A short premise before we dive in.
This article is a tad different from the others I have written so far: it's half rant, half tough love.
In the past years, I've had the privilege to meet hundreds of passionate founders who pour their hearts and souls into building solutions for the massive market that AEC (+ supply chain & manufacturing) is in India. Their drive and vision are admirable: they look at complex problems that have frustrated industries (and many times, themselves in the first place!) for decades and think, "I can fix this!".
The construction industry desperately needs this entrepreneurial spirit. It needs the dreamers and the doers who refuse to accept that "this is just how things work". And at Foundamental, we've been privileged to be early partners to many of these highly talented, relentlessly ambitious, and savvy entrepreneurs building generational companies in the space.
But it's precisely because I deeply respect this courage - and because I want to see truly transformative companies emerge in Indian construction tech - that I feel compelled to share some observations. After years of witnessing similar patterns repeat themselves, I see too many founders building solutions that the market simply isn't ready to embrace or does not really need, while others are doing "more of the same", just trying to replicate early successes (and not truly innovating).
What follows is not a criticism nor judgment - who am I to tell anyone what to do with their time and life? I just aim to channel this entrepreneurial energy more effectively. Consider it tough love from someone who has watched countless attempts to revolutionize this space, someone who still believes it can be done, but perhaps not in the ways most founders are trying.
With that, I hope that the hard-to-swallow pills I'll share here will create more friends than enemies.
Business logic ≠ market reality
Let me start with a pitch I’ve heard many times over.
“Construction SMEs in India face significant challenges in project management, leading to widespread inefficiencies and financial losses. A staggering 9 out of 10 projects experience cost overruns, while 80% are completed behind schedule. These issues stem from poor communication, fragmented data management, and inadequate resource tracking.
The root of these problems often lies in the disjointed communication methods employed by construction firms. Teams rely on a patchwork of WhatsApp messages, phone calls, and Excel sheets, creating information silos that hinder real-time visibility and decision-making. Critical project data, such as schedules, budgets, and fulfilment details, are scattered across various platforms, making it challenging to maintain a cohesive overview of project status.
Furthermore, many contractors still manage working hours manually, leading to inefficient time tracking and billing processes. This lack of streamlined operations contributes to a startling statistic: 80% of contractors are unaware of their actual project expenses.
A construction project management app offers a comprehensive solution to these challenges. By centralizing communication, document management, and resource tracking, these apps enable real-time collaboration and data-driven decision-making. They provide a single source of truth for all project-related information, improving transparency and reducing the risk of errors or miscommunications.
By adopting such software, construction SMEs in India can significantly enhance their project management capabilities, leading to improved efficiency, reduced costs, and timely project completion.”
From a theoretical point of view, it makes sense.
Is productivity in construction low? Yes.
Would companies in construction, especially SMEs, benefit from the adoption of technology that streamlines communication and workflows, and gives them data-driven decision-making? Also yes.
Are there plenty of construction project management tools out there for these firms to buy? Also yes.
Are construction SMEs buying any project management software? No. Nada. Niet.
Do I come across new such companies being founded every other day? Also yes.
Do I understand why founders keep building such tools? Unfortunately, no.
While, theoretically, such a product (and many others, if you want to generalize) makes sense, from a reality-grounded point of view, you are setting yourself up for failure if you want to build it and think it will scale.
Now, this was just a very specific example. I’m not trying to stop anyone from building construction project management in India (well.. I actually am, ahah). I want to share what makes sense (from my perspective, which is also one of an investor) for founders to focus on, if they want to build a high-growth, VC-backable company in construction tech in India (and SEA).
Let’s start with SaaS.
Dead on arrival
If you're planning on building contech software in India, don't let the sub-header discourage you. I'll also share how it can be done successfully later in the article (with caveats). For now, bear with me.
For a moment, let’s generalize a bit beyond construction.
