🚧 Investing in Google Flights for Construction

WEIGH. THAT. STARTUP.

Today’s startup has been on my radar for some time now, and a few momentum pushes has pressed me to review this one ASAP. Most notably, The BuildClub has notched a ringing endorsement from KingsCrowd, along with a $20,000 investment. Here’s my take on the startup:

• 🚧 Building in Progress: What The BuildClub is now, and will be

• 🧱 Rev those Engines: The many potential revenue streams

• 👷 Will I Invest: My decision on The BuildClub

BUILDING IN PROGRESS

What BuildClub is now, what it will be

The BuildClub is a California-based startup looking to infuse data + technology into the construction industry by becoming the Google Flights for building materials.

In its current state, The BuildClub operates in a more humble form.

BuildClub offers on-demand 1-hour delivery of building materials. On their website, contractors input the supplies they need, and BuildClub hand-delivers supplies directly to the job site that same day.

While they intend to continue offering this service, their main focus will evolve to closely resemble Google Flights. Flights from NYC -> LA can vary drastically from airline to airline, day to day. The same holds true for building materials - drywall in Home Depot might be 20% cheaper than the same brand drywall in the Lowe's across town.

The BuildClub is revamping its site to show contractors where they can find their materials at the best price. They do this by crawling & tracking 15 million products from numerous hardware/material stores. Contractors can then opt to pick up the items themselves, or use BuildClub's delivery option.

Further down the line, BuildClub hopes to bring an innovative quoting tool to its site. The tool would provide instant quotes after seeing a list of materials, selecting the most inexpensive option for each item (Normally, suppliers won't let you cherry-pick supplies when providing quotes, if you remove certain items it can affect the cost of others).

The founder has also talked about using AI to read blueprints and automatically know what materials are needed. This could cut out a lot of steps in the building process - contractors could take a blueprint and instantly receive the best quote on all the supplies needed.

This is the new direction of the company, but their existing delivery operation isn't something to write off in my analysis. That part of the business is growing rapidly, jumping 158% to $2,954,868 in revenue last year.

The margins are a razer-thin 14%, so only $409,429 trickles through after accounting for cost of goods sold. This sum isn't even enough to support their marketing budget - let alone salaries, R&D, Rent, Legal Expenses, etc.

This likely explains why the company plans to roll out a fully digital option where generous profit margins can guide the company towards profitability.

Now, when speaking to the CEO Stephen Forte, he did mention that they recently raised their prices. That should have a positive impact on the delivery margins moving forward. They've also received a $5M contract from the US Airforce - essentially a $5M line of credit to cover various orders made.

This is the company's first foray into government contracts, and the first order for $60,000 just came through on that deal. As America's core infrastructure ages, government contracts could become a lucrative area for the business.

REV THOSE ENGINES

The many ways BuildClub will monetize new offering

With BuildClub's new offering, there's plenty of ways that they can monetize and diversify their revenue streams. Forte commented that the company will likely pursue a freemium model as the main driver of revenue.

Basic features will be free to use, but users could unlock powerful features by upgrading to a pro membership. For example, only paid members could have the option to see results past a radius of 25 miles.

Other revenue streams that could supplement the paid membership are:

• Advertising - Contractors are a sought-after audience due to how much they spend on materials. BuildClub's site is already averaging 300,000 visitors per month and I expect that figure to scale rapidly. Home Depot + Lowe's + Behr + DeWalt and hundreds other companies would be eager to place ads on site to reach contractors when they're in a purchase mindset

• Affiliate Fees - BuildClub can collect a small fee for driving purchases on other retailers' sites. This would be a great addition, because it comes at little to no cost to BuildClub

• API Data Subscriptions - BuildClub has a valuable data set that can help predict market trends, price swings, and inventory availability. A number of companies would find this useful. A hedge fund might want an edge while trading Home Depot stock for example. These could be lucrative contracts, and again at little cost to BuildClub

The continuous trend in these revenue streams is that they are all high-margin opportunities. They're selling ad inventory, which costs them nothing. They're collecting affiliate fees, which cost nothing to produce. They're selling data, which they scrape from the internet for free.

I think their delivery option and digital site could complement each other really nicely. While low margin, the physical aspect of delivery introduces the brand to everyone present on the jobsite. This fosters trust and awareness, which BuildClub can capitalize on with their high-margin digital components.

WILL I INVEST?

The Decision.

The construction industry is one that tends to change slowly. Luckily, I believe that BuildClub is an easily adoptable tool that is a no-brainer for contractors. Contractors themselves operate on thin margins, so any additional savings they can obtain in material costs can go directly to their bottom line.

The construction industry is also a massive market. There's a reason that Home Depot is the 26th most valuable company in the world with a $318B market cap. Lowe's is #2 in the space and still commands a valuation over $100B dollars.

They're valuable because money is fire-hosed into buying building materials. Home Depot's annual revenue in 2022 was $154B.

There's many, many billions flowing through this space, and I believe that BuildClub could position itself in a place to capture some of those dollars.

In doing due diligence, I discovered that there was a Canadian company by the name of RenoRun that offered a similar service as BuildClub's on-demand delivery service. Despite raising hundreds of millions of dollars, it didn't work out and the company went bankrupt.

RenoRun's approach was much more capital-intensive - they actually warehoused all of the building supplies themselves. I like that BuildClub has attempted to lighten their capital model and it could be the difference between their potential success and RenoRun's failure. BuildClub doesn't hold any inventory, and they noted in their SEC filing that they now utilize 3rd parties for deliveries rather than owning a fleet of trucks.

I believe that The BuildClub has a strong foundation with impressive growth and improving margins. I also like the grander vision for the company - the applicable market is huge, the margins are robust, and the potential revenue streams are diversified. Their $37M valuation is justified by current revenues and upside potential in my opinion.

I'm going to invest in The BuildClub, Forte and his team have earned a spot in my portfolio. If you would like to learn more about investing in The BuildClub, you can check out their fundraising page on StartEngine below!