Why We Invested in Qflow

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You may have noticed that the venture capital market in 2023 is, in a word, dreadful. VC funding has dropped like a stone and portfolio companies are struggling as high inflation and interest rates rain on the parade that ran from late 2020 until mid 2022. And yet, this blog is to talk about a new investment we recently made in a Series A stage company called Qualis Flow, Qflow for short, who are bringing efficiency and sustainability to the construction industry. Unlike a lot of VCs this year, we at Greensoil PropTech Ventures (GSPV) have been quite busy – adding 3 new logos to our portfolio and participating in several follow-on rounds already this year.  As with the energy transition, we believe that decarbonizing construction is an urgent problem with unavoidable consequences that requires a paradigm shift and an unprecedented flow of capital to technology, from sustainable materials and modular construction to worksite efficiency software. We are bullish on the long-term fundamentals of Sustainable PropTech, have dry powder and are putting it to work.

The bar for investing in this market, however, has definitely risen. So how did Qflow make the cut?

First, a quick primer on Qflow’s solution. Qflow offers sustainable construction software that helps developers and general contractors save time and money while reducing embodied carbon. Qflow’s clients easily monitor, document, and analyze all resources entering and leaving the job site, including their CO2 footprint, miles travelled, sustainability compliance, and more. It saves up to 80% of administration time and helps achieve environmental certifications like BREEAM and LEED. Cataloging every material and automatically identifying errors helps to reduce waste and re-work, driving down both carbon footprint and project costs. All with a simple yet elegant user interface on the front end along with key integrations on the back end, allowing their customers to collaborate effectively and continue using their favourite enterprise software solutions while getting much more out of them.

Here is why we think Qflow stands out:

Team: Great startups require great teams. Qflow has this in spades, led by co-founders and construction industry veterans Brittany Harris and Jade Cohen.  We were immediately impressed by their clear vision of how to solve a major pain point in the construction industry, and their passion to improve its sustainability in the process. As we dug deeper, it became evident that they have assembled a strong team that are inspired and aligned on an aspirational yet focused plan and are undergirded by cohesive values. While strategies and skills can be easily added, if this kind of winning culture is absent, in our experience two things are true: (1) it is painfully difficult to correct (if even possible) and (2) the chances of success are dramatically reduced.

 Impact: The built environment accounts for roughly 40% of global annual CO2 output, with building operations generating 27% and building, infrastructure materials and construction (generally known as “embodied carbon”) making up another 13% annually. Given the energy intensiveness of construction and building materials, those statistics are hardly surprising. What is astonishing is the sheer magnitude of the construction industry’s waste. Worldwide, rework due to poor data and bad communication on construction sites accounted for 5% of overall construction costs in 2018, according to projections by the consulting firm FMI Corporation. That rework translated to $65 billion in waste, about half of which ($31.3 billion) was due to poor data and miscommunication.

 The same study found that, construction firms squandered a whopping $280 billion from the same data and communication challenges. Factoring in both direct and indirect waste costs, rework can rise to an average of 7.25% to 10.89% of a given project’s total cost, according to the research firm Navigant (now Guidehouse), plus 10% more construction time.

  To date, Qflow has saved its customers the equivalent of over 4.4 kilotons of CO2 emissions, while generating an average of $221,000 in savings per project.

Clearly Qflow addresses a massive environmental and economic opportunity. As venture investors, we also like what we call their “time to carbon” ratio. In other words, by reducing emissions and waste at the time of a building’s construction, these savings are locked in permanently within a matter of months. By contrast, many PropTech solutions require a 10 to 20 year useful life to generate their impact. Qflow’s impact IRR is higher as a result.

Growth Potential: At just 5 years old, Qflow is already in use on $8 billion of UK construction projects by firms such as the Berkeley Group, Canary Wharf Group, Grosvenor, Landsec, Morgan Sindall, Multiplex and Workplace Futures. Growing beyond their UK beachhead, Qflow has deployments in Australia and pilots in the US, which represents an important expansion opportunity and something that GSPV will be helping with over the coming months.