Let’s take the entirety of MSMEs in India as your market. According to the Udyam Registration Portal and Udyam Assist Platform in India, there are 47.8 million registered MSMEs in India. The actual number of MSMEs in India, including unregistered ones, is likely higher: some estimates suggest there are about 63 million MSMEs in total, 99% of which are micro-enterprises.
Conclusion: even if I price my solution relatively cheaply, it’s a super large market. Great!
The fallacy is thinking that your market size is:
Market size = # of companies * your annual pricing
You could not be further from the truth. Your real market size is the following:
Market size = # of companies * annual budget for IT/willingness to pay for IT
A very large number multiplied by something close to 0 is still (close to) zero. That’s your real market size: basically non-existent. While the second part of the equation (willingness to pay) has different multipliers depending on the industry, these are generally low and generally lower for construction. Even large construction firms have very small budgets (and surely not enough for point solutions or anything that does not provide tangible and immediate ROI).
There are many reasons for why SMBs are not great SaaS customers in India.
First, there’s general skepticism towards tech adoption. Indian SMB owners place more faith in people than in software: software can feel like a black box, something that removes their sense of control. Who do you blame when something goes wrong?
Second, the Indian market has a strong preference for ownership over subscription models. This mentality is perfectly illustrated by the success of on-premise solutions in the Indian SMB market. More crucially, on-premise solutions can be easily pirated, which has happened for a very long time and a major contributor to why SMB owners are not keen on paying for software. I read somewhere that at some point, there were more users of pirated versions of Tally than of paid ones: crazy! Therefore, the concept of paying a recurring subscription for software access hasn't gained widespread acceptance among Indian SMBs, who often view it as an unnecessary ongoing expense rather than an investment. So, when owners have been conditioned to expect software to be free (or nearly free), convincing them to pay a (meaningful, although still low) subscription fee becomes an uphill battle. You're going to fight a war to the bottom.
This brings me to another point: in general, one of the biggest challenges for SaaS is demonstrating value quickly enough to justify an investment. Many small business owners expect immediate results, making it difficult to sell solutions that might take months to show their full impact. Besides, SaaS, which generally claims productivity boost and time savings, does not really resonate with a “money-saving” mindset such as that of Indian SMB owners. That's why SaaS’s value proposition frequently falls flat in India: Indian businesses tend to value money savings significantly more than time savings, often to an extent that might be irrational from a purely economic standpoint. The preference for human capital over technological solutions runs deep in the business culture.
There's also a deeply ingrained concept in Indian business culture called 'jugaad': the art of finding temporary, often makeshift solutions to problems. This mindset can work against SaaS adoption, as businesses often prefer quick fixes over more comprehensive, long-term solutions, even when the latter might be more cost-effective in the long run.
The whole situation described above becomes even more complex when we look at micro-enterprises. These businesses often have minimal budgets coupled with outsized expectations about what software should deliver.
Now, it might happen that you’re able to nail one distribution channel and generate some sales. Your MRR grows. Then you check your cohorts: catastrophic. I am willing to be that for every story in which there’s some success selling software to MSMEs in India, if you take the time to look at the nitty-gritty of things, you will discover a reality of extremely high churn and very little usage (MAUs, feature usage, etc.). When your business is not seen as core to the company's operations, you’ll not go anywhere.
According to a survey by YES Bank, only 5% of SMEs in India have fully utilized digitization technologies. Do you want to educate the market? No. The unit economics of the business do not allow you to do so. "But hey, there's now more tailwinds for adoption, new generations are inheriting businesses, the government is giving incentives, SaaS is now at an inflection point!!", you might say. Well, do you want to take the risk of timing the market? I certainly don't!
Now, on top of all the above, there’s also another point to be made (especially if your goal is to be a VC-backed startup): there’s absolutely no point in building the n-th copycat for a specific product in the market, particularly in a market where there’s little to no adoption for such product. Let’s bring back the construction project management SaaS example: there are so many like-for-like of these in India that I have lost count (it's in the several dozens). There’s no differentiation, no moat to build, and even worse, no money to be made. Why would you want to build the n-th player in a crowded market, that also has zero willingness to pay? I genuinely don’t get it. Leaving aside this specific example, this can be generalized to many other SaaS products (and point solutions) I've seen being built for AEC.
At the same time, I get the intention, and that some people are just genuinely passionate about transforming the construction sector. These intentions are noble: founders see inefficiencies and want to fix them. But passion alone won't sustain a business. The harsh reality is that you need to build something that the market pulls (and not something that you push), which can generate meaningful revenue for yourself and your team (and has generational potential that can make investors tons of money if your plan is raising capital). Otherwise, you're just going to fight an entrenched resistance to paying for the value you create. Point solutions won't make it. The n-th copycat won't make it.
As an entrepreneur, regardless of whether you want to raise venture money or not, you have the opportunity to pick your battles, so choose the ones you can win, not the ones lost before they're even fought! So, what opportunity spaces should one look at when building a Contech company?
SaaS that actually works
Before we dive into the answer to the above question, a clarification is due: I’m not saying you should not build SaaS, ever. You can do it very successfully, but there are some specific nuances on how you should do it if that's the route you want to go for.
First option: be global from day 1. In fact, it makes perfect sense to build software in India and sell it globally, given the cost advantage. This is exactly the playbook our portfolio company Snaptrude is (excellently) playing. This is a playbook many successful companies outside construction have followed (Zoho being the most famous, perhaps). How to do this is a topic for another day. But if your B2B SaaS startup is focused on Indian businesses in construction, be ready to be a startup forever or die a slow death eventually, particularly for SMB SaaS. I've met a company that, after 9 years in the market, could still not monetize. You don't want to end this way.
Does this mean that you should build your project management startup in India and sell it to the USA? No. You still need to build outside of what's obvious and for which several local players (therefore having a hedge over you) are already competing.
Therefore, the second point I am making is: if you want to build SaaS in AEC-tech (for India and/or for the world), don’t do it in the most obvious spaces possible, those that are clear to industry insiders and outsiders alike, particularly if you want to be VC-backed. Because chances are, the market already has tons of copycats indistinguishable from you - you will have no differentiation, no way to build a moat. The lowest-hanging fruits, the obvious opportunities, don't generally cut it. This is an observation that I want to highlight for non-SaaS businesses as well, as we will soon cover.
SaaS can also work when targeting India - but there are some nuances to this.
You need to completely reshift your perspective on the business model: don't think of SaaS as your core offering, think of it as a Trojan horse, a GTM if you wish, that you give away at minimal or zero cost (consider it a CAC, almost), that allows you to then monetize transactional services. In other words: offering software as a free tool that facilitates valuable transactions that you can monetize is definitely more effective than trying to sell the software itself. There are several companies adopting this approach in India, and it works. Clearly, this model only works in specific opportunity spaces. That said, if you're thinking of building something with this model, the same evaluations on the market environment/opportunity space remain.
Last, you might also build software that allows you to deliver a service - but much better, faster, and with more quality compared to incumbents. More of that later on.
Now, let's move on from SaaS.
The common thread in India's ConTech success stories
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Take a hard look at the most successful companies in India's construction sector and adjacent verticals. What do their business models actually tell you? Infra.Market, ZETWERK, Metalbook, Livspace, Brick & Bolt, etc. all share some similarities.
The success of these companies is not predicated on selling software but rather on creating platforms that address fundamental inefficiencies in procurement and project execution. They utilize technology to streamline processes, enhance transparency, and improve efficiency, without however making it the product customers buy. The customers buy materials, houses, or services (e.g. renovations), delivered on time, with high quality, and price competitively. This resonates well with their customer base. All these success cases have identified and responded to existing demands within the industry, rather than attempting to push new tech, by addressing critical pain points such as supply chain fragmentation, lack of transparency, quality control, and/or project management.
