BuildStream Investment Memo

Last week, I made an investment in BuildStream via Republic. This is investment 2 of 30 in my 3-year journey to start my own angel portfolio and more importantly put some skin in the game and train my eye for investing. My first investment was in Relay via Republic. No memo for that one, but moving forward I’ll be releasing a memo for each investment. And so…with every investment there are pros and cons, here’s my read on BuildStream:

Company: BuildStream

Website: https://www.buildstream.co.uk/

Location: New York & United Kingdom

Sector: B2B Marketplace

Description: BuildStream is a B2B marketplace for hiring supply chain quality inspectors. It connects clients, suppliers, and inspectors in the engineering & manufacturing industry.

Summary

BuildStream fits my investment thesis on B2B marketplaces and aligns with key success drivers: domain expertise, SaaS-enablement, and product-led growth. Concerns are around the ability to scale a team and whether there is enough market fragmentation.

BuildStream could be the workrise (i.e. formerly RigUp) of supply chain. The specificity and complexity of the supply chain inspection process will offer ample room for innovation and competitive edge. BuildStream has the potential to disrupt a massive engineering industry by layering modern and advanced supply chain quality tools onto a high-quality labor marketplace.

Key Positives:

• Domain Expertise: CEO Terry has spent close to a decade in this field.
• Sticky Experience: A consumerized platform that adds efficiency, quality, and value across the workflow via a growing array of SaaS features.
• Product-led Growth: Freemium model allows for sustainable lead conversion and organic growth.
• Runway Management: The platform was built and a successful trial was run with a small amount of funding.

Key Risks:

• Team Building: BuildStream’s CTO and CPO have left the company since its founding 3 years ago. However, it is key to note that BuildStream has pivoted from its original product post-YC.
• Lack of Fragmentation: It is unclear if large established agencies will continue to occupy significant market share and if there are enough small/mid-sized agencies.

Follow-up Questions for CEO:

1. Do you have examples of how you built teams and driven results within those teams? In terms of BuildStream, can you discuss hiring and why the CTO and CPO left?
2. During the trial, what were the unit economics (AOV, frequency of booking, CAC, contribution margin)? How does this compare to the market and how do you project these metrics changing over time?
3. How do you assess competition from large agencies? What market share do they have today and how fragmented is the market? How do QMSs eat into your value prop?
4. What is the breakdown of your current sales pipeline by confidence level? What is your best-case scenario and your worst-case scenario?

Photo by C Dustin on Unsplash

Desirability

Product: BuildStream is addressing three major pain points: 1) lack of trusted/high-quality sources of inspectors, 2) lack of standardized information and 3) inefficient/manual workflows for sourcing inspectors. Improper supply chain inspections can cause critical failures in projects leading to substantial economic and environmental damage. To solve this issue, Buildstream has created a B2B marketplace for sourcing, booking, and managing supply chain quality inspections. This is a vertical SaaS platform formula that has seen success in other industries (i.e. RigUp for oil and gas contractors, Convoy for freight driving contractors, etc).

Market: BuildStream’s focus is the engineering sector (i.e. industrial manufacturing, offshore energy, and infrastructure projects). To break into the US market, their main growth tactic is to focus on the East Coast offshore wind sector. The American Wind Energy Association (AWEA) expects $28B+ of infrastructure investment in the offshore wind sector over the next decade which will lead to $481M-$1.7B of annual spend on supply chain operations and maintenance. This demonstrates just one piece of a large market for BuildStream.

Photo by Tolga Ulkan on Unsplash

Feasibility

Competition: They are competing against LinkedIn and large established agencies. Further investigation of the market share of the large agencies is necessary to understand whether BuildStream can take advantage of fragmentation. Vertical SaaS features like Document Controls and Attendance Tracking and pre-vetting are sticky advantages that they have over incumbents. However, a deeper competitive analysis is needed to uncover the impact of workflow players like Achilles, Logicgate, etq, and other quality management systems (QMS).

Team: CEO Terry Clarke brings deep domain expertise in this area with over a decade of experience in manufacturing/construction management roles. This is Terry’s first startup founder role. It is concerning that co-founder David Polanski seems to have left the company this month and co-founder Jim Jenkins left the company in 2020. This is according to LinkedIn and needs to be verified. Terry is running a lean team: one developer and one designer.

Viability

Business model: BuildStream is charging a 5% commission on each booking made on the platform. This a traditional/scalable model for a B2B marketplace and their freemium model allows for sustained product-lead growth. Their first trial generated $150k+ and shows initial traction for the product and liquidity in the marketplace. For a marketplace, I would benchmark several metrics (e.g. LTV/CAC ratio, MRR growth, etc) but it is too early. The team does boast a sales pipeline with $10M+ in potential ARR but confidence per lead is unclear.

Funding history: Buildstream was a part of YC S19. YC usually provides a $125k angel investment in return for 7% of company equity. They have also raised pre-seed money from Urban US and Plug and Play. The platform has been admirably built and run through a successful trial with limited accelerator/angel investments. Their current Republic raise seems to be a bridge round to execute on the US sales pipeline prior to a traditional Seed round raise.

Restated Summary: BuildStream fits my investment thesis on B2B marketplaces and aligns with key success drivers: domain expertise, SaaS-enablement, and product-led growth. Concerns are around the ability to scale a team and whether there is enough market fragmentation.

BuildStream could be the workrise (i.e. formerly RigUp) of supply chain. The specificity and complexity of the supply chain inspection process will offer ample room for innovation and competitive edge. BuildStream has the potential to disrupt a massive engineering industry by layering modern and advanced supply chain quality tools onto a high-quality labor marketplace.

For traditional venture funds, BuildStream is a company to monitor and may be a good investment target after they prove out further traction post-bridge-round from Republic crowdfunding.