Adaptive’s Innovative Approach to Speeding Up Construction Payments
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The construction industry has long grappled with slow payment issues, creating a financial strain for many involved. Payments can take an average of two to three months to process. This lag is due to project delays, multiple approval stages, and cost overruns.
Recognizing these challenges, Matthew Calvano, along with Henry Bradlow and Francisco Enriquez, launched Adaptive in 2021. Their platform aims to simplify and accelerate payment procedures for general contractors. “The construction payment chain involves multiple layers, including banks, developers, general contractors, and subcontractors,” Calvano noted. “We believe that this complex web, combined with the lack of financial expertise in most small- and medium-sized construction businesses, is the primary driver of the industry’s slow payments.”
Understanding the Construction Payment Problem
The construction industry is notorious for its slow payment processes. Studies show that payments can take two to three months on average. This delay is due to a combination of factors, including project delays, multiple layers of payment approvals, and cost overruns.
In 2023 alone, the cost of delayed construction payments reached a staggering $273 billion. This figure represented about 14% of the total expenditures for construction projects that year. Clearly, the slow payment issue is a significant burden on the industry.
Matthew Calvano, along with co-founders Henry Bradlow and Francisco Enriquez, aimed to tackle these inefficiencies. In 2021, they founded Adaptive, a platform designed to streamline payment and accounting processes for general construction contractors. “The construction payment chain involves multiple layers, including banks, developers, general contractors, and subcontractors,” Calvano told TechCrunch. “We believe that this complex web, combined with the lack of financial expertise in most small- and medium-sized construction businesses, is the primary driver of the industry’s slow payments.”
Adaptive’s Automation Solutions
Adaptive recently secured a $19 million Series A funding round led by Emergence Capital. This funding will support their mission to automate financial management in the construction industry. The platform offers various workflow automations, including budgeting, expense tracking, accounts payable, and electronic payments.
One of the standout features of Adaptive’s product is its ability to handle different document formats. Customers can upload insurance agreements and payment requests in formats like SMS and PDF. The system then uses automations to take necessary actions, such as approving requests and budgets.
Calvano emphasized the role of generative AI algorithms in Adaptive’s solutions. “We’ve built several generative AI algorithms to automate the financial management and bookkeeping workflows unique to construction,” he said. Adaptive aims to eliminate the manual labor typically required to manage financials, often done through email, Excel, file sharing, and outdated project management software.
Competitive Landscape and Market Position
Adaptive faces competition from several other startups in the financial automation space for construction. Notable competitors include Briq, which also focuses on financial workflow automation, and Beam, a fintech company aiming to streamline payments, invoices, and receipts for contractors.
Another competitor is MakersHub, which specializes in deciphering accounts payable data for construction companies. Despite the competition, Adaptive has carved out a healthy business niche. The company boasts a customer base of more than 280 construction companies, ranging from custom homebuilders and commercial general contractors to real estate developers.
Adaptive’s near-term growth strategy focuses on acquiring subcontractor clients. Calvano explained that they are developing tailored products specifically for this segment.
Exploring Future Revenue Streams
Currently, Adaptive generates all its revenue through software sales. However, the company is exploring new revenue streams, including integrated payments, insurance, and payroll functions. “Given that we manage our customers’ entire financial workflows, there are numerous opportunities for embedded finance,” Calvano said. This approach is especially targeted at small- and medium-sized businesses, which often lack comprehensive financial services.
Andreessen Horowitz, Definition, Exponent, 3kvc, Box Group, and Gokul Rajaram also participated in Adaptive’s Series A funding round. With this round, the startup’s total funds raised have reached $26.4 million.
A portion of these funds will be used to expand Adaptive’s workforce. The company plans to grow its New York-based team from 29 to 45 employees by the end of the year, according to Calvano.
Challenges and Opportunities in the Construction Industry
The construction industry is ripe for innovation but comes with its set of challenges. One of the primary hurdles is the industry’s reliance on outdated methods for financial management and bookkeeping. Many companies still use manual processes that are time-consuming and prone to errors.
However, the opportunities are significant. With the adoption of automation tools like those offered by Adaptive, construction companies can drastically reduce the time it takes to approve payments and manage accounts. This not only speeds up the payment process but also reduces administrative costs.
“We see a huge market opportunity in helping SMBs in the construction industry,” Calvano noted. By focusing on small- and medium-sized businesses, Adaptive aims to fill a gap in the market that larger financial services companies often overlook.
The Role of AI in Transforming Construction Payments
Artificial Intelligence (AI) plays a crucial role in Adaptive’s strategy. The company’s use of generative AI algorithms sets it apart from manual and semi-manual competitors. These AI tools automate tasks that would otherwise require significant human effort and time.
For example, the AI can automatically scan and approve payment requests, track expenses, and even manage budgeting. This level of automation significantly reduces the room for human error, ensuring that financial processes are not only faster but also more accurate.
Calvano stated, “Our primary competitor is the manual labor required to manage financials, typically supported by email, Excel, file sharing, and the financial features of legacy project management software.” By leveraging AI, Adaptive aims to offer a more efficient and reliable solution for construction companies.
Series A Funding and Future Plans
The $19 million Series A funding round marks a significant milestone for Adaptive. Led by Emergence Capital, the round also saw participation from other notable investors, including Andreessen Horowitz, Definition, Exponent, 3kvc, Box Group, and Gokul Rajaram.
With the new funding, Adaptive plans to expand its offerings and explore new revenue streams. One of the immediate goals is to tailor products specifically for subcontractors, a segment that Calvano believes holds significant growth potential.
In the medium term, Adaptive plans to introduce integrated payments, insurance, and payroll functions. This expansion will allow the company to offer a more comprehensive suite of financial services, further cementing its position in the market.
Expanding the Team
A portion of the Series A funds will be allocated to workforce expansion. Adaptive aims to increase its New York-based team from 29 to 45 employees by the end of the year.
This growth is expected to support the company’s efforts in developing new products and enhancing existing ones. By expanding the team, Adaptive aims to accelerate its innovation and better serve its growing customer base.
Calvano explained that the additional staff will play a crucial role in executing Adaptive’s vision and scaling the business to new heights.
In conclusion, Adaptive is revolutionizing the construction industry by tackling the persistent issue of delayed payments. Their platform uses advanced automation and generative AI algorithms to streamline financial processes.
As Adaptive continues to innovate and expand its offerings, it holds the potential to significantly impact small- and medium-sized businesses, making financial management more efficient and reliable.
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