They have aligned their business models with the intrinsic needs of construction and both sides they serve (demand and supply), focusing on delivering concrete outcomes (again, on both sides) by solving existing inefficiencies. They are integrating technology as a means to an end rather than as the end itself.
Brick & Bolt does not sell software to improve efficiency and productivity to contractors: it generates new business opportunities for them, which is inherently more valuable. Moreover, since Brick&Bolt is sourcing projects and knows exactly what is going to be needed to execute them, they can also procure the materials for the contractors, further increasing their top line. And, of course, they have built a project management solution to oversee progress, coordinate with subcontractors, and manage vendors - to make sure that the end outcome (promised to the demand side) is achieved in time and with high quality.
MyGenie, a recent pre-seed investment we led, serves India's booming retail industry by offering a turnkey solution for retail fit-out projects, solving for all pain points and obstacles getting in the way of retail brands’ expansion plans, utilizing its AI-powered tools to enhance the efficiency and quality of their delivered projects. MyGenie’s system analyzes historical data to identify issues and makes recommendations to fix them, resulting in efficient project management and cost-effectiveness. But their core business is still project execution, what they are selling is an outcome: a fit-out retail store/gym/restaurant/etc. delivered in time (and in advance, even!). They do so asset-light through a network of dedicated and specialized contractors (there are many nuances under the hood here, but I'm keeping it short) that were previously underutilized and hard to find, in a "cloud installer" fashion.
Most people probably know Livspace. The company operates as a one-stop shop for homeowners to design, renovate, and furnish their homes. The entire design or renovation process, from consultation, design concept, material selection, project management and installation is managed by Livspace, which owns the responsibility for project execution: Livspace acts as an “orchestrator” between many parties (designers, carpenters, contractors), and acts as the vendor of record towards the clients. Technology is a core value driver of Livespace’s platform: they have built a design authoring and visualization tool that it provides to the designers on the platform to streamline their work. Additionally, Livspace has developed tools to streamline pricing, demand forecasting, project planning and execution. Moreover, their data platform ingests large numbers of signals from customer engagement, design assets, and usage patterns on the platform to improve personalization in design solutions. But again: their business is project execution, that's what they sell.
And I think everyone knows about our portco Infra.Market, and many about Metalbook, so no reason to explain these, too.
Enough of "me too's", please!
As we've seen, many companies have pioneered what a successful model in AEC-tech can look like in India. So much so that a plethora of copycats - with varied degrees of overlap in business models and understanding of what made the company they copied a generational one, customer segments, etc. - of the same have started emerging (ugh!).
Do we really need 15 VC-backed (emphasis here) Livspaces, 25 Infra.Markets, 10 Brick&Bolts, etc.? Or better, can the market absorb "n" VC-backed (emphasis here) copycats? No, I don't think so. And the argument of "it's a very large industry" falls short for me.
In fact, there's one key observation one can make by looking at the above success stories: for every VC-backed generational company in a vertical, the second-best one has generally achieved success one order of magnitude lower (in terms of scale and/or funding). Infra.market vs ArisInfra. Zetwerk vs Karkhana. Brick&Bolt vs BuildNext. Everyone wants to keep placing their money on the first runner.
This means that the n-th company in the space has very little chance of outsized success (which VCs seek), particularly as scaling these models is normally predicated on the availability of abundant WC, which is generally unlocked by equity, which VCs provide but they won't, since you're the n-th company in a now obvious market. It's a vicious circle. Fundraising likely won't be easy, but that's not to say you won't be successful, just that you are less likely to achieve the same generational scale of the first player you are imitating, for the reasons outlined above. There's also a caveat here: you might be able to achieve the same generational outcome if you operate significantly more efficiently than the current frontrunner (for example, by automating more back-end processes, reducing working capital through some hacks, etc.), basically "out-innovating" the disruptor. That's not what I've seen in the market, though: so far, I've only interacted with one firm out of dozens whose founders were thinking and operating along these lines, and the growth was commendable.
