Despite being one of the largest industries in the global economy, the construction industry hasn’t kept up with technology’s advances. Construction companies procure over $250B in services from contractors each year, yet they rely on manual processes to allocate and manage contracts. This presents a large opportunity to digitize and optimize processes, leading to more projects and efficiencies for the small contractors that power the industry. Colombian startup Licify is seizing this opportunity by helping small businesses bid for construction contracts, speeding up payments in the industry, and underwriting loans through its digital platform.
In Latin America, procurement processes in the construction industry remain largely analog. Contractors — 95 percent of which are micro, small, and medium enterprises (MSMEs) — regularly make bids over the phone, via email, or even through letters. As a result, these processes tend to be opaque and heavily dependent on interpersonal relationships. This not only makes it harder for smaller contractors to secure new projects, and thus grow their businesses, but also makes it impossible to capture data that can verify contractors’ track records and capacity to take on new projects. Problems for MSME contractors don’t stop there, however. Once they win a bid for a project, they typically pay upfront for materials and labor to start construction, putting them in a vulnerable position as disruptions in their cash flow cycle will result in project delays.
To change this, Licify has launched a B2B procurement marketplace with embedded fintech offerings for small businesses in the construction industry. Accion Venture Lab is proud to partner with them on their journey to help construction MSMEs operate more efficiently and grow. We’re excited to invest in Licify as they:
Allow construction MSMEs to work on more projects, more often
Starting a project is particularly expensive for MSME contractors. Before they can even create an invoice, they need to pay for materials and human capital to execute a portion of the job. As a result, once a contractor secures a project, they often lay out large sums of money to kickstart it. Furthermore, given the unique risks inherent in construction, contractors are often unable to secure credit from banks and other MSME lenders to finance this initial cash outlay.
During conversations with contractors in Colombia, we found that this was one of the key pain points that prevented contractors from undertaking larger jobs, or working on additional projects, despite having the ability and capacity to complete them. One contractor recounted that he was forced to sell his own car every time he secured a contract, as this was the only way that he could obtain enough capital to pay for the drywall materials he needed to start working.
Through Licify’s platform, contractors can bid on projects tendered by construction companies, leveling the playing field to give them access to high-quality opportunities. Once a project is granted, Licify uses the data gathered on both the project and the contractor to advance payments and underwrite working capital loans. Through this access to capital, the amount of cash at hand no longer becomes a barrier to undertake a project and contractors can focus on execution.
Prevent cash crunches that disrupt projects
Once a project is started, cash flow cycles continue to be a challenge for MSME contractors. After issuing an invoice to the construction company, they typically wait two to four weeks to get paid. This can put them in a challenging cash flow position, as they rely on these payments to continue working on a project. Any delays or disruptions in the process puts their ability to maintain a project timeline at risk. In fact, cashflow delays were cited by Licify customers as the leading reason for project delays and cost overruns. In an industry where 80 percent of projects are delivered late and over budget, alleviating cash flow delays is a priority both for contractors and construction companies.
By plugging directly into the payment flow of construction projects, Licify provides contractors with flexibility on their payment schedules. As contractors finish a project, Licify can advance payments to better match their cash outflows, avoiding delays in payments to workers and enabling the purchase of additional materials. Licify then directly collects payments from the construction companies allowing contractors to focus on executing the project and not on managing multiple receivable schedules.
Modernize construction procurement technology
Licify is reinventing how contractors access construction projects. The platform connects builders with the best contractors for their projects by opening up bids to all qualified service providers. To do this, Licify’s marketplace presents contractors with ongoing construction projects to bid on. These are posted by builders, who can use Licify to compare potential contractors for portions of a project. This process provides construction companies with data that was previously difficult to obtain, such as a contractor’s operational bandwidth and track record with similar projects while allowing contractors to access new opportunities. This use of technology brings operational efficiencies for both sides of the market and democratizes access to high-quality opportunities.
Once Licify matches contractors to a project, it helps builders manage the payment flow to their small contractors with a suite of digital tools to oversee project progress and manage documentation. With projects often involving over a hundred contracts, Licify frees up valuable administrative time that could be better spent on other parts of a project. So far, this value proposition has resonated with the top-building companies in Colombia, with over 50 clients signing multi-year agreements and tendering contracts with a yearly value above $1B USD to small contractors.
Support small businesses across Latin America
Licify is consolidating its presence in Colombia and growing its payment and lending services in the region. Today, Licify has already registered over 16,000 small contractors on its platform who are generating over 2,500 bids per month on active projects. With this new funding, the company plans to expand into Mexico, where they have already secured their first client, in the near future. We believe Licify addresses a key pain point we’ve seen across the region, and we’re excited to work with Licify as they move into new markets.
This is Accion Venture Lab’s first investment in the construction tech industry. We feel confident working with a company with such a strong product-focused mindset and led by two industry veterans, Fernando Olloqui and Pedro Celia, who have worked as both builders and contractors. “We know that if we improve this supply chain development and SME development in construction, we’re going to have a huge impact,” says Fernando. We believe that Licify’s solutions to facilitate connections and alleviate key pain points for small businesses in this large industry represent a great opportunity to catalyze growth for a key segment of MSMEs, and we can’t wait to continue supporting them in this journey.
Hear more about Licify from founder Fernando Olloqui: