Five years after making an initial investment in Icon, an Austin-based company pioneering 3D-printed homes, Atlanta investor K.P. Reddy remains bullish on Central Texas’ growth potential.
He leads Shadow Ventures, an investment firm focused on construction technology. It has committed more than $20 million in 23 early-stage investments into companies that have an impact on the built environment, many of which incorporate sustainability. The capital is usually dropped in $1 million to $1.5 million increments.
Shadow was part of the $9 million seed funding round announced by Icon Technology Inc. in 2018. The 3D-printing company has gone on to raise hundreds of millions of dollars and was reportedly valued at nearly $2 billion in early 2022, although it also said earlier this year it enacted a "small number" of layoffs.
Shadow Ventures has also backed Austin-based Rabbet, which has developed a software platform for construction financing and in 2019 raised an $8 million series A round.
Reddy, who authored a self-published book on how to navigate the startup world, "What You Know About Startups Is Wrong," is confident Austin is poised for continued growth. He recently spoke with Austin Business Journal about his firm's interest in the Texas capital; his answers have been edited lightly for clarity.
Have you made any key observations about Austin?
I think Austin is in a really interesting spot. When you have companies like Tesla just attracting lots of talent, you will see people splinter off and start their own things. You get enough smart people in one place, you will see folks go do their own things and I think that is very interesting. Whenever you concentrate a lot of talent in one market, it spawns net new thinking.
How did you become interested in Icon?
They reached out to me, I think, predominantly, because of our firm’s background around construction and my background as a civil engineer. I think they were looking for an investor early on that actually understood concrete. They reached out through a mutual acquaintance to get some insights on things and I ended up visiting Austin.
What an Icon 3D-printed home looks like
What led you to invest in Icon?
We invest in companies that have defensible technology. We like to see a lot of R&D. We like to see the CTO, that's, you know, a pretty world-class type person, usually a Ph.D. type. On the market side, when we look at affordable housing, any new technology — if you can reduce the cost of construction, that's where affordability starts. The idea that they could do kind of a custom home at a lower price, I think takes it from being a house to a home. It was a great fit.
What do you see being done in Austin that is interesting to you?
Austin experienced a lot of growth. I think when you see rapid growth in any metro, that growth really brings to light the hairline fractures. Those hairline fractures all of a sudden become massive cracks. Whether it's traffic, pollution, available housing or housing prices — all of a sudden, it becomes magnified. When you're in markets like that, there's much more of an impetus to be innovative and try to solve these problems.
What makes you want to pull the trigger and invest in a company?
We want to see that they're building some real transformational technology, and Icon is a good example of that. I think we want to see that the founders are very passionate about solving the problem. The majority of my founders are first-time founders. Which we're fine with, as long as they are open to learning and actually care about learning.
What are the key challenges that the companies you invest in face?
I get disappointed when instead of solving the problem, we come up with workarounds. We need to have some patience to solve things well. Unfortunately, in the startup world, if you say you need to be patient, people look at you funny because it’s all about moving fast and breaking things. If you're going to create the next generation of fusion reactors please don’t move fast and break things.
I think we'll also see the unintended consequences of these things. One of the things we've been studying is EV vehicles are significantly heavier. How does that contribute to the aging infrastructure that we already have? How does that impact the aging roads and bridges when suddenly every car weighs twice as much? I don’t think we are thinking about that, but those are the things that we are going to run into.
Is there a specific quality that attracts investors?
I think people get really focused on founders' ability to attract capital. Attracting talent is actually more critical. I think one thing that Will Mitchell over at Rabbet and Jason Ballard [at Icon] have done is they've been very mission-oriented in attracting talent. I think Austin has factored into that. I do think the vibrancy of Austin has been a factor, especially for Icon, to be able to attract talent. When you are working in startups, you have to poach people because the best already have jobs. I think in order to do that, you have to really have a narrative behind beyond the company.
Is there anything else that really stands out to you right now?
I know the startup economy has been tough on people lately, but I am excited that we're all now starting to be more serious and solving serious problems. I don't think we need another food delivery app. I feel great about that. I mean, this stuff I'm seeing lately, it's just fantastic. We're in a cycle of these super smart people are not going to be attracted to business models that are necessarily easily funded, but will actually double down on solving real problems and trying very hard to solve real problems.