Like many ConstrucTech solutions, Qflow began selling single project licenses. Unlike most, however, Qflow has demonstrated an impressive ability to convert these to enterprise licenses, which provide their customers with the flexibility to use across multiple projects and Qflow with steady, recurring revenue. This also provides the company with plentiful “land and expand” opportunities within its existing customer base.

Also driving Qflow’s growth potential is the growing set of carbon and waste tracking/reduction requirements on the construction industry. This expands the company’s addressable market and increases the pain point experienced by the customer.  Cities like Boston and New York and the Biden Administration have recently created new guidelines and rules for new and existing buildings and construction sites to reach net zero. Once a project differentiator, LEED environmental certifications now account for the vast majority (74%) of projects in the U.S. and Canada, and along with BREEAM, are now becoming the norm worldwide.

Simplicity: Winston Churchill famously said, “If I had more time, I would have written a shorter letter.” The analogue in enterprise software is “it’s hard to make it simple”. Many a well-meaning startup has tried to dazzle clients with their complexity and comprehensive capabilities – often at the expense of usability, adoption, existing workflows and ultimately customer retention.

Qflow is different. As a result of both their background in the construction industry and a relentless focus on user experience (UX), Qflow’s SaaS solution is intuitive, delightful, and easy to use for anyone that’s ever used the camera on a smartphone. Few startups get this right on the first try. Even fewer combine a great UX as part of an overall solution that fits within the customer’s existing workflows.

When I was CFO at Eloqua (a Marketing Automation SaaS company), we showed up one day to an office filled with those red Easy buttons from Staples that when pressed declared, “THAT WAS EASY!”. While the constant refrain eventually grated on us, it was a great reminder to make everything easier for our customers – from the product to the contracting process to onboarding. Qflow’s solution has been designed, sold, and implemented by construction industry veterans that understand their pain – and it shows.

Partnerships: It takes a village to raise a startup.  Qflow has forged relationships with a deep set of strategic customers, partners, and investors, by virtue of their relevance (they matter) and their intention (they didn’t try to go it alone). For us at GSPV, this was helped by the fact that two of Qflow’s key partners are friends of ours. Grosvenor, both a customer of and investor in Qflow, is a major investor (LP) in our first PropTech fund and a group with whom we work very closely.  Grosvenor is on the leading edge of pushing sustainability within Real Estate and we place great trust in solutions they choose to adopt. Procore (NYSE:PCOR), a ConstrucTech Unicorn and the leading construction management platform, is a technology partner with Qflow, allowing Procore customers to seamlessly integrate Qflow’s data and insights. GSPV became a shareholder of Procore after they acquired Honest Buildings, one of our early PropTech investments.  Given Procore’s market standard status and successful IPO, they are well positioned to help both Qflow’s customers and investors succeed.

Now that we are investors in Qflow, we are making new friends. With organizations like Bridge Investment Group, Suffolk, and many more, there are exciting opportunities for synergies amongst our portfolio companies and our investors, many of whom are real estate developers and owners themselves.

These kinds of relationships are important in all of our investment decisions, but particularly so with Qflow given their team and the majority of their business are in the UK. During our due diligence, a key factor was validating Qflow’s North American market entry plan and their relevance to our relationships in the broader real estate ecosystem. As a vertically focused VC fund, GSPV has one of the best track records in PropTech of leveraging our LP relationships to benefit our portfolio companies.

All the above factors helped Qflow attract investment from us and our co-investors in their oversubscribed Series A round in an extremely tough market.  We’re excited to help Qflow grow, and proud to be their investor and partner.

Dave Kolada is a Managing Partner with Greensoil PropTech Ventures (GSPV), a venture firm with approximately US $150M under management, investing at the intersection of PropTech and ClimateTech. GSPV recently joined Qflow’s Series A round led by Systemiq Capital, along with participation from Grosvenor, Bridge Investment Group, Suffolk Tech and others.