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While the venture world is abuzz over generative AI, Dayna Grayson, a longtime venture capitalist who five years ago co-founded her own firm, Construct Capital<\/a>, has been focused on comparatively boring software that can transform industrial sectors. Her mission doesn\u2019t exclude AI, but it also doesn\u2019t depend on it.<\/p>\n Construct recently led a seed-stage round, for example, for TimberEye<\/a>, a startup developing vertical workflow software and a data layer that it says can more accurately count and measure logs and, if all goes as planned, help the startup achieve its goal of becoming the marketplace for buying timber. How big could that market be, you might be wondering? According to one estimate, the global forest products industry hit $647 billion<\/a> in 2021.<\/p>\n Another Construct deal that sounds less sexy than, say, large language models, is Earth<\/a>, a startup that\u2019s centered around human composting, turning bodies into \u201cnutrient-rich\u201d soil over a 45-day period. Yes, ick. But also: it\u2019s a smart market to chase. Cremation today accounts for 60% of the market and could account for upwards of 80% of the market in another 10 years. Meanwhile, the cremation process has been likened to the equivalent of a 500-mile car trip<\/a>; as people focus more and more on \u201cgreener\u201d solutions across the board, Earth thinks it can attract a growing number of those customers.<\/p>\n Dodging some of the AI hype doesn\u2019t completely inoculate Grayson and her co-founder at Construct, Rachel Holt, from many of the same challenges facing their peers, as Grayson told me recently during a Zoom call from Contruct\u2019s headquarters in Washington, D.C. Among their challenges is timing. The pair launched<\/a> their first three<\/a> funds amid one of the venture industry\u2019s frothiest markets. Like every other venture firm on the planet, some of their portfolio companies are also wrestling right now with indigestion after raising too much capital. All that said, they\u2019re barreling toward the future and \u2013 seemingly successfully \u2013 dragging some staid industrial businesses along with them. Excerpts of our recent chat, edited for length, follow.<\/p>\n You were investing during the pandemic, when companies were raising rounds in very fast succession. How did those rapid-fire rounds impact your portfolio companies?<\/strong><\/p>\n The quick news is they didn\u2019t impact too many of our portfolio companies by virtue of the fact that we really deployed the first fund into seed companies \u2013 fresh companies that were starting in 2021. Most were getting out of the gate. But [generally] it was exhausting and I don\u2019t think those rounds were a good idea.<\/p>\n One of your portfolio companies is Veho<\/a>, a package delivery company that raised a monster<\/a> Series A round, then an enormous Series B just two months later in early 2022. This year, it laid off 20% of its staff and there have been reports of turnover<\/a>.<\/strong><\/p>\n I actually think Veho is a great example of a company that has managed very well through the economic turbulence over the last year or two. Yes, you could say they had some whipsaws in the financial markets by attracting so much attention and growing so quickly, but they have more than doubled in revenue over the past year or so, and I can\u2019t say enough good things about the management team and how stable the company is. They have been and will remain one of our top brand companies in the portfolio.<\/p>\n These things never move in a straight line, of course. What\u2019s your view on how involved or not a venture firm should be in the companies that it invests in? That seems somewhat controversial these days.<\/strong><\/p>\n With venture capital, we\u2019re not private equity investors, we are not control investors. Sometimes we\u2019re not on the board. But we are in the business of providing value to our companies and being great partners. That means contributing our industry expertise and contributing our networks. But I put us in the category of advisors, we\u2019re not control investors, nor do we plan to be control investors. So it\u2019s really on us to provide the value that our founders need.<\/p>\n I think there was a time, especially in the pandemic, where VCs advertised that \u2018we won\u2019t be overly involved in your company \u2013 we\u2019ll be hands off and we\u2019ll let you run your business.\u2019 We\u2019ve actually seen founders eschew that notion and say, \u2018We want support.\u2019 They want someone in their corner, helping them and aligning those incentives properly.<\/p>\n VCs were promising the moon during the pandemic, the market was so frothy. Now it very much seems the power has swung back to VCs and away from founders. What are you seeing, day to day?<\/strong><\/p>\n One of the things that hasn\u2019t gone away from the pandemic days of rushing to invest is SAFE notes [\u2018simple agreement for future equity\u2019 contracts]. I thought when we came back to a more measured investing pace that people would want to go back to investing in equity rounds only \u2013 capitalized rounds versus notes.<\/p>\n Both founders and investors, ourselves included, are open to SAFE notes. What I have noticed is that those notes have gotten \u2018fancier,\u2019 including sometimes side letters [which provide certain rights, privileges, and obligations outside of the standard investment document\u2019s terms], so you really have to ask all the details to ensure the cap table isn\u2019t getting overly complicated before [the startup] has [gotten going].<\/p>\n It\u2019s very tempting, because SAFEs can be closed so quickly, to add on and add on. But take boards, for example; you can have a side letter [with a venture investor] that [states that], \u2018Even though this isn\u2019t a capitalized round, we want to be on the board,\u2019 That\u2019s not really what SAFE notes are designed for, so we tell founders, \u2018If you\u2019re going to go into all of that company formation stuff, just go ahead and capitalize the round.\u2019<\/p>\n Construct is focused on \u201ctransforming foundational industries that power half the country\u2019s GDP, logistics, manufacturing, mobility, and critical infrastructure.\u201d In some ways, it feels like Andreessen Horowitz has since appropriated this same concept and re-branded it as \u201cAmerican Dynamism<\/a>.\u201d Do you agree or are these different themes?<\/strong><\/p>\n It\u2019s a little bit different. There are certainly ways that we align with their investment thesis. We believe that these foundational industries of the economy \u2013 some call them industrial spaces, some call them energy spaces that can incorporate transportation, mobility, supply chain and decentralizing manufacturing \u2013 need to become tech industries. We think that if we\u2019re successful, we\u2019ll have a number of companies that are maybe manufacturing software companies, maybe actually manufacturing companies, but they will be valued as tech companies are valued today, with the same revenue multiples and the same EBITDA margins over time. That\u2019s the vision that we\u2019re investing behind.<\/p>\n We\u2019re starting to see some older industries getting rolled up. A former Nextdoor exec recently raised money for an HVAC roll-up<\/a>, for example. Do these types of deals interest you?<\/strong><\/p>\n There are a number of industries where there are existing players out there and it\u2019s very fragmented, so why not put them all together [in order to see] economies of scale through technology? I think that\u2019s smart, but we\u2019re not investing in older world technology or businesses and then making them modern. We\u2019re more in the camp of introducing de novo technology to these markets. One example is Monaire<\/a> that we recently invested in. They are in the HVAC space but delivering a new service for monitoring and measuring the health of your HVAC through their low tech sensors and monitoring and measuring service.<\/p>\n One of the founders had worked previously in HVAC and the other worked previously at [the home security company] SimpliSafe. We want to back people who understand these spaces \u2014 understand the complexities and the history there \u2014\u00a0 and also understand how to sell into them from a software and technology perspective.<\/p>\n<\/p><\/div>\n