A 2-year-old Cincinnati fintech quietly working in the commercial construction space has landed key financing backing from one of the city’s largest developers as it readies for its go-to-market launch.
Downtown-based Struxtion, which provides working capital to contractors and subcontractors, has raised a $5.5 million seed round led by Cincinnati-based North American Properties, a multifamily, mixed-use, office, student housing, hotel and retail developer. It’s a key backing that gives the young startup credibility and name recognition, Struxtion founder and CEO Gregg Lund said.
The investment will help with the continued development of Struxtion’s platform, which aims to remove the financial obstacles that many in the industry face in growing their businesses.
“Right now, more so than any other industry, subcontractors and specialty contractors are incredibly constrained by access to capital,” Lund told me. “The other thing we do, which I think is really powerful, is we create this movement around inclusive capital because of the way our system works.”
Lund, who has a background in commercial real estate and finance, founded Struxtion in 2019. He said it’s the result of frustrations he’s seen throughout his career in terms of the flow of capital in commercial construction.
For subcontractors, access to working capital is often their biggest constraint, he said. Banks generally don’t want to lend to subcontractors because of the downstream credit risk.
In essence, all the banking fundamentals he had learned in regard to more traditional businesses didn’t seem to apply in the construction space.
“It’s an unbanked market,” he said. “Subcontractors ultimately are the smallest player in value chain and they lay out all initial capital, and they are such a critical, essentially part of the day-to-day construction process. I got frustrated by that.”
Struxtion’s tech-based platform gathers information about a project to provide best possible pricing. It creates a customized rate that adjusts over time by rewarding reputation and performance. The company said it's easy to sign up, begin to borrow, view account activity, and manage additional requests on an ongoing basis by uploading newly submitted invoices.
Struxtion, which is currently a team of six, in addition to three full-time developers, spent the last several months building out its technology and executing a beta loan program, which included 25 separate transactions with customers.
As part of its go-to-market strategy, company is also working with general contractors and project owners to expand their contractor portfolio.
Lund said Struxtion’s solution is especially important because the industry is poised for a more than 40% workforce turnover within the next decade. Coupled with a 5% compounded annual growth rate over the next five years, there could be big gap between construction demand and construction supply.
“It’s really an institutional problem around what we’re going to see over the next 10 years,” Lund said. “As we started pulling back the layers, we recognize the problem we’re trying to solve is really much bigger than saying, ‘Is this subcontractor going to get a loan?’ As an industry, we should be helping subcontractors form today, so that they’re mature when this capacity change actually occurs.”
In addition to North American Properties, the startup counts Cintrifuse, a local startup catalyst group, Allied Construction Industries and the Associated Builders and Contractors, both trade organizations, as partners.
In terms of growth, Lund expects Struxtion to be in the vain of a typical fintech, with 20-30% monthly compounded growth.
Lund said several contractors are already on the platform.
“We’ve been a little bit cautious about not wanting to grow too quickly, but I think we’re fortunate that, as we originate the market, it will not be a challenge to capitalize those transactions,” he said. “I’m excited for Struxtion to continue to move ahead with our vision.”