That said, the key difference for pursuing this business model - when compared to the example provided for the case of building SaaS in an obvious market plagued with competitors - is that great, profitable companies can be built: I've personally interacted with many such companies. That's why I specified that the market can't absorb more VC-backed copycats, but it can perhaps absorb more of these profitable, slower-growing businesses. It can be a good, lucrative opportunity, just not one for you to build in if you want to raise a ton of VC capital!
This does not mean that all the B2B procurement and supply chain opportunities to build a high-growth, VC-backed company in construction tech are gone.
In fact, we have recently backed two new contech B2B commerce startups at Foundamental (unannounced, for now!). I am just saying that all the obvious opportunities are already taken: the ones in the same product categories, the ones serving the same customer types with the same model, the ones with no GTM/distribution innovation.
Or at least, they're gone for me.
The winning formula?
Alright.
Getting to this point, I guess you want me to answer the question: "What is it, then, that I should build (to become the next generational company in AEC-tech)?"
Well, I'll have to disappoint you.
I'll be short, and I will not tell you exactly what you should build. However, I can surely point you in the right direction!
My advice is very simple: you have to look at the P&L of your target customer (whoever that might be, and whether that's domestic or international), and understand what is it that gets outsourced and/or bought, be it products or services. What you want to find is: what are those things for which, today, there already exists a line item in the P&L of your customer, that you can monetize? By doing this, you already solve a huge problem: buyer readiness. You already know that your customer is buying that specific product/service, so you can rest assured that there is demand for the same: you're selling "must-haves", not "nice to haves". Just think about it: more than half of a GC's COGS are due to subcontractors and materials. That's why software is not a good sell: yeah, construction companies (large ones) do have an IT budget (a couple of percentage points, at best in the West; less than 1% in most cases), but nothing necessarily specifically allotted to your product: they have some budget for key ongoing IT expenses and software, and some budget for "experimentation". This budget is generally fixed and low.
And that's why selling outcomes (something we've been talking about for some time here at Foundamental) wins in the market: you're just replacing someone else by doing something better, not creating an entirely new cost/line item that was not there in the P&L to begin with.
It needs to be noted that this first step requires unique insights. You won't really get it just by looking at the P&L of your customer. You need to know what happens before, during, and after a project. You need to look where no one else is looking. You need to operate in hidden but obvious workflows. Everyone knows that construction companies need cement and steel, and that the supply side can be fragmented and unorganized. But there are way more things that get outsourced or purchased beyond that, hidden from the sight of everyone.
Then, from there, you need to understand: how can I use technology and leverage information asymmetries and/or market inefficiencies to provide the same product/service much better than the existing best alternative, and therefore be cost competitive while also making higher margins vs. the traditional business you are competing with? How do I use technology, coupled with business model innovation, to repeatedly provide the same standardized service/product/outcome at scale? These are the questions that allow you to become a generational tech company in AEC.
Concluding remarks
End of the tough love, dear reader!
The construction industry in India desperately needs innovation. But it needs the right kind of innovation, aligned with market realities and customer needs! The true opportunities lie in understanding the deep mechanics of the industry, identifying existing budget allocations in your customers' P&Ls, and innovating on business models that deliver outcomes. If you're brilliant enough to look beyond the obvious and truly understand the problems at their core, you might just build something transformational.
So, look beyond the surface for the hidden workflows. You want to solve problems that no one else but traditional companies are solving. If you've got many well-funded players in the space, it's likely too late, given the unique market dynamics we see for these models in India.
And a final word of caution: just because you build something in this space does not mean you will receive funding. This is a prerequisite, but many other factors come into play. It's just a starting point.
And never forget: your goal is not to found a startup to get VC funding. Your goal is to build a solid business. VC funding is just the result of you building a fantastic business that needs more fuel to grow faster.
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