don’t think that you should be evaluated in the same way or with the same set of values as an entrepreneur in the U.S. and in Europe. The market dynamics are different. You need different types of technologies or business models to accommodate for that. Understanding these local cultures makes a lot of sense.

Once quite backward technologically, construction is arguably the most advanced sector of real estate proptech with growing competition in contech. Do you see a lot of VCs entering construction, or is it still a fairly limited cohort?

Luckily, it is definitely an environment in which we see more and more specialized funds coming in as well as generalist funds launching a specific vertical or focus in construction tech. The reason why this is happening is that the opportunity is definitely there. We’re seeing that the market is becoming much more open to trying different types of technologies. That is bringing more entrepreneurs, which is bringing more funds. There have been a few exits into the market, and that’s a kind of virtuous cycle. 

Personally, I believe that’s great. We’re strong believers in syndicate investments. We’ve never done a round by ourself. We like to bring other funds that complement our capabilities and can support the startup in different ways. At the end of the day, we have co-invested with a lot of funds, and the more the better for the ecosystem.

As a global VC firm, you have to have your people around the globe, right?

Yes. There are two people that are in the U.S. One is American, the other, Vivin, is originally from India. Margarita de la Pena, who’s from Spain, is based in Mexico. I’m from Argentina and I’m based here in Madrid. Juan is originally from Madrid as well and based here. Pedro Garcia is from Spain and based here, while Ruben Weinstein is French, but he’s working here at our Madrid office. And our person in Dubai has been there for about 15 years, but he’s originally from the U.K. That’s a big mix. And I would add that with the nationalities of our investors you have the U.N.

Real estate has always been thought of as a locally dominated industry, but are you finding the industry becoming more global?

Yes, absolutely. What’s local is a lot of dynamics and regulations and construction building codes. That’s super local. A construction company, wherever they’re doing a project, they do need to have that particular local expertise with local designers, engineers, even subcontractors. But, in terms of technology, we’re seeing that as long as you can develop a technology that respects the workflows of the construction companies, then you can truly be global. 

Of course, there are a lot of exceptions to this. If you have industrialized construction with heavy assets, that’s much harder to scale. And there are market nuances. For example, in the U.S. or Europe, you have skilled labor scarcity. Whereas in other markets like in the Middle East or Latin America, you don’t have that scarcity, but you do have other issues like much less digitization. So not all the technologies would apply the same way, globally. Sometimes you do need to kind of think twice about what’s the specific value proposition for the market that you’re trying to attend. Overall, there is a local component, but there’s also more and more global or scalable technologies.

What’s the next big thing or things that Zacua is looking at?

It really depends on the region. We’ve been one of the most active VCs in the early stages of construction tech, and I think that we just want to continue that. Regarding the major trends that we’re seeing, we definitely want to keep supporting the sustainability space, helping the industry have actionable things to decrease its carbon footprint. And we want to keep supporting technologies that are bringing a lot of efficiencies to the industry, because there’s thousands of opportunities to radically improve the way that we build. I think that that technology is already available, but we just need to keep pushing and supporting the right entrepreneurs.

Are there particular startups you are looking at right now?

We’re doing due diligence on many of them. We are about to make an announcement — this hasn’t been public — in a green cement company based here in Europe that is radically changing, potentially, the landscape in the cement and concrete industry by bringing in net-zero cement. We’re very excited about that. It’s a long way to get there, but cement is responsible for 8 percent of total CO2 emissions worldwide. So this could be a game-changer.

Philip Russo can be reached at prusso@commercialobserver.com.