At Battery Ventures, we love vertical software!
Vertical, or industry-specific SaaS, has long been a core thesis area for Battery. Many of the companies we’ve backed in this sector (see here for full list) use technology to reduce inefficiencies in industries ranging from restaurants to real estate to healthcare to finance.
One vertical market that has unfortunately lagged others in technological innovation is construction. McKinsey estimates that over the last twenty years construction productivity growth has averaged only 1% annually, compared with 2.8% for the overall global economy. The difference accounts for a whopping $1.6 trillion in value lost each year. We think one of the best ways to address construction’s productivity gap is through more efficient procurement, which is why we’re excited to announce a continuation of our vertical SaaS thesis with our Series C investment in Kojo*, which is a materials management platform for subcontractors.
According to an outside Kojo report, 40% of total subcontractor project costs come from material spend, which equated to $1 trillion globally in 2021. How are these costs—for materials like lumber, tubing, and wire—managed today? Largely by text, calls, email, spreadsheets, and yes, even fax sometimes.
In practice, a field worker typically sends hand-written materials requests to his or her back-office purchasing department nearly every day. Then, the purchasing department likely will need to talk to the field worker to understand what exactly that person needs (e.g., specific SKUs, quantity of a particular material, etc.). Once the purchasing agent has this list, he or she will draft requests-for-quotes (RFQs) via email to each supplier with the material request list. As each supplier responds, the manager tracks in a spreadsheet or on paper the material’s availability and price.
After deciding which supplier from which to purchase specific materials, the purchasing manager will then create and send a purchase order (PO). The company has neither a uniform way to track the status of materials, nor an easy system to understand spending. Once the materials are received, the purchasing agent must manually match the PO with the invoice and payment to reconcile this transaction into an ERP system. This manual process results in opaque spend visibility, extra time dealing with third parties, purchasing inaccuracies, and overspend—all of which lead to wasted time, money and, potentially, project delays.
To solve this, Kojo has built an end-to-end, materials procurement solution that streamlines the entire requisition process. Kojo allows field teams to search for and select materials in an Amazon-like fashion from their mobile devices on site. From there, material lists are sent to back-office purchasing departments, where RFQs are autogenerated and sent to any number of vendors. The supplier is taken from the RFQ email into the Kojo platform, where the supplier enters quantity of materials available, price, lead time, and any other pertinent details.
Upon receiving this information back from each supplier, the subcontractor can then easily compare and select any combination of suppliers for each material requested and automatically generate and send a PO back to the supplier. The subcontractor can track and see the order status through delivery and follow up with any missing materials or defects. Importantly, Kojo integrates with ERP systems for three-way matching automation.
The results of leveraging Kojo for procurement are significant: site supervisors spend roughly 38% less time on materials management, back office staff save about 75% of time processing POs, and customers save about 3-5% on their materials orders, according to the company. In other words, construction professionals get to spend more time doing what they love (3,478 hours a year on average), finance staff spend less time on tedious paperwork, and owners save money ($174K a year on average) by eliminating overspend and inaccurate orders. These savings are game changing for subcontractor margins given the industry only nets a 5% profit on average. Perhaps more importantly, users seem to love the product, according to calls with customers that we conducted.
We are extremely excited to roll our sleeves up with Maria Rioumine, Kojo’s co-founder and CEO, and the rest of the Kojo team. We feel honored the company chose to partner with Battery on its journey to streamline materials procurement.
This material is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.
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*Denotes a Battery portfolio company. For a full list of all Battery investments, please click here.