Human composting and timber marketplaces: Talking ‘industrial’ VC with investor Dayna Grayson


Image Credits: Construct Capital

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, has been focused on comparatively boring software that can transform industrial sectors. Her mission doesn’t exclude AI, but it also doesn’t depend on it.

Construct recently led a seed-stage round, for example, for TimberEye, 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 in 2021.

Another Construct deal that sounds less sexy than, say, large language models, is Earth, a startup that’s centered around human composting, turning bodies into “nutrient-rich” soil over a 45-day period. Yes, ick. But also: It’s a smart market to chase. Cremation today accounts for 60% of the market and could account for upward 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; as people focus more and more on “greener” solutions across the board, Earth thinks it can attract a growing number of those customers.

Dodging some of the AI hype doesn’t 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 Construct’s headquarters in Washington, D.C. Among their challenges is timing. The pair launched their first three funds amid one of the venture industry’s 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’re barreling toward the future and – seemingly successfully – dragging some staid industrial businesses along with them. Excerpts of our recent chat, edited for length, follow.

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?

The quick news is they didn’t impact too many of our portfolio companies by virtue of the fact that we really deployed the first fund into seed companies – fresh companies that were starting in 2021. Most were getting out of the gate. But [generally] it was exhausting and I don’t think those rounds were a good idea.

One of your portfolio companies is Veho, a package delivery company that raised a monster 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.

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’t 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.

These things never move in a straight line, of course. What’s 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.

With venture capital, we’re not private equity investors, we are not control investors. Sometimes we’re 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’re not control investors, nor do we plan to be control investors. So it’s really on us to provide the value that our founders need.

I think there was a time, especially in the pandemic, where VCs advertised that ‘we won’t be overly involved in your company – we’ll be hands off and we’ll let you run your business.’ We’ve actually seen founders eschew that notion and say, ‘We want support.’ They want someone in their corner, helping them and aligning those incentives properly.

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?

One of the things that hasn’t gone away from the pandemic days of rushing to invest is SAFE notes [‘simple agreement for future equity’ 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 – capitalized rounds versus notes.

Both founders and investors, ourselves included, are open to SAFE notes. What I have noticed is that those notes have gotten ‘fancier,’ including sometimes side letters [which provide certain rights, privileges, and obligations outside of the standard investment document’s terms], so you really have to ask all the details to ensure the cap table isn’t getting overly complicated before [the startup] has [gotten going].

It’s 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], ‘Even though this isn’t a capitalized round, we want to be on the board,’ That’s not really what SAFE notes are designed for, so we tell founders, ‘If you’re going to go into all of that company formation stuff, just go ahead and capitalize the round.’

Construct is focused on “transforming foundational industries that power half the country’s GDP, logistics, manufacturing, mobility, and critical infrastructure.” In some ways, it feels like Andreessen Horowitz has since appropriated this same concept and re-branded it as “American Dynamism.” Do you agree or are these different themes?

It’s a little bit different. There are certainly ways that we align with their investment thesis. We believe that these foundational industries of the economy – some call them industrial spaces, some call them energy spaces that can incorporate transportation, mobility, supply chain and decentralizing manufacturing – need to become tech industries. We think that if we’re successful, we’ll 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’s the vision that we’re investing behind.

We’re starting to see some older industries getting rolled up. A former Nextdoor exec recently raised money for an HVAC roll-up, for example. Do these types of deals interest you?

There are a number of industries where there are existing players out there and it’s very fragmented, so why not put them all together [in order to see] economies of scale through technology? I think that’s smart, but we’re not investing in older world technology or businesses and then making them modern. We’re more in the camp of introducing de novo technology to these markets. One example is Monaire 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. 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 — understand the complexities and the history there —  and also understand how to sell into them from a software and technology perspective.

More TechCrunch

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

22 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

23 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck